• For private employers, comp time cannot include hours saved for future pay periods.
• Exempt employees who work a partial day legally must be paid for a full day.

Compensatory (comp) time refers to unpaid hours of overtime that are saved for use as paid time off (PTO) in the future. Comp time is time provided to employees in lieu of overtime pay. For example, an employee might work 44 hours in one week, but instead of getting paid overtime, would receive six hours of PTO for future use. For each overtime hour, the employee must be given 1.5 hours of comp time to meet the overtime obligation.

This practice is primarily limited to the public sector (such as government employers). Fair Labor Standards Act (FLSA) comp time provisions do not apply to private companies. Only government employers can establish comp time policies under these regulations (29 CFR Part 553, Subpart A).

Private employers cannot offer comp time arrangements where the hours are saved for future pay periods. Even if employees request this benefit, employers would risk a violation of the requirement to pay overtime.

Comp time can only be used by private employers if the time is used in the same week or same pay period. Comp time cannot be saved for future pay periods because this would result in a failure to pay for all hours worked during the applicable earnings period (state laws generally require that all wages be provided within a certain time, such as every two weeks).

Nonexempt employees

Private employers can offer comp time to nonexempt employees in two limited circumstances. First, employees who work overtime can be allowed to take time off during the same week. For example, suppose an employee normally works five days a week for eight hours each day. If this employee works 10 hours on Monday and Tuesday, the employer could allow (or require) the employee to work only four hours on Friday so the total time that week is still 40 hours.

Employers always have the right to adjust the number of hours worked by an employee, whether increasing or decreasing those hours, without notice. Changing the number of hours worked each day or each week might be better described as “flex time.” It does not violate overtime requirements because the employee does not work more than 40 hours in a single week.

Second, private employers may establish comp time policies if they follow two conditions. Comp time must be awarded at a ratio of 1.5 hours for each hour of overtime worked (to account for the overtime rate of pay). Also, the comp time must be used in the same pay period.

If overtime occurs during the second week of a pay period, the hours could be adjusted during that week, or the employee would have to be paid for the overtime. The hours could not be saved for a future pay period.

For instance, if an employee works 42 hours during the first week of a pay period, an employer would normally pay two hours of overtime at 1.5 times the regular rate (essentially three hours of pay). However, the employer can allow the employee to only work 37 hours during the second week and pay the three hours of comp time. The employee works a total of 79 hours and gets the same wages that would have been received for the hours worked with overtime.

These policies, while acceptable under federal law, may face challenges in certain states. For example, California law requires overtime pay for hours worked beyond eight in a single day. Thus, a California employee who works 10 hours on Monday would need to be given three hours of comp time.

Exempt employees

It would seem that comp time could be applied to exempt employees since overtime is not an issue. The problem is that the regulation for the salary basis of payment at 541.602 says “an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.”

In other words, an exempt employee who works a partial day (say, five hours) is legally entitled to a full salary for that day. An employer can require an exempt employee to use sick time or vacation for a partial day, as long as the employee still gets the same weekly salary.

If establishing a comp time policy for exempt employees, an employer may create the impression that the salary is tied to the number of hours worked. This is different than an expectation that a full-time employee should work at least 40 hours, since all employees are subject to the same expectation (regardless of how many “overtime” hours they work).

For instance, by allowing an exempt employee to work a partial day (or take a day off) based on overtime previously worked, an employer may create the impression that the employee’s salary is dependent on the number of hours worked. This could jeopardize the exempt status. In a worst-case scenario, the exemption would be defeated and the employee would have to be paid back wages for previous overtime. This may not be likely if the employee agrees to the comp time policy, but there’s no reason to take the risk.

What can be offered is “flex time.” For example, an employer could state that the expected 40 hours per week can be worked at any time (including weekends). As long as the employee’s weekly total is 40 hours or more, the employee can set a flexible schedule.

An employer could also offer time off as a reward for working long hours, but it should not be in the form of comp time (an “hour for hour” relationship should not be created). Offering “bonus” vacation time would allow an employee to work a shorter week after a long week, or any other method for additional time off could be established. However, tracking comp time is risky because it implies that a shorter week is only allowed if the employee has a bank of previous working time to draw upon.