Compensatory Time Off

What Does Compensatory Time Off Mean?

Also known as comp time, compensatory time off is an optional way of paying employees who occasionally work overtime.

A company with a compensatory time-off policy credits employees in the form of paid time off (PTO) rather than providing time and a half in overtime pay. In other words, your employees may earn paid vacation time instead of overtime dollars for working more than 40 hours per week.

Compensatory time off is usually granted as PTO in relation to the number of hours worked. Employers should have an accurate, detailed method for recording comp-time hours as they’re accrued. Otherwise, the employer could risk legal action if they don’t grant employees the appropriate time off.

How to Calculate Compensatory Time Off

To calculate compensatory time off, employers should first refer to their comp-time tracking system so they know how many hours their employees earned. This may be a timesheet, spreadsheet, or employee time-tracking software. Accrued hours should also be included on an employee’s pay stub.

Comp Time Formula

Most non-exempt public employees get time and a half for overtime hours, and employers should use this same guideline to grant compensatory time off. The formula for calculating comp time is:

Number of overtime hours worked x 1.5 = Compensatory time off

For example, say an employee who is paid $20 per hour in wages works 42 hours during one week. Considering a regular workweek is 40 hours and you offer time and half in overtime pay, simply multiply those extra 2 hours by 1.5:

2 hours of overtime x 1.5 = 3 hours of comp time

To see what the comp time for this employee equals in overtime pay, multiply the employee’s wage by 1.5. Then, multiply that total by the number of overtime hours:

$20 per hour x 1.5 = $30 per hour of overtime pay
$30 x 2 hours of overtime = $60 of total overtime pay for this week

So, the employee should receive the equivalent of $60 in compensatory time off, or 3 hours.

Exemptions

For those who qualify, the Fair Labor Standards Act (FLSA) offers specific guidelines around comp time policies. For instance, the majority of eligible employees cannot accrue more than 240 hours of comp time, while others may receive up to 480. At this point, an employer must pay overtime for any extra hours worked. If an employee resigns and has not used their comp time, the employer must pay them out when they leave the job.

Also, employees who work less than 40 hours do not need to be granted time and a half in overtime pay. For example, if an employee who normally works 30 hours per week works an extra 2 hours, they only need to be compensated with 2 hours off rather than 3 hours off.

Keep in Mind: Compensatory time laws vary by state, so specific practices will differ from business to business.

Is Compensatory Time Legal for Salaried Employees?

Compensatory time is legal for qualified salaried employees. Because many salaried, or exempt, employees are not entitled to overtime pay, some employers—depending on their state and circumstance—may offer comp-time packages as a reward for their hard work.

Is Compensatory Time Legal for Hourly Employees?

Since hourly (non-exempt) employees are covered by FLSA overtime mandates, they’re generally ineligible for compensatory time. Hourly employees are usually paid overtime compensation for every hour worked more than the normal 40-hour workweek.

Comp Time: Public Employees vs. Private Employees

The legality of compensatory time off largely depends on an employee’s exempt vs. non-exempt status and state law. However, comp time eligibility also hinges on whether the employee works in the public or private sector.

Compensatory Time Off In the Public Sector

Public employees working in state or government agencies may qualify for compensatory time off as long as it’s arranged/negotiated ahead of time. Eligible employees can earn comp time for working over 40 hours per week and should accrue the comp time just as an hourly employee would.

Compensatory Time Off In the Private Sector

In most cases, non-exempt employees who work in the private sector are not eligible for compensatory time off. They must be paid with traditional overtime pay instead. Yet, some states allow private businesses to award comp time to eligible employees. The State Department of Labor can give further details on how the law affects compensatory time off in specific areas.

Even though many private-sector workplaces don’t offer comp-time packages, managers in these settings may choose to informally offer it. This can be given as a reward for hard work or special scenarios. For example, if a team of salaried employees spends many late nights at the office preparing to launch a new product, the manager might spontaneously tell everyone to take the day off after completing the project.

Is It Better to Take Compensatory Time or Overtime?

Informally offering comp time to those not entitled to overtime pay is a great way to reward staff members for their efforts and enhance their work-life balance. But while it can provide more opportunities for rest, family time, and personal pursuits, some employees may still prefer to take overtime pay.

Before offering this alternative, formulate company comp-time policies to ensure consistency and fairness across the board. Also, be sure your company is up to date on the most current laws and regulations before implementing a comp-time plan or a similar program. This helps ensure it isn’t illegal for you to trade PTO for wages.