Compensation, Compensation Administration

Comp Time vs. Overtime—What’s the Big Deal?

Are you accurately paying your employees in compliance with the Fair Labor Standards Act (FLSA)? According to a recent survey, released by TSheets, one-third of employers say they have paid their employees compensation time, or comp time, instead of overtime, a common violation of the FLSA.overtime

The survey polled 500 business owners on their pay practices and the results are below. But first, let’s clear up the confusion on what comp time is, versus paying overtime. Comp refers to employers paying employees for overtime hours with time off instead of paying them overtime pay. Some private employers have made this a common practice when paying employees–however, this is actually illegal.

TSheets offers this example:

John, a nonexempt employee, works 56 hours during 1 week. His boss tells him he can take 2 days off the following week in lieu of overtime pay for the 16 hours he worked in excess of 40. John’s boss could be exposing his company to a lawsuit.

Mykkah Herner, modern compensation evangelist with PayScale, says “For some employers, the rigidity of the FLSA overtime rules can feel restrictive. However, I’d encourage employers to consider the intent of the law: [T]o protect employees in situations where managers and employers put employee safety at risk. Some employees luck out and have great and respectful relationships with their managers, but that doesn’t preclude the rest from needing real legal protections.”

Survey Findings

According to the survey, 18% of respondents offer nonexempt employees a choice between comp time and overtime, hoping that some employees would prefer the time off as opposed to the overtime pay. What’s even more startling is the 17% of employers who report they don’t pay their nonexempt employees overtime or comp time, which is a clear violation of the FLSA.

Herner says, “It’s completely reasonable for employers to set policies that require employees to get manager approval prior to accruing overtime, or even expressly prohibit overtime altogether.” Herner also cautions, “While employers may have enforceable policies restricting overtime, if those overtime hours do occur—as they inevitably will at some point—employers are always required to pay overtime to nonexempt employees.”

Comp Time Exceptions

While comp time is a frowned upon practice for private employers, there are some exceptions. For government agencies, comp time can be used so long as the following conditions are met:

  • An agreement is arranged with union reps, if applicable.
  • Employee and employer must agree to the comp time before the extra hours are accrued (not after!).
  • Comp time must be given at a rate of time and half. In other words, if Mary works 10 hours of overtime, she is entitled to 15 hours of compensatory time off.
  • The comp time must be taken during the same pay period that the extra hours were worked.

Some states (for example Washington State) have laws that allow comp time; however, the U.S. Department of Labor (DOL) will follow the most stringent laws (usually the FLSA) when faced with wage and hour lawsuits, as opposed to following the state’s law.

TSheets says, “Employers in the private sector are legally allowed to offer exempt employees comp time, under FLSA section 207(o).” However, it adds that comp time is by no means required for exempt employees who may put in more hours in a given week than they do in a normal workweek, as exempt employees generally aren’t eligible for overtime pay.

FLSA Penalties

TSheets offers a look into the various DOL penalties employers can face for violating the FLSA, which include:

  • Fines of up to $10,000 for willful violators.
  • Back wages and liquidated damages (twice the amount of back wages owed).
  • Legal fees for employees if a lawsuit is successfully prosecuted.
  • Jail time and civil money penalties up to $1,000 per infraction for repeat offenders.
  • Additional fines for retaliating or discriminating against employees who file complaints or blow a whistle on wage and hour violations.

TSheets warns that comp time, whether legally implemented or not, can ruin morale. Herner says, “At the end of the day, it’s not just about legal versus illegal. It’s about connecting the dots between compensation and organizational culture.”

Herner adds, “Organizations should be wary of the message they are sending employees through the choices they make when it comes to pay. Having employees jump through elaborate hoops to avoid overtime pay, or asking them accept comp time in lieu of pay, may send employees the message that the organization values their efforts, but only when it is convenient and affordable for the organization.”

Melissa BlazejakMelissa Blazejak is a Senior Web Content Editor at BLR. She has written articles for HR.BLR.com and the HR Daily Advisor websites and is responsible for the day-to-day management of HR.BLR.com and HRLaws.com. She has been at BLR since 2014. She graduated with a BA of Science, specializing in Communication, from Eastern Connecticut State University in 2008. Most recently, she graduated in 2014 with a MS of Educational Technology.