Everyone works extra hours once in a while, your employees are no different. According to US federal law, any extra hour worked equates to an hour and a half, normally known as overtime. But, there is another option as well. Comp time or compensatory time off is an alternative the employee can take if the organization allows it.
In this blog, we will be talking all about what is comp time, how comp time works, comp time vs overtime, time and a half pay, and a lot more. Consider this your complete guide to comp time and other auxiliary terms in the US context.
What is Comp Time?
Compensatory time off is the time off given to employees in lieu of extra hours worked. It is compensation in kind for the extra hours. For instance, if an employee has worked on a weekend or on a federal holiday, they are entitled to comp time for that many working hours.
Employees request comp off in exchange for the overtime they did. Note that overtime here refers to the extra hours worked and not the legal term for the monetary compensation.
If you as an employer wish to grant comp off in lieu of overtime, you should have a leave policy stating the same. Comp offs can be a part of various types of leaves, with specific conditions listed out, on when the employee can avail it.
Comp time is a great way to include flex time in your leave policy. Compensatory time off gives the employees the leverage of being flexible with respect to their work hours. It also provides the organization with resources on off days, without any additional cost.
An employee can avail comp time off after putting in a request to the manager. With comp off, the employee can work on any holiday and take a day off for it. The employee can take the comp off either in advance or later on, depending on the organization’s policy.
Comp off is affected by three factors:
- Federal laws or state laws
- Whether the organization is a public or private entity
- Whether the employee is exempt or nonexempt
Let’s start with the third factor. What would be the eligibility criteria for comp off both in the case of exempt and nonexempt employees?
Who is Eligible?
The difference between an exempt employee and a non-exempt employee is explained well in the FLSA or Fair Labor Standards Act.
As per the law, non-exempt employees are those who are entitled to overtime pay if their work hours exceed a certain limit. Legally, the limit is 40 hours, and they should be paid at least 1.5 times their normal wage for the extra hours worked.
On the other hand, exempt employees are those who are not covered by any such legal obligations. In other words, exempt employees are exempt when it comes to getting overtime (pay).
Mostly, nonexempt employees are blue-collared workers and nonexempt positions are occupied by white collared ones.
What does this mean when it comes to deciding who gets a comp off and who does not?
As you may have figured out, nonexempt employees are the ones who get compensatory time off instead of overtime pay. However, comp time for exempt employees may or may not be available, depending on the comp time policy of the organization.
Whether an employee is salaried or an hourly one also defines their eligibility for comp time off. Salaried employees are those who receive a fixed weekly wage from the company, whereas for hourly employees, the pay differs based on hours worked.
Employees with a fixed salary usually get comp time off as they are eligible for paid time off. On the other hand, the employer pays a higher rate, usually time and a half, to the hourly employees if they work over and above the stipulated number of hours. For instance, if the policy states that they have to work for 30 hours a week at the rate of 30$ per hour and they work for 40 hours, they would be paid 30$ for each of the 30 hours and 45$ for each of the extra 10 hours worked. It’s a mandate and it is illegal to not pay. However, the organization may have the policy to replace overtime with comp time off.
The bottom line is that nonexempt and salaried employees are eligible for comp time off while exempt and hourly employees are generally not.
How is Compensatory Time Off Different from Other Types Work Arrangements?
Compensatory time off is one of the few work arrangements where an employer compensates the employee if the latter works for extra hours. Here are the other work arrangements and how comp time off is different from them.
Comp Time vs Overtime
Let’s start with the most common one, overtime pay. Overtime pay is a time and a half pay or 1.5 times the usual pay. Employers offer it if the employees work over the legal limit of 40 hours a week.
Comp time off is an alternative that is offered to them, depending on the company’s comp time policy or leave policy. Keep in mind that employers pay comp time in lieu of overtime pay.
Comp Time vs Flex Time
Flex time refers to a concept wherein the employees get to decide their work hours so that they can manage their work and life better. Alternatively, employers can also give it within the same workweek to compensate for the additional hours. Flex time is usually observed by companies who have fluctuating operational demands.
On the other hand, employers give comp time in the form of extra leaves that the employees get if they have worked for extra hours. Although comp time can help introduce an element of flexibility for employees, it is different from flex time.
Comp Time vs Credit Hours
An employer can give comp time off to the employees when the latter work above and beyond the hours they are supposed to work on. It is a compensatory time off which they can also give in lieu of overtime, depending on the organization’s policy. Usually, employers give comp off when the employee works extra hours as an obligation
On the other hand, employers give credit hours when the employee works voluntarily, over and above the hours they are supposed to work for. Further, credit hours are only eligible after the supervisor’s approval and when the employee has a flexible work schedule.
