• Two circumstances dictate when private employers can offer comp time to nonexempt workers.
• For exempt employees, “flex time” provides freedom from a set work schedule.

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 each overtime hour, the employee must be given 1.5 hours of comp time to meet the overtime obligation. For example, an employee might work 44 hours in one week, but instead of getting paid overtime for those extra hours, would receive six hours of PTO for future use.

This practice is primarily limited to the public sector (such as government employers). The provisions for government employees (29 CFR Part 553 Subpart A) do not apply to private companies. Government employers can establish comp time policies that comply with these regulations.

The Fair Labor Standards Act (FLSA) does not allow private employers to offer comp time arrangements where the hours are saved for future pay periods. Even if employees request this benefit, employers cannot offer it without risking a violation of the requirement to pay overtime (state laws generally require that all wages be provided within a certain time, such as every two weeks).

Comp time can only be used by private employers if the time is used in the same week or same pay period. For private employers, 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.

Nonexempt employees

Private employers can offer comp time to nonexempt employees in two limited circumstances.

• Within the same workweek: Employees who work longer hours 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 employee could be allowed (or required) 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, 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. Employees may have a right to overtime if they work more than 40 hours, but they do not have a right to demand that the employer allow them to work more than 40 hours. Employers may control the scheduled or expected hours.

• Within the same pay period: Private employers may establish comp time policies if they follow two conditions. First, 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). Second, the comp time must be used in the same pay period.

If the overtime occurs during the second week of a two-week pay period, the hours could be adjusted during that week (as described for “within the same workweek”) 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, the employer would normally pay two hours of overtime at 1.5 times the regular rate (essentially three hours of pay). However, the employee can be allowed to only work 37 hours during the second week and be paid three hours of comp time. The employee works a total of 79 hours and gets the same wages that would have been received for 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. In fact, California law specifically allows for comp time under Labor Code 204.3. However, the state warns that “Any employer utilizing the provisions of Section 204.3 should be advised [that the] use of the compensating time provisions of the state law may result in violation of the federal law.”

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 exempt employee can be required to use sick time or vacation for a partial day, or make up for partial-day personal absences, as long as that employee still gets the full weekly salary.

If establishing a comp time policy for exempt employees, however, 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.

Offering “flex time” is a solution. 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. As with nonexempt employees, a company may change an exempt employee’s expected working hours without notice, even if only for a single week. However, an exempt employee must still receive the same salary in that case.

Tracking comp time is risky because of the implied connection between working hours and salary (implying that a shorter week is only allowed if the employee has a bank of previous working time to draw upon).

Finally, an employer can offer bonus pay in addition to the regular salary (perhaps as a reward for working longer hours). This is covered in the federal regulation at 541.604, Minimum guarantee plus extras. This regulation clarifies that the salary basis of payment only applies to the base salary. Additional compensation (bonus, hourly pay, etc.) can be offered without risking the exempt status.