Comp Time Vs. Overtime: Which Should You Offer Employees?
Normally, employees have a maximum number of hours they are supposed to work each week. Sometimes, however, employees may be required to work more hours than they are ordinarily supposed to.
This could be caused by things such as an overflow of work and looming deadlines.
In such cases where employees are required to work extra hours, the employees are supposed to be compensated for the extra time they put in.
Employees who work overtime without being compensated may sue their employers in a federal court.
Ideally, employers are supposed to compensate employees for any extra hours worked by providing overtime pay – this is where an employee receives monetary compensation for each hour worked in overtime.
Some employers, however, opt to compensate extra hours worked by employees by providing comp time.
Doing this allows employers to reduce their labor costs.
In some cases, however, offering comp time as compensation for extra hours worked can ensnare you in legal suits, and therefore, as an employer, you need to be vigilant about comp time policies.
So, which of the two should you offer your employees?
In today’s article, we are going to review all information relating to overtime pay and comp time and help you decide your best option when it comes to compensating employees for extra hours worked.
WHAT IS COMP TIME?
Compensatory time, also referred to as comp time or time off in lieu, refers to paid time off that is granted to employees in place of overtime pay.
In other words, instead of paying employees for the extra time worked, employers allow employees to take some paid time off from work, equivalent to the number of extra hours they worked.
Normally, employees are required to work 40 hours per week.
Therefore, if an employee works for more than 40 hours in a given week, comp time allows them to take time off to cover for these hours.
For instance, if Stacy works 48 hours in one work week, her boss might allow her to take a day off a day off work the following week instead of giving her overtime pay for the 8 extra hours worked.
According to the Fair Labor Standards Act (FLSA), compensatory time should be calculated at the same rate as overtime pay.
Since overtime pay should be calculated at a rate of one and half times the hourly pay for ordinary working hours, the same applies to comp time.
In our case above, Stacy would be entitled to 12 hours of comp time after working 8 extra hours. However, offering comp time is not always a good thing to do.
Depending on the classification of Stacy’s employment, her boss could actually be exposing the company to a lawsuit by offering Stacy comp time instead of overtime pay.
This is because there are some laws governing the use of comp time.
LAWS SURROUNDING USE OF COMP TIME
The laws governing the use of comp time depend on whether an employee is exempt or non-exempt, whether the employee works for the private or public sector, as well as the state in which they work, since some states have their own laws regarding comp time.
An employee’s status as exempt or non-exempt is determined by their job duties and responsibilities.
Federal vs. State Law
Federally, the eligibility of an employee to receive comp time in lieu of overtime pay is covered by the Fair Labor Standards Act, and will depend on whether an employee is considered exempt or non-exempt.
Generally, non-exempt employees within the private sector are not eligible for comp time and must be given overtime pay for all extra hours worked.
Still, some states have their own laws regarding the use of comp time.
For instance, there are a few states that allow employers within the private sector to give their employees comp time instead of overtime.
A good example is Washington State, which allows employers to offer comp time, provided the employee has specifically consented to the comp time.
California is another great example.
Just as with Washington State, employers in California can offer comp time instead of paid overtime, provided the employee has provided written consent to receiving comp time before working the overtime hours.
In order to be eligible to comp time, however, the employee should be a full-time worker. The comp time also needs to be calculated at the same rate as federal overtime pay.
Unlike other states, California considers overtime to be anything worked in excess of 8 hours in a day, regardless of what happens during the rest of the week.
For instance, if an employee works 12 hours one day, but then works 4 hours the next day, they will still have worked 40 hours in a week.
In most other states, such an employee is not eligible for overtime compensation, because they have not worked more than 40 hours in a week.
In California, however, they will be eligible for overtime compensation for the 4 extra hours worked during that one day of the week.
Depending on your state, there may be instances of conflict between federal and state laws regarding the use of comp time.
In such cases, greater priority is often given to whatever law provides greater benefit for the employee.
The same applies for labor union contracts. If the terms stated in the labor union contract provide greater benefits to the employee than federal or state laws, greater priority will be given to the labor union contract.
If, as an employer, you happen to find yourself in a position where there is a conflict between federal laws and state laws or labor union contracts, the best thing is to consult an employment law specialist or get in touch with your State Department of Labor to find out the best course of action.
Comp Time for Exempt Employees
Exempt employees are typically not covered by the Fair Labor Standards Act. Exempt employees are usually classified as those in executive positions, supervising two or more employees and with the mandate to hire and fire said employees, as well as those whose job duties require them to exercise independent judgment for more than half of their working time.
Exempt employees must be on a salary, rather than an hourly wage.
Examples of exempt employees include executives, managers, outside sales personnel, and professionals. Some computer and IT professionals are also classified as exempt employees.
