PTO Is Not Overtime

Can employers use paid time off instead of overtime pay?

Employers often look for ways to meet business needs while providing scheduling flexibility for employees. However, the law is clear that paid time off (PTO) cannot be used as a substitute for paying overtime.

Under the federal Fair Labor Standards Act (FLSA) and Michigan wage laws, non-exempt employees must receive overtime pay at 1.5 times their regular rate for all hours worked over 40 in a workweek. If an employee works more than 40 hours in a week, those extra hours must be paid as overtime wages — an employer cannot “offset” that obligation by giving the employee PTO instead.

Example: If a non-exempt employee works 45 hours in a week, paying the employee for only 40 hours and awarding five hours of PTO would be unlawful. The five extra hours must be paid at the overtime rate.

Although PTO cannot replace overtime pay, it can legitimately be used in other circumstances, including:

• Planned Time Off — Employees can use PTO for vacations, personal days, or scheduled absences to the extent permitted by company policies.
• Unplanned Absences — PTO may cover sick days, family emergencies, or other unexpected absences to the extent permitted by company policies.
• Supplementing Short Weeks — If an employee works fewer than 40 hours in a week, PTO can be applied to bring their total paid hours up to their regular schedule (but it will not turn a short week into an overtime week).

Keeping these boundaries clear helps avoid wage-and-hour violations and ensures employees receive both the wages and the leave benefits to which they are entitled.

If you’d like help reviewing your policies or have questions about compliance with overtime or PTO rules, give us a call at 248.477.6300.