Compensatory Leave

Carol Eliason Nibley
Carol Eliason Nibley
How do you pay people who work overtime: in wages or in comp time? How about an employee who asks to earn comp time? What seems like a casual arrangement at your company may be breaking the law. Continue reading to learn more about compensatory leave and the circumstances in which it can be used to benefit both employees and employers.

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What Is Compensatory Leave?

Compensatory leave, also known as comp time, is paid time off given to employees in exchange for overtime hours worked. In some circumstances, the paid time off must be given at the rate of 150% of the extra hours worked (commonly referred to as time and a half). In other circumstances, the leave may be matched hour for hour worked.

Is Compensatory Leave Legal?

The Fair Labor Standards Act (FLSA) defines the circumstances under which compensatory leave may be used. Compensatory leave is legal when offered to qualified employees. It is not legal for most private employers to offer comp time in lieu of overtime pay to non-exempt employees.

Who Is Eligible?

Under the FLSA, there are four main categories of employees who are eligible to receive compensatory leave:

  • Employees of a public agency, such as federal or state government workers
  • Salaried (exempt) employees
  • Non-exempt employees who work fewer than 40 hours in a week, such as in a holiday week where they are paid for a holiday but don’t actually work more than 40 hours
  • Employees in certain states

When Does It Make Sense to Offer Compensatory Leave?

Comp time can be beneficial both to employees and employers. Employees may enjoy the flexibility of working long hours one week and having extra paid time off “in the bank” to use later. Employers may like the morale boost this gives to their employees as well as the flexibility to schedule employees for extra hours during busy times.

Here are a few common examples of the use of comp time.

Government agencies

Federal and state public employees may be entitled to compensatory leave instead of overtime pay. State laws vary, but federal law requires comp time at the rate of 90 minutes for every 60 minutes of overtime worked. Interestingly, under federal law, the comp time must be used within the same pay period as the overtime is incurred. This can be challenging when the reason most people work overtime is because the company is in a busy period.

Private companies 

Private companies may decide to be generous and offer comp time for their salaried employees (who are not entitled to paid overtime). Each company is free to determine how to apply this benefit as long as it is administered fairly within the organization.

Holidays

Sometimes either exempt or non-exempt employees who work on a company holiday are allowed to take compensatory leave on a different day. In effect, this exchanges holiday paid time off for comp time.

Exceptions

Some states, like Washington, allow compensatory leave for employees of private companies. However, this runs afoul of the FLSA  and can be difficult to administer. Employers are wise to consult with legal counsel before implementing a comp time policy in these situations.

Penalties for Illegal Compensatory Leave Practices

Companies should be aware that offering compensatory leave to employees who don’t meet the criteria established by the FLSA can be subject to penalties that may include fines and imprisonment. Among other things, the FLSA protects hourly workers by mandating overtime pay. While it may be tempting to offer comp time instead of overtime pay, be careful that you are complying with the law.

How to Craft Your Compensatory Leave Policy

It’s important to create a compensatory leave policy before implementing comp leave. Clearly crafted and communicated policies reduce confusion and increase understanding of expectations on the part of employees and employers.

Public employers have additional requirements when crafting compensatory leave policies. For example, if a union is involved, the agency must have an agreement with the union about the comp time policy. Otherwise, both the agency and the employee must agree to the comp time policy in advance of the overtime hours, not after the fact.

Step 1: Eligibility

Determine who will be eligible for compensatory leave, keeping in mind the legal restrictions already in place. Will you offer comp time to all exempt employees who work more than 40 hours in a week? Will these employees need prior authorization before accruing comp time? Will non-exempt employees have different eligibility guidelines than those who are exempt?

Step 2: Calculation

Determine how the compensatory leave will be paid. Will you offer comp time hour-for-hour or some other rate?

Another issue here is how you will document comp time. Is it part of your automated Human Resources software? Do individual managers track it for their direct reports?

Step 3: Parameters

Set parameters for use of the compensatory leave. How long do employees have to use the comp time? Is there a cap on the number of hours of comp leave they can accrue? Are there restrictions for when comp time can be used?

Step 4: Review and Training

Document your policy and review it with legal counsel to ensure you have captured the intent within the legal framework of your jurisdiction. Train your managers on the policy to ensure they apply it correctly and fairly in the organization.

How to Calculate Compensatory Leave

Calculating compensatory leave will depend largely on the policy you write.

Public Agencies

Employees of public agencies, such as federal or state governments, will accrue comp time at the rate of 1.5 times the number of overtime hours worked. For example, an employee that works 10 hours of overtime will be entitled to 15 hours of comp time.

Private Companies

Exempt employees (who are not otherwise entitled to overtime pay) may receive comp time according to company policy. Companies are free to determine how they will reward the overtime hours worked, whether paid at time and a half, or hour for hour.

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Questions You’ve Asked Us About Compensatory Leave

Can a salaried employee get compensatory leave?
Company policies determine who is eligible for compensatory leave, but it is generally regarded as a sign of good will to offer comp time for salaried exempt employees who work long hours.
Do employees get paid for compensatory leave?
Some companies may choose to grant compensatory leave to non-exempt employees in addition to the federally required overtime pay.
What if employees prefer compensatory leave over overtime pay even though they aren’t eligible for comp time under federal law?
Employers need to comply with the law even when the compensatory leave is preferred by employees and employers.
Who is eligible for compensatory leave?
The Fair Labor Standards Act defines the circumstances under which compensatory leave may be used; see above for more detail.
Carol Eliason Nibley
Carol Eliason Nibley

Carol Eliason Nibley, SPHR, GPHR and Principal Consultant at PeopleServe, has more than 25 years of experience in human resources, most recently serving as Vice President of Human Resources for a technology company in Utah County. Carol has taught HR certificate courses at Mountainland Technical College and in other settings for more than 12 years.

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