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
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.