Glossary of Human Resources Management and Employee Benefit Terms
Also known as comp time, compensatory time off is an optional way of paying employees who work overtime. A company with a compensatory time off policy pays employees in the form of paid time off (PTO) rather than paying time and a half in overtime pay. In other words, an employee may earn paid vacation time instead of overtime pay.
The compensatory time off is usually granted as PTO in relation to the amount of hours worked. Employers should have an accurate, detailed method for recording comp time hours as they’re accrued. Otherwise, the employer could risk being sued if they don’t grant employees the appropriate time off.
To calculate comp time, employers should first refer to their comp time tracking system so they know how many hours employees have earned. This may be a timesheet, spreadsheet, or other system. Accrued hours should also be included on an employee’s pay stub.
Most non-exempt public employees get time and a half for any overtime hours, and employers should use this same guideline to grant comp time. For example, if an employee works one hour of overtime, they should get 1.5 hours of compensatory time off.
Federal law does not dictate how to compensate exempt employees, but state law may have differing rules. Additionally, employees who work less than 40 hours do not need to be granted time and a half overtime pay. If an employee traditionally works 30 hours and then works an extra 2 hours, they only need to be compensated with 2 hours off rather than 3 hours off.
According to federal law, the majority of employees cannot accrue more than 240 hours of comp time. 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.
Laws on compensatory time off vary by state. The legality also depends on whether the time off is given to exempt or nonexempt employees. This status depends on the type of responsibilities given to the employee. Legality is also depending on whether the employee works in the public or private sector.
According to the federal Fair Labor Standards Act (FLSA), private sector, non-exempt employees covered by FLSA are not eligible for compensatory time off and must be paid with traditional overtime hours instead. FLSA also dictates that compensatory time off can only be given to private sector employees to use in the same pay period the overtime work was done, while those not covered by FLSA must use comp time by the end of the 26 pay periods after it has been earned.
State law may further dictate how compensatory time off is granted. The State Department of Labor will be able to give further details on how state law affects compensatory time off for any given business.
Non-exempt employees who work for the public sector may qualify for compensatory time off. These qualifying, salaried employees can earn comp time for working over 40 hours per week, and should accrue the comp time just as an hourly employee would. For example, if a salaried employee works in the public sector and is non-exempt, they can earn 3 hours of comp time for working an extra 1.5 hours in a week.
While many private sector, salaried workplaces do not offer comp time packages, managers in these settings may choose to informally offer comp time to their employees. This can be given as a reward for hard work or for special scenarios. For example, if a team of salaried employees spends many late nights at the office to prepare for the launch of a new product, the manager might spontaneously tell everyone to take the day off after completion of the project.
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