Compensatory time (Comp time)

Scope

The FLSA has comp time provisions for government employees, but these provisions do not apply to private companies and their employees.

Regulatory citations

• None

Key definitions

• Compensatory time (Comp time): Under comp time arrangements, an employee who works more than 40 hours in one week may choose to forego overtime wages and instead put the hours in a comp time “bank” for later use. Then, when the employee wants time off, the employee can use comp time hours instead of using vacation or other paid time off.

Summary of requirements

Comp time isn’t allowed for private organizations because the Fair Labor Standards Act (FLSA) simply does not provide for it. A private company cannot offer comp time, even if employees ask for it, without risking a violation of the requirement to pay overtime (state laws generally require that all wages be provided within a certain time, like every two weeks).

The FLSA does have comp time provisions for government employees (see Part 553, Subpart A) but these provisions do not apply to private companies. Government employers can establish comp time policies that comply with these regulations.

Non-exempt employees. Private organizations can still offer comp time to non-exempt employees in two limited circumstances:

• Within the same workweek. You can allow employees who work longer hours 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, you could allow the employee to work only four hours on Friday so the total time that week is still 40 hours. This might be better described as “flex time.” It does not violate the overtime requirements because the employee does not work more than 40 hours.
• Within the same pay period. The Department of Labor (DOL) allows private employers to 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 employee’s overtime occurs during the second week of a pay period, the employee would have to be paid for the overtime. The hours could not be “saved” for a later pay period.
  • For instance, if an employee works 42 hours during the first week of a pay period, you would normally pay 2 hours of overtime at 1.5 times the regular rate (essentially three hours of pay). However, you 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 wages equal to 80 hours (the same wages he or she would have received for the hours worked with overtime).
  • Note, however, that this is a DOL enforcement policy only. This provision is not in the FLSA, and an employee could file a wage claim. A court or state agency would not be obligated to follow the DOL’s position.

State issues. These policies, while acceptable under federal law, may face challenges in certain states. For example, California law requires overtime pay for hours worked beyond 8 in a single day. Thus, a California employee who works 10 hours on Monday would need to be given three hours of comp time. Obviously, tracking comp time under California law could be a significant problem.

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 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.

• You 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 you establish a comp time policy for exempt employees, you 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).
• For instance, by “allowing” an employee to work a partial day (or take a day off) based on “overtime” that was previously worked, you may create the impression that the employee’s salary is dependent on the number of hours worked. This could jeopardize the employee’s exempt status, and 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 very likely if the employee agrees to the comp time policy, but there’s no reason to take the risk.
• What you can do is offer “flex time.” For example, you 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. You could also offer time off as a reward for working long hours, but it should not be in the form of comp time (don’t create an “hour for hour” relationship). You can offer “bonus” vacation time, allow an employee to work a shorter week after a long week, or establish any other method for additional time off. However, tracking comp time is risky because of the implied connection between working hours and salary (it implies that a shorter week is only allowed if the employee has a “bank” of previous working time to draw upon).
• Finally, you can offer bonus pay in addition to the regular salary. This is covered in the federal regulation at 541.604, Minimum guarantee plus extras, which clarifies that the salary basis of payment only applies to the base salary – you can offer additional compensation without risking the exempt status.