Understanding Comp Time: Guidelines for Employers

Understanding Comp Time: Guidelines for Employers

Compensatory time off, or “comp time,” is often misused by employers who don’t understand Fair Labor Standards Act (FLSA) laws. As a very specific type of compensation, financial and HR professionals need to understand how comp time works. This comprehensive comp time guideline helps you understand the rules for salaried, exempt, and hourly employees and the possible consequences of poor compliance.

What Is Comp Time?

Compensatory time allows employers to provide employees paid time off to account for hours worked beyond their regular schedule. Comp time is commonly used as part of a regulated compensatory policy for flexible work scheduling but can also be used case-by-case to manage unexpected scheduled changes.    

What is a comp day?

A comp day refers to a day an employee takes off when they have accumulated enough hours of overtime.

What is travel comp time?

Travel comp time is compensatory time off for travel earned when an employee’s work requires work away from their daily workplace, and this work time is not compensated via other means.

Comp Time vs. Overtime – What’s the Difference?

Although both comp time and overtime compensate employees for extra hours worked, comp time is paid out in hours off, while overtime is paid in dollars. When an employee works over 40 hours in a week, they are entitled to either earn time and a half pay for every hour over 40 hours or time and a half in hours off.

Comp time for exempt employees

However, not all employees qualify for comp time. Only exempt workers qualify, which in most cases are government or salaried employees. In fact, government employees are the only employees who can legally be offered comp time in lieu of overtime unless state laws allow otherwise. 

FLSA Comp Time

According to the Code of Federal Regulations, Compensatory time off is “paid time off the job which is earned and accrued by an employee instead of immediate cash payment for employment in excess of the statutory hours for which overtime compensation is required by section 7 of the FLSA.” 

The rules governing time off require government employers to provide comp time at a rate not less than one and one-half hours for each hour of employment for which overtime compensation is required in accordance with section 7. Furthermore, comp time, in lieu of paid overtime, is limited to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency. It is illegal for private sector employees to use time off in lieu of pay.

Employers must adhere to the guidelines based on maximum accrual limits, documentation of hours and use, and deadlines to use comp time within a specified timeframe. For example, limits on the total number of comp hours an employee can accrue is 240 for most salaried workers or 480 hours for workers such as firefighters and law enforcement officers. This adds further restrictions to comp hours as the 480-hour limit on accrued compensatory time can’t represent more than 320 hours of actual overtime worked, and the 240-hour limit represents not more than 160 hours.

Comp Time for Exempt vs. Non-Exempt Employees

Nonexempt employees are hourly workers entitled to receive overtime when they work over 40 hours in a week in accordance with the FLSA. In this case, it is illegal to offer private employees comp time. Exempt employees are salaried employees who are ineligible for overtime pay or comp time. This is because their salary is intended to cover extra work expected in typical salaried roles. However, although not required by law, as an employer, you have the right to offer time off to salaried workers as a reward for their hard work.

Use of Comp Time in the Public vs. Private Sector

The U.S. Department of Labor (DOL) does not allow comp time for nonexempt employees in private-sector employment. Comp time is limited to public agencies at both state and local levels. However, as mentioned, private-sector employers can offer time off as a reward for salaried employees. In this case, it is important to avoid using the term “compensatory time,” as this is a legal term used specifically in the public sector. Many companies adopt terms such as flex time or personal days to identify this form of compensation.

State Exemptions for Comp Time

Despite the above information, some states allow private sector comp time for salaried employees in lieu of overtime as long as the employee agrees. However, this can open employers up to possible lawsuits should an employee leave the company, be fired, or change their minds and expect to be compensated with extra pay. Because of this, it is imperative to understand state laws such as:

• Industries: Some states might allow comp time for specific industries, while states like California ban comp time completely.
• Accrual and usage limits: Different maximums might apply, such as New York’s 240/30-day maximum.
• Employee consent: Some states forbid comp time in the private sector, while others, like Minnesota, allow it if there is a transparent written and signed agreement.
• Conversions: How hours are converted is also often regulated by states. For example, in Washington, employers must convert unused hours to cash after two years.
• Collective bargaining agreements: Comp time rules might be governed by collective bargaining agreements in some states, outlining comp time usage and accrual.

Penalties for Comp Time Violations

Some possible consequences of comp time violations include:

• Fines of up to $10,000
• Mandatory payout based on twice the amount of back wages owed for unpaid overtime
• Legal fees for employees out of pocket due to lawsuits
• Jail time for repeat offenders
• Civil money penalties of up to $1,000 per infraction

When is Comp Time a Good Idea?

If your state allows comp time, it is essential to develop a policy and ensure you adhere to state laws. This might include the following:

• Creating terms and conditions for comp time
• Having new employees read and sign the policy indicating they accept time off in lieu of pay as part of your onboarding process
• Being clear at all levels how your policy works, when it applies, and how hours are incurred and used
• Using automated time tracking to ensure an accurate record is kept of all overtime to accrue hours and determine compensation time owed
• Tracking employee use of comp hours, especially in states where it is required to convert hours into pay after a certain period
• Remote time tracking for hybrid workplaces
• Leveraging a management approval system to avoid fraud and approve hours from anywhere to avoid disruption to operations

Applying comp time legally is easier when you have software to create a streamlined onboarding process to share company policies and track hours and overtime accurately. This ensures your comp time policies remain transparent and that hours are tracked to ensure employees receive the hours and compensation they are entitled to.
 

About the Author

Kayla is the Marketing Manager at Paypro Corporation overseeing all inbound and outbound marketing and sales efforts. She has 7+ years of experience working within the B2B and SaaS based solutions space and thrives on creating messaging and campaigns that introduce products and services to those who need them most.