Exception for Employers Not Covered By the FLSA

You can offer CTO only if you are not covered by the FLSA and if you can take advantage of an extremely limited exception contained in the following Wage Orders:

• Wage Order 2, Personal Services Industry
• Wage Order 4, Professional, Technical, Clerical, Mechanical and Similar Occupations
• Wage Order 6, Laundry, Linen Supply, Dry Cleaning and Dyeing Industry
• Wage Order 7, Mercantile Industry
• Wage Order 9, Transportation Industry
• Wage Order 11, Broadcasting Industry
• Wage Order 12, Motion Picture Industry
• Wage Order 15, Household Occupation

If you meet these criteria, you can offer CTO at applicable overtime rates if the following four conditions are met:

• The CTO is provided pursuant either to a collective bargaining agreement or to a written agreement that you and your employee entered into before the work was performed. The employee may not accrue more than 240 hours of CTO.
• The employee requests, in writing, CTO in lieu of overtime compensation.
• You regularly schedule the employee to work no fewer than 40 hours in a workweek.2

You must permit the employee to use the accrued time within a reasonable period after making the request, if such use does not unduly disrupt your operations.3

To determine if you have granted a request to use CTO within a reasonable period, consider the following factors:

• The normal work schedule
• Anticipated peak work loads based on experience
• Emergency requirements for staff and services
• The availability of qualified substitute staff4

You must pay overtime to employees who accrue 240 hours of CTO for any additional overtime work hours.5 Keep accurate records reflecting CTO earned and used.

You must pay CTO at the employee’s regular rate when the employee receives payment.6 Upon terminating employment, the payment rate for unused CTO can be either the employee’s final regular rate or the employee’s average regular rate for the last three years of employment, whichever is higher.7

At the employee’s request, you must pay overtime in cash in lieu of earned CTO for at least two pay periods.8

Mandatory Use of CTO by Public Employees

According to a decision of the U.S. Supreme Court in Christensen, et al. v. Harris County, et al., public employers can require employees to use accrued CTO. The case stemmed from a policy adopted by the sheriff’s department in Harris County, Texas, which required employees to begin taking scheduled CTO to reduce the amount of time that had been accrued. The U.S. Supreme Court held that nothing in the FLSA or its implementing regulations prohibits public employers from forcing employees to use accrued CTO.9

Compensatory Time Off and Exempt Employees

CTO regulations do not apply to exempt employees. For more information on exempt versus nonexempt employees, see Exempt/Nonexempt. However, if you provide an exempt employee with formal CTO — hour-for-hour or day-for-day — you could invalidate that employee’s exempt status.

1. DLSE Enforcement Policies and Interpretations Manual secs. 6.1, 6.1.1

2. Lab. Code secs. 204.3(a) and (b)

3. Lab. Code sec. 204.3(e)(1)

4. Lab. Code sec. 204.3 (e)(3)

5. Lab. Code sec. 204.3 (c)(1)

6. Lab. Code sec. 204.3 (c)(2)

7. Lab. Code sec. 204.3(d)

8. Lab. Code sec. 204.3(e)(2)

9. Christensen, et al. v. Harris County, et al., 529 US 576 (2000)