Comp Time vs PTO
Paid time off is different from comp time offs. Paid time off refers to a set of leaves that the company provides to the employees without any loss of pay. The company leave policy specifically mentions the number of PTOs an employee is entitled to. On the other hand, you cannot define comp time off beforehand. It depends on the work situation and the number of extra hours worked, and both the factors are dynamic in nature.
When to Choose Comp Time Over Overtime?
When your overtime starts to eat into your finances, that’s the time when you should give preference to comp time off and promote it internally so that the employees opt for it. This happens when the overtime is unplanned and haphazard, leading to more problems than solutions.
Some of the visible issues with overtime that you can notice as an HR are:
- Favoritism and bias
- Profit depletion from the C-suite’s perspective
- Manages to struggle to allocate overtime hours
- Employee burnout
Here are also some of the reasons you may have ineffective overtime, leading you to opt for comp time:
- Check if you have enough staff to cover the quantum of work. Overtime should be an exception and not a norm.
- If your staff is unproductive during the usual hours and working overtime because of that, you need to figure out a way to increase their productivity via training or better technology.
- Your company should not encourage an overtime culture.
- Overtime happening without approvals can be a major hindrance. Ensure your leave policy covers this.
If not overseen properly, your overtime can eat into the labor costs and not contribute significantly to the company’s growth as well.
These are the specific reasons why companies many times prefer comp time off over overtime pay. Here’s how the problem of unmonitored and unplanned overtime can be solved.
- Revise your leave and overtime policy, and include the option of comp time off
- Communicate expectations and limitations of overtime to the employees
- Monitor the productivity and ensure employees are not pushing themselves over the edge and burning out to earn overtime
- Use time tracking software to monitor performance and prevent employee time theft
Overtime pay is a good option, but many times leads to more costs than benefits. Comp time off can help prevent this issue as it involves no additional costs. However, the employer would still need to monitor the system so that employees do not work extra unnecessarily to gain a comp off.
How Does Compensatory Time Off Work for the Private Sector?
For government employees, there is a legal obligation to provide comp time. They should, however, fulfill the following conditions:
- A union rep agreement
- Employees should avail comp hours in the same pay period in which they have worked for extra hours
- The agreement between employer and employee regarding comp hours should happen before the latter works extra hours and not after it
- Employers should give comp time at a time and a half rate (much like overtime pay)
Now, the government sector is clear on comp time. But, what about the private sector? There are quite a few states that have allowed private-sector employees to go for comp time instead of overtime. Some states permit the use of comp time in the private sector for businesses not covered by the FLSA.
For instance, Washington State allows comp time if the employee agrees to it.
However, for most, FLSA has clearly directed the private sector employers to compensate their employees for the additional hours worked. That may vary from company to company, depending on the leave policy.
Ideally, it can be said that compensatory time off is not yet legal for the private sector. As per the federal and most state laws, private sector employers are under an obligation to pay overtime if their employees work extra hours.
This flowchart on who is eligible for compensatory time off explains the federal rules quite clearly.
Are There Any Penalties for Comp Time Violations?
Not following the federal and respective state laws when it comes to comp time? You can be in serious trouble. Ensure that you follow the laws and stick to those, even if your employees push you otherwise. Or else, be ready for lawsuits. You may end up losing more than you would have otherwise spent in paying overtime.
When it comes to paying overtime and deciding comp time, the US Department of Labor is the authority. Here are the penalties that you may have to pay if you break any of the laws.
- A successful lawsuit against you may entail an amount double the wages owed, along with the legal fee
- Comp time violations can bring a hefty fine of $10,000 and additional ones if the violation is repeated
- If you punish an employee for filing a lawsuit against you as they claim their unpaid wages, that may attract further fines and penalties
The DOL enforces further laws and rules about compensatory time off. It doesn’t matter whether the violations are intentional or unintentional. The penalties are equally severe.
- If the lawsuit is successfully prosecuted, the legal fee for the employees
- The further fee for discriminating employees who file a lawsuit against the organization for comp time off and overtime law violations
- If you are a repeat offender you may face jail time and a $1000 per infraction worth of penalty
- Twice the amount of back wages that you owe to the employees
As you can see, the penalties for breaking the labor laws related to comp time off and overtime are quite stringent, and rightly so. Be very careful while drafting your legal policies and refer to every single law written, whether federal or state. If and ever the prosecution happens, it won’t matter whether or not you did it unintentionally.
Do You Need a Compensatory Time Off Policy?
If you check all the boxes when it comes to the legalities, you should offer eligible employees the option of availing comp time off over overtime. Draft your policy carefully and communicate the norms and expectations so that no one takes advantage of the leaves. If implemented well, a comp off policy can save money and enhance productivity.
Does your company have a comp leave policy? What have you included there? Share how you implement comp offs in your organization and how well it sits with your respective state laws and the overall federal laws. You can connect with us at @HarmonizeHQ.