“Comp Time”: A Big “No-No” in the Private Sector

by Michael Haberman on February 21, 2011 · 11 comments


One area of the Fair Labor Standards Act that I get asked about often is “compensatory time.” This is the desire to pay an employee for overtime by giving them time off the following week, or month or quarter. The person asking the question says that the “employee preferred to have the extra time off.” That sounds like a good deal for all concerned doesn’t it? Less cash the company has to pay out and the more time for the employee. The problem is it does not work that way.

According to the U.S. Department of Labor “The use of comp time instead of overtime is limited by Section 7(o) of the FLSA to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency.” Thus a private sector company CANNOT compensate a non-exempt employee by the use of comp time.

The Fair Labor Standards Act (FLSA) requires that covered, nonexempt employees in the United States be paid at least the federal minimum wage for each hour worked and receive overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek.  FLSA overtime pay is due on the regular pay day for the period in which the overtime was worked.  The overtime pay requirement may not be waived by agreement between the employer and the employee.  The overtime pay requirement cannot be met through the use of compensatory time off (comp time) except under special circumstances applicable only to state and local government employees.

I highlighted three areas that are important to understand. First is “covered, non-exempt” employees. If you have employees who perform work for which they are compensated on an hourly basis they are “covered, non-exempt” employees. However, you may also have people that you pay a salary to. If they are non-exempt, as defined by their job description, then they to are “covered, non-exempt” employees. So they have to be paid overtime for hours worked that exceed 40 in a week. Additionally “Averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.

“Due on the regular payday” means you cannot delay the overtime earned in a single workweek. “May not be waived by agreement between the employer and the employee.” This means you cannot get the employee to waive their rights to overtime, even if they asked for it. So scratch that option.

After I have delivered this news, the next question I get is “What about supervisors?” Supervisors do not meet the standard of being “covered, non-exempt” employees (assuming they do meet the standards of the executive exemption). You can give the comp time all day long. Assume you have a period of time that everyone is working hard and long hours. Non-exempt employees get extra money for that. Supervisors don’t. Although you could pay the supervisors a bonus, you could also give them time-off as “compensation” for working so hard. There is no prohibition against that. Just remember just because you do it for supervisors does not mean you can do it for other employees.

So, let’s sum this up:

  1. You cannot average work weeks to level out hours worked
  2. You have to pay for hours worked that exceed 40 in a week
  3. This is based on status as a “covered, non-exempt” employee
  4. You CANNOT SUBSTITUTE time-off for earned overtime, even if the employee asks you to.

Of course, this does not apply if you are in the public sector or in a state that has regulations that are more friendly to the employee, such as California, which requires that overtime be paid for hours exceeding 8 in a day. But even there you cannot use comp time.

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{ 11 comments… read them below or add one }

Adrianna February 21, 2011 at 12:07 pm

That is very intresting and helpful clarification! Many times I have heard (at various places and from various folks), that “You can cut back next week” when asked to put in extra hours.

One question. For “extenuating circumstances”, if on memeber of a department has an emergency FMLA leave, and the “team” is assisting in coverage of a manager’s area, but the majority covering is salried, non-exempt, because they volunteer to assist so that the department continues on to function, then they too need to be compensated? They were given the option of yes or no (without any negatives for saying no) if they wanted to help, and the person, in the desire to make sure that the department doesn’t fail in service, agrees to extra hours.

Thanks again.

Reply

Michael Haberman February 21, 2011 at 2:19 pm

Adrianna:
Many people screw this up and unfortunately end up paying for it. As to your question. If all the people assisting to get the job done are exempt level employees there is no need to pay them extra, however, it is very good employee relations to do so. With exempt level employees the salary you pay is in return for whatever hours you need them to work. So if you want to work them 100 per week you are free to do so. On the other hand however, if they only work 10 hours one week you cannot take their salary away or dock them for the time missed. So it is a balancing act.

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Shelton Blease February 22, 2011 at 8:33 am

Adrianna,

While the non-exempt employees may have volunteered and even though it was made optional by the employer, they still must be paid for any hours worked. I think it’s great that the employees care about the company and the department, but if management is not ready to pay out the OT, then the management needs to inform those non-exempt employees that they are not allowed to work. Even if the employer states that a non-exempt employee is not allowed to work and that individual works anyways, then the employer must pay that individual for the work.

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Michael Haberman February 22, 2011 at 8:49 am

Shelton:
Good point. Even if you ask for volunteers to do the work, if they are non-exempt, they must be compensated, including OT, if the work takes them beyond 40 hours in the week.

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Dave Ryan February 21, 2011 at 1:22 pm

Great Post Mike, Is this a new look for you or second site?

Comp time is the simple man’s solution to a complex problem. Buck up pay the OT and move on – my advice.

Reply

Michael Haberman February 21, 2011 at 2:15 pm

Hey Dave. This is sort of new. Combined the blog into the company website and totally revamped the look of both.

I agree with you. If you do it correctly, pay for the OT, you will save yourself alot of trouble.

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Laurie February 22, 2011 at 9:54 pm

Gee, who knew? What a great explanation – much appreciated! As a state employee, I realize this does not apply to me, but did find your article very informative. It did make me think about when I was working for a non-profit hospital in the operating room and was not always compensated for on-call overtime, but was allowed to take time off – would this have been a violation of this requirement? Or are they considered a public entitity?

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Chuck Cloninger November 12, 2012 at 11:39 pm

I am a supervisor, a new supervisor, in a company that is telling me that I will give comp time to employees who work more than 40 hours in a week. So what do I do? Report them to the state and lose my job? Or is there a way to report them quietly and still keep my job?

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Michael Haberman November 13, 2012 at 8:08 am

Chuck, you could always print off a copy of this post and leave it where it can be found by a decision maker. And yes there are ways to make anonymous reports to either the state labor people or to the US DOL. Ultimately you will have decide what you want to do. Good luck.

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Katherine J June 14, 2013 at 5:25 pm

I work for a non-profit in CA. I have been an employee of this organization for 8 years. Apparently I am non-exempt– always thought I was exempt. Anyway, during the summers we are required to do three separate overnight trips for 2 nights. Since we work with troubled youth (and could be up all night with them/ have to be ‘on’, we are on the clock for 60 straight hours. In the past summers we have been given 5 days of ‘comp time’ at the end of the summer. Something is just not adding up here. I am thinking now that this is unfair. What is the law around this? How much time or overtime pay ( in hours) should we be earning? I really want to clarify before I begin another summer of long hours without the reassurance that my employer is being compliant. Thank you!

Reply

Michael Haberman June 15, 2013 at 3:48 pm

Katherine:
Well in the private sector comp time is not legal. In California overtime is owed for more than 8 hours in a day. But because you are in a non-profit organization I would suggest you contact the local California wage & hour office and get their input. There are too many variables, including California law, for me to answer.

Reply

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