Exempt employees are exempted from overtime laws, which means that employers are under no obligation to compensate them for overtime, regardless of the number of hours worked within a week. However, the employer can compensate them for overtime if he or she so wishes.
Since it is the employer’s discretion to determine whether and how to compensate exempt employees for overtime hours worked, the employer is at liberty to either offer overtime pay or comp time.
Since comp time is far much cheaper than providing overtime pay, most employers choose this route for compensating exempt employees for overtime hours worked.
If you decide to go down this route, it is imperative to formulate a policy to regulate how and when comp time will be given. This ensures that some level of consistency in applying this benefit.
In case an exempt employee leaves their position without using up any comp time hours they might have accrued, they are not entitled to receive compensation for the unused time.
It is the discretion of the employer to decide whether to compensate them for this time or not.
Comp Time for Non-Exempt Employees
Under the Fair Labor Standards Act, non-exempt employees are those that are entitled to a minimum wage and overtime pay.
These employees must earn $455 or less per week and must work under the direct supervision of someone else. Non-exempt employees are more common in employment sectors such as maintenance and construction.
According to the FLSA, non-exempt employees working within the private sector must receive overtime pay for every hour worked in excess of the regular 40 hours per week.
The overtime pay should be calculated at a rate of one and a half times their usual hourly rate.
For instance, if Stacy, who makes $20 per hour, works for 48 hours during one week, he gross pay for the week should be $1040 ($800 for the regular 40 hours at the usual hourly rate of $20, plus $240 for the eight extra hours at an hourly rate of $30).
Since the FLSA states that any non-exempt employee should receive overtime pay for any extra hours worked, it is illegal for employers in the private sector to offer non-exempt employees comp time in lieu of overtime pay.
The federal definition of overtime is any hour worked in excess of 40 hours in a week. Like we saw, however, some states, such as California, define their overtime as any amount of time worked in excess of 8 hours per day, rather than the amount of hours worked per week.
Therefore, you need to be aware of the laws that govern overtime compensation in your location before issuing overtime pay to non-exempt employees, else you can easily find yourself as the subject of a legal suit.
It is also important to note that a workweek does not necessarily mean Monday to Friday. A workweek consists of seven consecutive days, regardless of when they start.
However, your definition of a workweek cannot keep changing from week to week. It must be consistent.
So, what do you do in case a non-exempt employee requests for comp time instead of overtime pay?
Regardless of what the employee wants, you should always keep in mind that offering comp time instead of overtime pay is a violation of federal law, and should be avoided unless your state laws state otherwise.
It’s also good to note that non-exempt does not mean the same thing as hourly.
I have sometimes seen employers mistakenly assume that non-exempt employees are those who are paid by the hour, while any employees paid a salary are automatically categorized as exempt.
This assumption is wrong, and can lead employers to unintentionally violate the terms of the FLSA.
An employee’s classification as exempt or non-exempt is determined by the duties and responsibilities of their job position, rather than by how they are paid.
While all exempt employees are salaried, non-exempt employees could be either salaried or hourly.
Therefore, don’t automatically assume that an employee is eligible for comp time just because they are salaried.
Comp Time for Government Employees
Formally structured and recorded comp time is a lot more common in the public sector.
According to the Department of Labor, workers employed by federal, state, or local government agencies may be given comp time instead of cash overtime pay, provided certain conditions are met.
The comp time for government employees should be calculated at a rate of at least one and a half hours of comp time for every extra hour worked.
In order for comp time to be applicable to public sector employees, the following conditions have to be met:
- Where applicable, an agreement on the use of comp time should be arranged between the employer and union reps.
- Both the employer and the employee have to agree to the comp time prior to the employee working the extra hours.
- The comp time must be calculated at a minimum rate of one and a half hours for each extra hour worked.
- The comp time has to be used within the same pay period that the employee worked the extra hours. This means that accrued comp time cannot be rolled over to the following year.
It is also good to note that first responders employed by government agencies – such as law enforcement officers, emergency response officers, fire protection personnel, paramedics, park rangers, probation and parole officers, corrections officers, hazardous materials workers, as well as other government employees engaged in seasonal activities – are considered as non-exempt employees and are therefore covered by overtime laws.
However, they are still eligible to be comp time in lieu of overtime pay.
Whereas other government employees are allowed to accrue up to 240 hours of comp time, first responders and seasonal employees can accrue up to a maximum of 480 hours in comp time.
It is also good to note that public sector employees are allowed to request use of their accrued comp time whenever they deem fit, unless doing so would unduly disrupt the ability of the government agency to efficiently perform its operations.
