July 17, 2023
In this article we’re going to share all you need to know about comp time, aka compensatory time off. We’ll look at how it works, its legal status, how it differs from overtime pay, and whether it’s better to offer comp time or paid overtime.
Finally, if you decide to institute comp time in your business, we’ll give you some tips on doing this in a fair and effective way.
This article is for informational purposes only, and is not legal advice. Be sure to check with a labor law professional in your area for full legal advice.
Comp time, or compensatory time off, is additional paid time off given to employees as compensation for working over their regular hours. The most common use of this term is in relation to the FLSA (Fair Labor Standards Act), and refers to the practice of giving comp time in lieu of overtime pay.
If your employees are covered under the FLSA, it’s important to understand your legal requirements with comp time, which we’ll cover a little later.
If the FLSA does not apply to your company, comp time can be an interesting alternative to overtime pay, or an additional bonus for staff who go above and beyond.
Comp time provides employees with extra paid time off, in addition to their regular vacation/annual leave allowance, correlated to the amount of overtime worked.
Generally this is at a rate of 1.5 hours per hour of overtime worked (the FLSA’s required overtime pay rate)
Example: if someone who regularly works 40 hours per week works 46 hours in one week, they would receive 9 hours of comp time (6 hours overtime, multiplied by 1.5).
Comp time hours accrue like regular paid time off would, as they’re earned by the employee. As comp time is earned, it’s added to a bank that the employee can redeem at a later date.
This is usually a separate bank from paid time off, as the rules regarding when/how it expires or rolls over may be different to that of normal annual leave. However, in some businesses, this may be all put together, so comp time is essentially just bonus annual leave.
Comp time again should work like annual leave does in how employees redeem it. Employees need to request time off, and follow the same rules for advance notice that they would for other leave types.
If compensatory time off is banked separately to annual leave, employees should specify whether they want to take comp time or regular PTO when requesting time off, as one may expire earlier than the other.
FLSA standards state that comp time must be taken in the same pay period in which it was earned.
For example, if the employee is paid at the start of each month, and they earned comp time for overtime worked on the 10th of the month, they’ll have until the end of that month to use their comp time.
In this case, for nonexempt employees as per FLSA laws, comp time does expire and does not roll over.
For locations where this comp time is not specifically covered by law, this is up to the company to decide. You can decide in your own policy whether or not comp time has a specific expiry date and/or if it rolls over for each period.
Comp time will still be covered by normal annual leave laws, though, so if there are any regulations around whether or not PTO can expire, and how long it can last, your comp time policy should follow these rules.
The short answer is that compensatory time off is legal in the US public sector, but not legal in the private sector.
The long answer? It depends. First on the exempt/non-exempt status of the employee. The FLSA is imposed only for certain types of workers, primarily hourly/low-paid workers.
If an employee is exempt from the FLSA, then offering compensatory time off instead of overtime pay is legal.
Second, there’s nothing against offering comp time in addition to overtime pay. However, if you’re doing this for non-exempt employees under the FLSA act, it’s a good idea to use a different term than comp time, to avoid any legal confusion. Just ensure that you offer proper overtime pay as required by law as well.
If your company is based in another location and you’re not covered by the FLSA, there may be other regulations you need to follow when paying bonuses for overtime. Depending on your location, compensatory time off for overtime may or may not be legal.
Check with a legal professional in your area of operations to get complete information as it applies to your company.
Often the choice is made to provide either comp time or overtime pay as a reward for overtime worked.
The FLSA requires overtime pay, rather than comp time, for non-exempt employees. This entitles employees to 1.5 times their regular pay rate for overtime hours.
Example: an employee who usually works 40 hours per week and earns $20 per hour will earn $30 per hour for every hour above 40 they work in a week. If they were to work 46 hours, hours up to 40 are paid at $20 per hour, while they would get 6 hours paid at $30 per hour.
Assuming you have the choice between the two, each approach has its pros and cons.
Overtime pay is a more immediate benefit for employees. It may be preferable to employees, as it increases their earning potential. It can also be argued that this is best for productivity, as it incentivizes employees to work longer, and doesn’t require them to take time off at a later date.
Yet comp time may be the better long-term solution, particularly for employees. Excessive overtime can lead to employees becoming overworked and burnt out. Giving comp time instead of overtime pay means employees will take time off later to compensate for the extra time worked, reducing the chance that they will burn out.
From an employee wellness standpoint, offering compensatory time off for overtime worked is the best approach. This ensures that employees don’t work too much, and risk their wellbeing as a result.
However, overtime pay tends to be the most popular approach with employees, and can also boost productivity. If you do offer overtime pay, though, it’s extremely important to manage employees’ workloads so they don’t put in excessive amounts of overtime.
Here are some tips and pointers to ensure that, if you offer comp time off for overtime, you do it in a way that’s fair and effective for your business.
It should be clear, in writing, how you handle compensation for overtime worked. This will avoid any confusion and back you up should any employees be unhappy with it.
Include any conditions related to comp time, such as how soon after accrual it must be used and any other differences to regular time off.
This should be a given, but ensure you have good leave tracking processes to track and manage accrued compensatory time.
In particular, if comp time is treated separately from normal paid time off, you should track this separately.
In your leave tracker (e.g. Flamingo), add a unique leave type for comp time off, like so:
Whenever someone works overtime and earns compensatory time off, add this to their leave balance so they can redeem it later.
Flamingo streamlines leave management, letting you spend less time managing paid time off and more time growing your business
People like to accumulate leave, especially earned leave like comp time off. They save it up “just in case”, or to get a big payout when they leave the job.
But you should encourage employees to take their compensatory time soon after accruing it, and not stack up large amounts at one time. Remember that one of the ideas of comp time is to prevent employees burning out. To do that, they actually need to take it.
In addition to that, you don’t want large amounts of paid time off hanging around on the books, as this is a liability you’ll need to pay out eventually, either in terms of money (if they leave the job) or productive days (when they redeem their time off).
Finally, give employees guidelines on using their comp time off effectively. Many people these days, particularly with how easy it is to log in and work remotely, struggle to properly disconnect from work, even when taking time off.
They end up logging into Slack, checking emails, or performing small tasks when they’re supposed to be recharging and switching off from work.
This is particularly important for comp time. The people who earn comp time are generally the hard workers, who have put in extra hours. They, more than anyone, need time to rest and recharge, and may also be predisposed to logging in and working when they’re not supposed to.
There are two sides to “comp time”, and it’s important you understand both.
First, for companies covered by the FLSA (these will be most US companies), understand whether your employees are exempt or non-exempt, as this status has clear implications for how you’re allowed to compensate for overtime worked.
If you’re not, it’s up to you how you manage that. Employees may clamor for overtime pay, but understand that what’s best for them long-term may be compensatory time off, which allows employees to get all-important rest and avoid running themselves into the ground.
Getting your overtime compensation right is a big step towards building a happy and productive workplace.
Flamingo makes managing your team’s paid time off a breeze.
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