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Working overtime is a common way for employees to earn additional pay. But in some cases, comp time (or compensatory time) might be a better solution for both team members and employers.
For example, Jane is a retail store employee whose co-worker was absent for several days. As a result, Jane worked 12 extra hours that week to fill the gap.
However, Jane's employer offers her paid time off instead of the overtime pay. Jane can then attend her son's upcoming field trip without worrying about next week's paycheck. This is how comp time works — it allows you to accept vacation time instead of extra pay.
Comp time gives employees more flexibility and an incentive to work longer hours as needed. The downside is that it’s only legal under specific circumstances. That’s why we’ll explain how to determine who is eligible.
We will also discuss comp time benefits, when to use it, and how to adopt it in your workflow. Let’s get started.
Compensatory time is time off earned by working overtime hours. Comp time can be more attractive than higher earnings for employees who value vacation time or increased flexibility.
On the other hand, employers can save money by offering comp time. Providing more compensation options allows them to meet their team members' needs better.
The U.S. Department of Labor’s Fair Labor Standards Act (FLSA) defines overtime pay and compensatory time off regulations. Businesses should clearly outline comp time or overtime policies in their employee handbook to avoid confusion and legal issues.
It’s important to note that paid time off and sick leaves are not the same as comp time. Make sure that your handbook addresses these differences.
Comp time and overtime pay share the same purpose: compensating employees for working beyond the standard 40 hour workweek. The difference is that overtime pay offers monetary compensation, while comp time provides paid time off.
FLSA overtime regulations dictate that employers must pay employees 1.5x their regular rate (typically referred to as "time and a half") for overtime hours. Similarly, comp time should reflect 1.5x the employee’s standard pay rate when calculating it.
To calculate comp time, multiply the number of hours worked over 40 hours per week times 1.5 to determine the comp time due.
(Total work hours - 40) × 1.5 = Comp time
In the example above, Jane worked 12 hours beyond her 40-hour work week. Jane's employer will multiply 12 times 1.5 to get 18 hours. 18 hours is the amount of comp time she’s earned.
In the same way that overtime pay works, comp time provides one and a half hours of paid time off for each extra hour.
While overtime pay is a legal requirement for non-exempt employees, comp time is an alternative form of compensation that your business could choose to offer.
Before offering to provide your employees with comp time, it's essential to understand that it is only allowed under certain conditions. Eligibility for comp time can depend on:
An employee's exemption status
Whether the employee works in the public or private sector
The state in which the employee works
Non-exempt employees are usually paid by the hour and are legally entitled to minimum wage and overtime pay.
On the other hand, exempt employees receive salaries and aren’t covered by FLSA overtime laws. To classify as an exempt employee, the person must have a salary of no less than $684 per week or $35,568 annually.
The FLSA explicitly states that employees must receive payment for any time worked over 40 hours. This means that you can’t offer comp time instead of overtime wages to non-exempt workers.
However, the FLSA does not require employers to pay overtime hours for exempt employees. In other words, they are eligible for comp time.
Unlike non-exempt private employees, the FLSA permits comp time for public employers. According to Section 207(o) of their guidelines, public employers at the federal, state, or local level may compensate non-exempt employees with compensatory time.
Since federal, state, and local government agencies are considered public sector employers, they can offer comp time to their employees.
Employees eligible for comp time can earn it by working overtime hours. In most cases, they can choose between comp time and overtime pay, but the employer may sometimes decide. Occasionally, state law will dictate who can choose.
Additionally, employees must be aware they'll receive comp time instead of overtime pay before working overtime hours. Employers can only require an exempt employee to take comp time if the employee's basic rate is above the GS-10 pay scale.
There are restrictions on the number of comp time hours specific public employees can accumulate. In most cases, the limit is 240 hours. However, law enforcement, fire protection, emergency response, and some seasonal activity staff can accrue up to 480 hours.
According to the U.S. Office of Personnel Management, “An FLSA-exempt employee must use accrued compensatory time off by the end of the 26th pay period after the pay period during which it was earned.”
If the time goes unused, the employee must be paid for the earned comp time, at the overtime rate in effect when they earned it.
Providing employees with comp time is a simple way of offering more flexibility to your team. It’s especially helpful if you have team members who highly value paid time off.
However, FLSA regulations and state overtime laws can complicate tracking eligible overtime and comp time usage.
Workforce management software like Hubstaff can help employers overcome these administrative hurdles. Employees simply have to clock in, and Hubstaff will automatically track time as they work.
Additionally, Hubstaff will notify you if a team member is approaching their weekly limit. This helps you minimize unauthorized overtime hours while keeping accurate records of straight-time pay and overtime work. As a result, you can easily stay on top of your team’s overtime wages and comp time balances.
Disclaimer: The information in this article is general in nature and you should consider whether the information is appropriate to your needs. Legal and other matters referred to in this article are of a general nature only and are based on Hubstaff’s interpretation of laws existing at the time and should not be relied on in place of professional advice. Hubstaff is not responsible for the content of any site owned by a third party that may be linked to this article and no warranty is made by us concerning the suitability, accuracy or timeliness of the content of any site that may be linked to this article. Hubstaff disclaims all liability (except for any liability which by law cannot be excluded) for any error, inaccuracy, or omission from the information contained in this article and any loss or damage suffered by any person directly or indirectly through relying on this information.
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