Are nonexempt employees working a compressed workweek and paid bi-weekly entitled to overtime in the week they work over 40 hours?

Generally speaking, yes, although there are a few exceptions. Per the Fair Labor Standards Act (FLSA), all hours worked over 40 in an established workweek must be paid at one and one-half times the regular rate of pay. Additionally, some states have daily overtime payment requirements of up to double the regular rate. Taking those requirements into consideration, most compressed workweeks would incur overtime during one of the two weeks of the pay period. One exception is found within the medical profession, which has a statutory exception for hospitals for the sick, aged or mentally ill (29 C.F.R. §516.23), often referred to as an 8/80 plan, to allow overtime to be paid either daily at any hours worked over eight in a day or bi-weekly, for any hours worked over 80 in a 14-day period, whichever is greater. State daily overtime pay requirements still apply, however, and need to be considered in the overtime calculations.

The other possible solution to avoid overtime pay obligations would be to permanently adjust the defined workweek. Let’s say your employees are working four nine-hour days Monday through Thursday, and one eight-hour day every other Friday, which would give them a 44-hour week the first week, and a 36-hour week the second. The FLSA requires that you pay overtime for any hours worked over 40 in a workweek, but it only defines “workweek” as a fixed and recurring period of 168 hours composed of seven consecutive 24-hour periods. If the workweek for the above schedule was established as Friday at noon to the following Friday at noon, then only 40 hours would actually be worked each workweek, and no overtime would be incurred for federal purposes. Of course, state daily overtime requirements would still apply and would need to be complied with.