A Simple Guide To Comp Time And How To Use It

What is Comp Time
7
min read
November 9, 2021

What is comp time, exactly? Compensatory time refers to the practice of compensating employees with paid time off (PTO) rather than overtime pay for hours worked above 40 in a workweek.

Let's take Tim as an example. Tim works in a grocery store, and it was a particularly busy week as people were gearing up for a three-day weekend. Tim worked an extra 10 hours that week. Instead of getting monetary compensation for those overtime hours, Tim would like paid time off to complete some personal errands.

To calculate how much paid time off Tim is owed, you would multiply 10 hours by 1.5, which equals 15 hours. Essentially, Tim will receive nearly two full days off — which he will be paid for — to use as he pleases.

Comp time is calculated by multiplying 1.5 times overtime hours worked.

1.5 x Number of Overtime Hours Worked = Comp Time

But can you do that in all cases and for all types of employees? The answer is no. There are specific situations in which you can use comp time. They depend on the type of business that you’re running, the employee’s status, and the state in which you’re located. Let's take a look at when you can use comp time, and some important considerations you'll need to keep in mind.

Is Comp Time Legal?

The Fair Labor Standards Act (FLSA) establishes the federal rules that employers in the U.S. have to respect in relation to employees. It covers terms like hours worked, minimum wage, and overtime pay, among others. The FLSA also sets the boundaries for using compensatory time off instead of overtime.   


The use of comp time is also regulated on the state level, with rules diverging between states. 


The legal use of compensatory time depends on the following factors:

Comp Time For Exempt vs Non-Exempt Employees 

The FLSA regulates the handling of wages and hours for non-exempt employees. They are entitled to minimum wage and overtime pay. Typically, they are paid by the hour, but may also be salaried employees. Being non-exempt rather depends on the exact duties of the person. Often, workers in construction, maintenance and services are considered non-exempt. 


According to the FLSA, compensatory time off is not legal for non-exempt employees working at private companies. They have to receive pay for any hours they have worked above the 40-hour work week. The overtime rate has to be equal to 1.5 times the regular rate of pay.  


The other type of employees are called exempt, also known as salaried workers. They typically include executives, managers, and other specific professionals. 


The FLSA does not require employers to pay overtime hours for exempt employees. However, employers may choose to voluntarily do so. They also have the freedom to offer comp time instead. If an exempt employee leaves the job before using their accrued compensatory time off, it is not legally required to pay the unused time. 

Private vs Public Sector Employees

While using comp time in the private sector is not permitted for non-exempt employees, the practice is legal and more common in the public sector


Federal, state, and local government agencies are allowed to offer comp time to their employees in lieu of overtime pay. Many positions in public organizations are considered non-exempt and thus fall under the FLSA’s rules about overtime. Nevertheless, such government employees may receive comp time. 


In offering compensatory time off, public bodies need to adhere to strict rules. They include:


In addition, there are restrictions to the number of comp time hours that different types of public employees can accrue. For most of them, the limit is 240 hours. For law enforcement, fire protection, emergency response and seasonal activities, it is 480 hours. 

States Allowing Comp Time In The Private Sector

As states have additional laws regarding wages and overtime pay, some of them permit the use of comp time in the private sector for businesses not covered by the FLSA.


Often there are contradictions between the rules set in the federal laws and the state laws, or between any of the overtime laws and labor union contracts. You are required to opt in for the stipulations that provide greater protection to your employees

Penalties For Illegal Use Of Comp Time

You can end up in a problematic situation if you fail to respect applicable state and federal laws regarding the use of comp time. Even if your employees push for this practice, you have to make sure that your company is bullet-proof in terms of potential lawsuits. 


The U.S. Department of Labor is in charge of overseeing issues with overtime pay and comp time. Among the penalties that it can enforce on you in case you’ve breached the law are:

Is It Better To Offer Comp Time Or Overtime Pay?

Employers:

A comp time policy can benefit your bottom line by helping you avoid overtime premiums. It can also give employees the time to attend to personal matters, without hurting their pocketbooks. And as you may know, flexibility bodes well for employee job satisfaction because it encourages the ever-essential work-life balance.

One downside to offering comp time is that it can lead to disputes with employees, particularly around whether they are truly exempt or non-exempt. Another challenge is managing expectations around comp time. Employees may come to expect comp time whenever they work overtime, and could put in extra hours unnecessarily in order to get those days off.

What it comes down to? Having a solid comp time policy is essential, both for your business and for your employees. It ensures fairness and transparency in offering this option for compensating overtime hours, as well as promotes a healthy company culture. Make sure employees and new hires receive this policy in writing.

Employees:

If your employees are given a choice between comp time and overtime pay, which one will they choose? Employees deciding between the two, might consider:

Encourage your staff to discuss any questions with you, so they can be confident they're making a fully informed decision, and to seek the help of tax and HR professionals if they have further questions.

How To Use Comp Time In Your Business

Let’s wrap it up: when is it legal to use comp time?


You can offer comp time instead of overtime pay to your employees if:


Even if your employees prefer and ask for comp time instead of overtime pay, you are not legally allowed to provide them with it in situations different than the ones listed above.


If the law permits you to use compensatory time off, it’s important to set rules for applying it in advance.

Get Help With Your Payroll Needs

Handling payroll for your team can be a daunting task, and properly using overtime pay and comp time make it an even more challenging one. Luckily, Hourly, a time tracking and payroll platform, can help. 


Besides its time tracking solution, Hourly also provides you with great tools for handling payroll and workers’ comp. You can see a full overview of hours worked by each employee and the salary that is due to them so you can successfully run your business.


You can easily get started today with the Hourly app.

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