A California employer claims to use something called "The Compensation Hours (or Hour's) Method" for non-exempt employees overtime calculation, and that this method is a legitimate accounting practice guaranteed by their CPA. It is also spelled out in their "At Will" employment agreement.

This highly suspicious method purports to be "in accordance with California Labor Laws" and works out in practice is that overtime (more than 40 hrs/wk) worked in a prior week during the same pay period is adjusted back to regular time in the next week if fewer than 8 hrs/day average are worked in the next week or reported over the regular bi-monthly pay period. So, if an employee works 42 hours in one week, they have 2 hours of potential OT for the pay period, but if they work just 38 hours in the next week during the same pay period, no overtime is calculated or paid. The 2 hours OT in the first week in this example revert to regular hourly pay.

Doesn't California Wage and Hour Law hold that each hour (or fraction thereof) more than 40 hours totaled during a work week has to be calculated and paid as overtime regardless of how many hours are worked in the previous or next work week? Although I am familiar with OT reverting to regular time adjustments during the same week as a voluntary, non-coercive, flex-time contingency, I have never heard of OT take-backs or recalculation back to regular time over successive weeks.

Has anyone else out there ever heard of this method? Any comments or advice would be welcome.

Comp time.

Not legal in the private sector anywhere in the United States, let alone in California.

The employer needs to get its money back from the accounting firm.

I must agree with ScottB.

§ 778.104 Each workweek stands alone.

The Act takes a single workweek as its standard and does not permit averaging of hours over 2 or more weeks. Thus, if an employee works 30 hours one week and 50 hours the next, he must receive overtime compensation for the overtime hours worked beyond the applicable maximum in the second week, even though the average number of hours worked in the 2 weeks is 40.

This is true regardless of whether the employee works on a standard or swing-shift schedule and regardless of whether he is paid on a daily, weekly, biweekly, monthly or other basis. The rule is also applicable to pieceworkers and employees paid on a commission basis. It is therefore necessary to determine the hours worked and the compensation earned by pieceworkers and commission employees on a weekly basis.

This is a federal requirement, which I believe CA must follow, as well a the rest of the US.

It's interesting to note that California DOES have a provision for "comp time" which is exhaustively described in Section 204.3 here:
http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&group=00001-01000&file=200-243

However, since Federal law doesn't allow it for employees of non-public entities (i.e., governments), and this section sounds an awful lot like the provisions for comp time allowed for government employees, I wonder whether this is even possible.

Barry, Michael?

exempts may be given compensatory time off.

Yeah, I know, Villain, but what about nonexempts?

Pattymd: However, since Federal law doesn't allow it for employees of non-public entities (i.e., governments), and this section sounds an awful lot like the provisions for comp time allowed for government employees, I wonder whether this is even possible. Barry, Michael?

Labor Code 204.3 has very limited application - potentially only to those employees who work more than 8 hours a day, but less than 40 hours per week, for the very reason Pattymd noted above: federal law does not allow it.

Cautionary Note: By its own self-limiting terms, Labor Code 204.3 does not apply to employees who are exempt from receipt of overtime premium pay generally nor does it apply to any employee governed by Wage Orders 1, 3, 5, 8, 10, 13, or 14. That is alot of folks.