When Overtime Can be Offset

Nobody likes paying overtime but everybody likes receiving overtime.

Recently, a company tried to avoid paying overtime by offsetting it with paid

lunch breaks in Smiley v. E.I. DuPont De Nemours & Co., 839 F.3d 325 (3 rd

Cir. 2016). Their employees were required to be on site before and after

their shift for between 30 and 60 unpaid minutes per day. The company

provided paid breaks throughout the day which exceeded the amount of the

unpaid time at the beginning and end of the day. These paid breaks were

included in their compensation when calculating their regular rate of pay.

The Fair Labor Standards Act (“FLSA”) requires that employers pay their

employees for all hours worked. Lunch breaks may be paid but are not

required to be. Paid lunch breaks may be considered hours worked,

depending on whether the parties agreed to treat them as such.

Compensation cannot offset overtime when there is already an agreement to

treat noncompensable time as hours worked and the compensation is

included in the regular rate of pay.

The employees in Smiley sued the employer (“DuPont”) for failing to pay the

employees overtime for the time spent before and after their shift. The

employees worked four 12 hour shifts per week which included one paid 30

minute lunch break and two nonconsecutive 30 minute breaks. The 12 hour

shift did not include the 30-60 minutes that employees were required to

spend before and after their shift changing in and out of their uniforms and

updating the next shift. This extra unpaid time would be overtime since it

would be in excess of 40 hours worked per week. DuPont claimed that

because it was not required to provide compensation for meal breaks, the

compensation from meal breaks could be used to offset the unpaid overtime.

The court held that all monetary compensation, except for the statutory

exclusions, is included in calculating the regular rate of pay. Compensation

that has already been paid to an employee may only be used to offset

overtime when that compensation is statutorily excluded from being used to

calculate the regular rate of pay. Meal periods are not included in the

statutory exclusions and thus are included in calculating the regular rate of

pay. The court found that since the meal breaks were included in the regular

rate of pay, the meal breaks could not qualify as extra compensation and

thus could not be used to offset the overtime due.

Three types of compensation are allowed to offset overtime. The FLSA allows

compensation to offset overtime when: (1) the employee has been paid at a

premium rate for working more than 8 hours in a day, more than the

maximum workweek under the FLSA or more than their regular working

hours; (2) when the employee receives a premium rate of not less than 1 ½

times their regular rate for working Saturdays, Sundays, holidays or regular

days of rest; and (3) when the employee receives a premium rate of not less

than 1 ½ times their regular compensation for work outside the regular

workday or workweek per their employment contract or collective bargaining


In order to offset overtime, the employer must at least already be paying

the employee at a premium rate. This way, a premium rate is offsetting a

premium rate. If the paid break were allowed to offset overtime, it would be

counted twice. The first time as regular compensation for hours worked, and

the second time as statutorily required compensation for other hours of

work. Also, the paid break compensation is already owed to the employee so

crediting the money would be withholding compensation that the employee

is entitled to by statute.

It can be difficult to determine when overtime needs to be paid and when it

can be offset. If you are paying an employee for their time, it probably

counts against your 40 hours for the week even if you were not required to

pay them for the time. Overtime can only be offset when it meets one of

those three statutory exclusions. If an employee is not exempt and you pay

them for more than 40 hours a week, the amount of time over 40 hours will

need to be compensated as overtime unless it meets one of the exclusions.

Teachers are exempt from overtime but this may apply to some of your

other employees.

If you have questions about when overtime needs to be paid or can be

offset, we recommend that you consult with your school district’s attorney or

call Karen, Steve or Bobby.