Comp Time Vs. Overtime: Which Should You Offer Employees?

On May 8, 2013, the U.S. House approved a bill that would allow private-sector employees to take compensatory or comp time instead of overtime pay when they work more than 40 hours a week. Though the bill is said to have little chance of passing in the Senate, it has raised questions about the legalities and merits of offering comp, or compensatory time, in lieu of overtime pay.

For now, employers must comply with the rules as they are laid out by the Fair Labor Standards Act (FLSA). If you’re not sure what those rules comprise, here are some guidelines.

Non-exempt employees must be paid overtime.

Rules for overtime pay depend on whether employees are federally classified as exempt or non-exempt employees.

According to the FLSA, an employer is required to pay non-exempt employees one and a half times their regular rate of pay for hours worked over 40 in a single work week. An employer cannot and should not pay comp time in lieu of overtime pay even if the employee requests it.

So, for example, if Pam – a non-exempt employee who makes $20 an hour – works 42 hours, her gross pay for that week would be $860 ($800 for her regular 40 hours at $20 an hour and $60 for the two extra hours she put in at $30 an hour.)

Don’t forget to check your state laws, too.

While FLSA covers the federal law, your state may have additional regulations. For example, in California, overtime is required when employees work more than 8 hours in a day, not more than 40 hours in a week.

Non-exempt is not the same as “hourly”. 

There is a misconception that employees that are paid by the hour are the same as non-exempt employees. Using the same logic, some people think salaried employees are automatically considered non-exempt, but neither of those beliefs is necessarily true.

Exempt and non-exempt employees are determined by how their job functions are classified, not how they’re paid. A salaried employee can be eligible for overtime and protected by FLSA, if his or her job is also classified as non-exempt.

If you offer comp time at all, offer it sparingly.

Though comp time can be popular with employees, it may not be the best reward for you to offer. Not only is it illegal to offer to non-exempt employees in exchange for overtime pay, but it can cause problems even when offered to exempt employees. For example:

  • If comp time is offered regularly, employees may come to expect it every time they work overtime.
  • It can lead to wage and hour claims and disputes over whether employees are truly exempt or non-exempt.
  • Some employees may take advantage of the offering – for example, working overtime unnecessarily so they can get a day off in the future.
  • If an employee has saved up a lot of comp time and then quits, do you need to pay for those banked hours?

If you do offer comp time, make sure you cover the rules with a strict and stringent company policy. Also make sure comp time is used as an occasional reward, not an hour-for-hour overtime exchange.

What you can do instead of comp time.

Get creative. Your employees are one of the most valuable assets your company has and it is to your benefit to make them happy and productive. If comp time is seen as a reward, there are other ways you can show your appreciation to your staff, such as:

  • Rearrange workloads, add part-time employees or outsource projects so employees don’t have to work as much overtime.
  • Offer an additional holiday or more paid time off.
  • Try to avoid employee travel over weekends or after normal business hours.

There are many ways you can make your employees happy without exposing yourself to liabilities and problems with the Department of Labor. Comp time should probably not be one of them.

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