Compensatory Time Off

Being overworked to the point of being burned out is never a good thing. The contributions of employees to a business are crucial but this should not be a justification for employees being drained. After all, employers want healthy and happy employees. 

If you run a business, it’s easy to think that the best way to reward employees for overtime is to give them additional time back through compensatory time off. Though your intentions may be good, think again. There is a lot more to think about compensatory time off than you may expect. 

What is compensatory time off? 

Compensatory time off is also alternatively called “comp time”. It refers to the time off that employers give employees who worked overtime in place of paying them overtime wages. Overtime hours are essentially the number of hours worked beyond 8 hours in a single day or 40 hours in one week. If a company gives comp time to an employee, it means giving them vacation time instead of overtime pay. 

How is compensatory time off calculated? 

Before offering compensatory time off to eligible employees, it is essential to have a trusted tracking system to monitor the number of hours that an employee worked overtime. The tracking system may be through a timesheet or any other system. Any accrued time off should also be indicated on the employee’s pay stub for transparency. 

Most non-exempt public employees get time and a half for all overtime hours. This is the same guideline used for calculating compensatory time off. Let’s say your eligible employee incurs 5 hours of overtime. 

5 × 1.5 = 7.5

The employee should have 7.5 hours of compensatory time off.

It’s important to note that there are exemptions. While federal law does not dictate how to compensate exempt employees, it is always best to check state laws because their rules may differ. Furthermore, employees who work less than 40 hours per week do not need to be granted time and a half overtime pay. For example, if an employee only works a maximum of 30 hours a week and then works 32 hours in one week, the employer only needs to compensate the employee for 2 extra hours. 

Is there a cap on compensatory time off?

Yes, there is. According to federal law, the cap for compensatory time off is 240 hours which is 160 hours of work. In such a case that an employee accrues more than 240 hours of comp time, the employer must pay overtime for the extra hours worked. 

If an employee resigns before using their compensatory time off, the employer must convert this to cash and pay them.

Can compensatory time off be given to all employees? 

No, an employer cannot offer compensatory time off to all employees of the company. There are laws on comp time that may vary from state to state. 

According to the Fair Labor Standards Act (FLSA), employers in the private sector (or any non-government business) cannot give compensatory time off to non-exempt employees. These employees must be paid with traditional overtime hours. Generally, compensatory time off can only be given to non-exempt employees in the public sector. 

Private Sector

• Exempt employees CAN be offered compensatory time off
  • Exempt employees are not eligible for overtime pay. Offering comp time is not required but is under the discretion of the employer.
• Non-exempt employees CANNOT be offered compensatory time off
  • Non-exempt employees must be paid overtime which is 1.5 times the employee’s normal hourly wage.

Public Sector

• Non-exempt employees – CAN be offered compensatory time off

Let’s see an example: 

Company A is a private business where Mary works. Mary is a non-exempt employee whose hourly wage is $10. There is a lot of work to be done so Mary had to work extra hours. In one week, she worked a total of 50 hours, which means she incurred 10 hours in overtime.  

• Using this example, we know that Mary is entitled to 10 hours in overtime pay. 
• If Mary’s employer offers Mary additional time off instead of giving her overtime wages, this is a violation of the FLSA and is illegal.
• Mary must be paid 10 hours of overtime. Based on her hourly wage, Mary’s employer must pay overtime wages amounting to $150.

I own a private business. What if I offer compensatory time off to my non-exempt employees instead of paying overtime and they agree? Will this be okay? 

Even if the non-exempt employees agree to have time off instead of being paid for overtime, this is still not okay. Doing so is still a violation of the FLSA.