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4 Min. Read

What is Compensatory Time?

What is Compensatory Time?

When employees do overtime, you may be tempted to give them extra holiday instead of extra pay. Read this guide first!

Sometimes you’re working on a busy project or shift. Employees may need to do hours of overtime in those situations. Compensatory time or “comp time” is an extra holiday you give to employees to compensate for their overtime.

Though many employees probably like getting time off, the law is clear around this. Let’s clear some things up!

Here’s What We’ll Cover:

Is Comp Time Legal?

Which Employees Are Eligible for Compensatory Time?

What Are the Penalties for Comp Time Violations?

Federal vs State Laws - A Loophole?

Key Takeaways

Is Comp Time Legal?

Compensatory time is legal but only to a point. There are a few nuances so bear with me here. Let’s break down who is exempt and non-exempt from overtime pay:

Comp Time for Non-Exempt Employees

Non-exempt employees are required to receive overtime pay if they work more than 40 hours during a workweek. The FLSA (Fair Labor Standards Act) protects these workers’ rights to overtime pay.

If you offer a non-exempt worker comp time instead of overtime pay, you are violating federal labor laws. They are legally entitled to receive their regular rate of hourly pay plus one-half for their overtime hours.

There is some variation with state laws so check your state legislature around overtime. 

Comp Time for Exempt Employees

Exempt employees are not required to receive overtime pay. They aren’t required to receive any compensatory time either. But you can still offer it to them to improve employee satisfaction in your company.

Comp Time for Government Employees

Government employees have different rules. State, federal and local government employees can legally receive compensatory time in lieu of cash overtime pay.

That said, there is a maximum of how much comp time they can accrue. Law enforcement, seasonal workers, emergency response staff and firefighters can accrue up to 480 hours per year in comp time. All other government employees can accrue 240 hours of comp time. 

Which Employees Are Eligible for Compensatory Time?

The question behind the question is who is exempt from overtime pay? The definition is quite broad but generally salaried folks are exempt from overtime.

Employees are ineligible for overtime pay if they meet the following criteria: 

  1. They are paid a salary rather than on an hourly basis
  2. They earn at least $684 a week/$35,658 per year.
  3. They receive a salary for any week they work

Common types of exempt employees: 

  • STEM employees (Science, Technology, Engineering and Math)
  • Executives
  • Administrative
  • Professional
  • Outside sales

Though these are eligible employees, you don't owe them compensatory time either. It's difficult to calculate a compensatory time balance for salaried employees. With hourly rate employees, you have an exact calculation of their time.

What Are the Penalties for Comp Time Violations?

The government treats compensatory time violations very seriously. Penalties include:

  • You could be fined up to $10,000
  • You could owe twice the amount in back wages. Known as “liquidated damages”
  • If an employee sues you for not giving them overtime, you will have to pay their legal fees.
  • Repeat offenders can receive jail time
  • Repeat offenders may own up to $1000 in fines per offense.
  • Discriminating against employees who speak out about overtime violations is also a huge no-no. You could face more fines and penalties

Basically, breaking the rules is going to cost you way more than overtime pay would have!

Federal vs State Laws - A Loophole?

If you really really want to offer compensatory time in lieu of overtime pay, it’s possible in a couple of states. For example, Washington allows employers to give comp time if the employee agrees to it. 

But we don’t think it’s worth the risk. The federal vs state legislature area is complex. The DOL (Department of Labor) are more likely to side with the federal laws if you’re sued. 

Key Takeaways

Compensatory hours are quite messy! It’s mostly illegal for hourly employees and completely superfluous to salaried employees. It's a human resources disaster if you are publicly sued for not paying for extra hours.

All in all, it may not be worth the trouble. 

For more articles and guides on employee management, head to our resource hub.