What’s your policy on giving overtime-eligible employees comp time instead of paying them overtime
What Is Comp Time (or Compensatory Time Off)?
Comp time, short for compensatory time, is when employers compensate their employees for overtime hours with time off, instead of overtime pay. While comp time is a widespread practice, it is usually illegal for private-sector businesses (including private-sector nonprofit agencies) to compensate overtime-eligible (nonexempt) employees with comp time instead of overtime. These rules are housed under the Fair Labor Standards Act (FLSA).
EXAMPLE: John, a nonexempt employee, works 56 hours during one week. His boss tells him he can take two days off the following week in lieu of overtime pay for the 16 hours he worked in excess of 40. John’s boss could be exposing his company to a lawsuit.
Is Comp Time Legal?
A survey of 500 business owners revealed that almost 30 percent used comp time sometimes or regularly with nonexempt employees. Mykkah Herner, Modern Compensation Evangelist with PayScale, says, “The survey results don’t surprise me too much. In fact, in my experience, this number could be even higher, since not everyone is willing to acknowledge this practice in writing.”
Why? “For some employers, the rigidity of the FLSA overtime rules can feel restrictive. However, I’d encourage employers to consider the intent of the law: to protect employees in situations where managers and employers put employee safety at risk. Some employees luck out and have great and respectful relationships with their managers, but that doesn’t preclude the rest from needing real legal protections,” he adds.
Comp Time vs Overtime
Many employers (18 percent of those surveyed) offer nonexempt employees a choice between comp time and overtime, anticipating that some employees may actually prefer time off to overtime pay.
Unfortunately, the law is clear when it comes to the majority of private-sector employers (see below for the few exceptions!). Even if nonexempt employees do prefer comp time to overtime, the FLSA still mandates that they be paid overtime instead of granted comp time, even if the overtime is unauthorized.
Comp Time and the FLSA: Fair Pay for Hours Worked
At the heart of FLSA laws about comp time and overtime is the core purpose of the FLSA: to ensure fair pay for hours worked. Disturbingly, 17 percent of employers aren’t paying their nonexempt employees either overtime or compensatory time — another big no-no if overtime is being accrued. Mykkah says, “It’s completely reasonable for employers to set policies that require employees to get manager approval prior to accruing overtime, or even expressly prohibit overtime altogether.” However, he cautions, “While employers may have enforceable policies restricting overtime, if those overtime hours do occur — as they inevitably will at some point — employers are always required to pay overtime to nonexempt employees.”
Government Employees and Comp Time
Under a few circumstances, state and government agencies may legally use comp time. But the following conditions must be met:
- An agreement is arranged with union reps, if applicable.
- Employee and employer must agree to the comp time before the extra hours are accrued (not after!).
- Comp time must be given at a rate of time and half. In other words, if Mary works 10 hours of overtime, she is entitled to 15 hours of compensatory time off.
- The comp time must be taken during the same pay period that the extra hours were worked.
State Exceptions for Private-Sector Comp Time
There are a few states that have laws allowing employees at non-governmental jobs to use comp time instead of overtime. For example, Washington state allows comp time if the employee specifically agrees to it.
But be forewarned: The intersection of state and federal law is notoriously fraught, and as a general rule, the Department of Labor (DOL) will enforce the more stringent of federal or state labor laws. Consult an employment law specialist and reach out to your state’s government agency to confirm your business’s policies when it comes to comp time and overtime.
Comp Time for Exempt Employees
Employers in the private sector are legally allowed to offer exempt employees comp time, under FLSA section 207(o). However, comp time is by no means required for exempt employees. Under the FLSA, exempt employees are not eligible for overtime pay, so any comp time offered for hours worked in excess of 40 per week falls at the sole discretion of the employer. If you choose to offer comp time to exempt employees, it’s important to create a policy that governs how and when comp time will be offered, so the benefit is applied consistently.
Penalties for Comp Time Violations
Rules about compensatory time are enforced by the DOL. And penalties can be extremely steep for both knowing and unknowing violations:
- Willful violators can be fined up to $10,000.
- Back wages and liquidated damages (twice the amount of back wages owed).
- Legal fees for employees if a lawsuit is successfully prosecuted.
- Repeat offenders face jail time and civil money penalties up to $1,000 per infraction.
- Additional fines for retaliating or discriminating against employees who file complaints or blow a whistle on wage and hour violations.
And that’s not all.
Under the FLSA, it’s also illegal to ship goods that have been produced while violating minimum wage laws, overtime laws, or compensatory time regulations.
Logistical Challenges of Comp Time
Even in cases where comp time is legally permitted, there are some real challenges in implementation. Mykkah says, “Put it this way: Often, work comes in waves. When employees are riding the crest of the work wave, they don’t also have time to go surfing. That’s a problem, though, because almost without exception, comp time must be taken in the same pay period in which it was accrued.
“In most cases that I’ve seen, employees who receive comp time can rarely use it because they’re so busy doing their job (hence the overage of hours in the first place). So there can be a significant cost to comp time in terms of retention, engagement, and motivation.”
Comp Time and Morale
While it’s important to consider the legal aspects of comp time, business owners and managers should also consider the impact on morale.
At the end of the day, it’s not just about legal versus illegal. It’s about connecting the dots between compensation and organizational culture.Mykkah Herner
Modern Compensation Evangelist with PayScale
“And it’s about making sure that the way that you pay your employees aligns with the stories you’d like people to tell about your organization,” Mykkah says. “Organizations should be wary of the message they are sending employees through the choices they make when it comes to pay. Having employees jump through elaborate hoops to avoid overtime pay, or asking them accept comp time in lieu of pay, may send employees the message that the organization values their efforts, but only when it is convenient and affordable for the organization.”
*Methodology: TSheets time tracking commissioned Google Surveys to poll 500 business owners throughout the U.S between January 28 and January 29, 2017. The respondents are all members of Google’s pre-qualified audience panel of business owners.
Please refer to a professional HR or legal advisor regarding specific requirements about comp time, the FLSA, and how they impact your business. TSheets does not recommend particular practices and leaves those decisions to the discretion of your organization.