Compensatory time, or “comp time,” is an alternative to overtime pay where employees receive paid time off instead of extra wages for overtime hours worked. But, not so fast. While this may seem like a useful tool for managing labor costs and scheduling, its legality depends on the type of business and the classification of employees. Employers must understand the rules before offering comp time to avoid legal issues.
The legality of comp time depends on whether an employer operates in the public or private sector:
- Public-Sector Employers: Under certain prescribed conditions, employees of state and local government agencies are allowed to offer comp time instead of overtime pay, but strict rules apply under the Fair Labor Standards Act (FLSA). Public employees can accrue comp time at a rate of 1.5 hours per overtime hour worked, similar to overtime pay calculations. Agencies should be familiar with this Comp Time Fact Sheet, provided by the U.S. Office of Personnel Management, which includes a number of specific rules. Some states impose additional restrictions on the use of comp time, so be sure to review state labor laws to ensure compliance.
- Private-Sector Employers: In most cases, private businesses cannot legally offer comp time in place of overtime pay. The FLSA requires that non-exempt employees receive monetary overtime compensation (time-and-a-half) for hours worked over 40 in a workweek.
If it can’t be used in most cases, what is the situation where it can be used in a private-sector employer scenario? There is one.
- Exempt Employees (aka Salaried Workers): Exempt employees, such as managers or professionals who meet specific salary and job duty requirements of being FLSA exempt, do not qualify for overtime pay. However, employers may offer additional paid time off, at their discretion. While it is not prohibited to use this as a reward, many experts caution against doing so. If you do, it is suggested that you use a term for this time off, other than comp time, such as personal time off or flexible time off, as compensatory time is a legal term.
A Bill was introduced in Congress and passed the House back in 2017, but died in the Senate. It was the Working Families Flexibility Act of 2017, and the intent of the Bill was to authorize employers to provide comp time to private employees. This was not the first time this concept was introduced in Congress, and we may see it pop up again.
In the meantime, employers should be cautious about using comp time incorrectly, as violations can lead to costly penalties and lawsuits. Key risks include:
- FLSA Violations: Private businesses that substitute comp time for overtime pay risk being fined or sued for unpaid wages and overtime violations.
- Recordkeeping Issues: Employers must track hours accurately, and comply with federal and state labor laws.
- Employee Dissatisfaction: If comp time is not managed properly, it can lead to employee complaints and reduced morale. If you are using comp time in the private sector for exempt employees, be sure you have a written policy that governs how and when it is used and includes the fact that it is a fair application of the policy.
By understanding and following the legal guidelines surrounding comp time, employers can avoid penalties and create fair workplace policies. Always consult legal or HR professionals if uncertain about these compensatory time rules.
While we make every attempt to ensure the accuracy and reliability of the information provided in this document, the information is provided “as-is” without warranty of any kind. Romeo Chicco or PayMaster, Inc. does not accept any responsibility or liability for the accuracy, content, completeness, legality or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional as federal, state, and local laws change frequently.