DOES COMP TIME APPLY ON HOLIDAY AND WEEKENDS
What happens when an employee is required to work during a weekend or holiday? Are you required to compensate them for this time, and if so, how?
Well, there are no federal labor laws that make it mandatory for employers to compensate employees for working on a weekend or holiday.
Therefore, hours spent working on a weekend or holiday do not qualify for comp time or overtime pay.
In addition, it is not mandatory for the employer to give employees time off during holidays and weekends, whether paid or unpaid.
Therefore, it is up to the employer to decide whether to give an employee a day off after working during a weekend or holiday.
However, such time off is not considered as comp time. Instead, you can think of it as rescheduling the employee’s day off.
SO, IS COMP TIME LEGAL, AND SHOULD YOU OFFER IT?
Based on the terms stipulated within the Fair Labor Standards Act, it is illegal for employers in the private sector to offer their employees comp time in place of overtime pay, except for exempt employees.
Still, the fact that comp time is illegal hasn’t stopped employers from using it to compensate employees for overtime work, either because they aren’t aware it is illegal, or because the employees have no problem with receiving comp time.
A survey carried out by TSheets, which polled about 500 employers found that almost 30% of employers polled use comp time to compensate non-exempt employees for overtime hours worked. 17.4% of the respondents also said that they don’t compensate employees for overtime hours worked, which is also illegal.
18% of respondents also claimed that they gave non-exempt employees the option to choose between overtime pay and comp time, with the hope that employees will go for comp time. Note that even this is illegal – the fact that employees prefer comp time to overtime pay does is no defense for violating the overtime laws.
Aside from being illegal, comp time might not be the best way of rewarding employees for overtime hours worked.
Comp time can be problematic even when offered to exempt employees. Some problems that might arise from comp time include:
- When offered regularly to exempt employees, they might start asking for it every time they work extra hours, even if the employer is under no obligation to give them comp time.
- Offering comp time can cause rows over whether employees should be exempt or non-exempt.
- Sometimes, employees may abuse the comp time policy by working extra hours even when it is not necessary in order to get future time off.
- Employees can feel cheated in case they need to quit and do not get paid for any comp time they might have accrued.
To avoid such issues, any employer who offers comp time to exempt employees should formulate a strict and stringent comp time policy.
You should also avoid making comp time come across as an hour-for-hour overtime exchange, unless you are in the public sector where this is required.
The key to doing this is to make the comp time an occasional reward, or to use it informally, without putting the extra hours worked on a score card.
For instance, if an employee was forced to work extra hours to beat a deadline, the employee’s immediate manager or supervisor might give them an informal comp time by saying something like, “Hey Stacy, you have pushed yourself really hard this week. Why don’t you take Friday off and get some rest.”
For employers who want to avoid having to give comp time or overtime pay, you have a few options. You could:
- Improve and streamline the job so that employees do not have to work extra hours.
- Adopt a flexible work schedule, such that employees who worked extra hours one day can work less hours another day within the week, so that they balance out and maintain the regular 40 hours per workweek.
- Assign some tasks to another employee to reduce the likelihood of an employee being forced to work overtime.
- If there is just too much work, hire an additional employee.
PENALTIES FOR COMP TIME VIOLATIONS
It is important to be conversant with both the state and federal rules and regulations surrounding overtime pay and comp time, since violation of these rules can cause serious legal problems for an organization.
Violations of comp time regulations are enforced by the Department of Labor.
Some of the penalties you stand to face if you are found to be in violation of comp time rules include:
- Organizations that are found to have willingly violated the laws can be fined up to $10,000.
- The organization might be required to pay double the amount of back wages owed to employees.
- If a lawsuit by an employee is prosecuted successfully, the employer might be required to pay the legal fees associated with the suit.
- Employers who are found to be repeat offenders may face penalties of up to $1,000 per infraction, as well as possible jail time.
- Any employers who retaliate or discriminate against employees for filing comp time violation complaints may face additional fines.
- The Fair Labor Standards Act also makes it illegal to ship any goods that were produced at a time when the company was in violation of comp time and overtime regulations.
The issue of comp time vs. overtime pay can be a bit confusing for employers looking for an effective way of compensating their employees for overtime work.
The most important thing to keep in mind when making this decision is to consider the status of your employees.
If your employees are exempt, there are no federal directives on how to compensate them for overtime work, in which case you can go with comp time.
If your employees are non-exempt, on the other hand, you are obligated to give them overtime pay for any overtime hours worked.
Giving them comp time instead of overtime pay is a violation of these laws and exposes your organization to legal suits that may bring along very costly penalties.
If you do not want to compensate employees for overtime, the best thing is to effect changes that decrease the likelihood of employees working extra hours, such as adding extra employees or giving employees a flexible schedule.
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