Comp Time Vs Overtime: What’s the Difference?
Working overtime happens, but how do you compensate your employees? Comp time or overtime? This guide will explain the differences and legalities of both.
If you have hourly employees, two things are true:
- You need to be time tracking your employee’s work diligently with reliable timesheets
- You need to know the ins and outs of compensatory time and overtime
As private companies with employees, overtime hours are part and parcel of work.
Knowing how to legally compensate your employees is super important.
This guide will explain the difference between compensatory time and overtime. Which one should you use to compensate employees? Read on, you’re in the right place!
Here’s What We’ll Cover:
What Is Overtime?
Let’s start with the more common method of compensating hourly employees. Overtime is a form of paying your employees for the extra hours they have worked.
Typically the overtime rate is one hour and a half of the regular rate.
What Is Compensatory Time?
Compensatory time or “comp time” is when an employer will give their employee extra holiday time off in lieu of overtime pay.
It’s not a very common practice because in most situations, it’s illegal. The federal and state laws around overtime pay vs comp time is important to understand.
What Are the Overtime Laws in the Us?
So is comp time legal?
The first thing to understand is the difference between the two types of employees. Not everyone is entitled to overtime pay. There are exempt employees and non-exempt employees:
- Non-Exempt Employees
A nonexempt employee is usually an hourly worker. If an employee works more than 40 hours per week, they must receive overtime pay under federal law. This is according to the FLSA (Fair Labor Standards Act).
You’re breaking federal labor laws if you offer comp time to an hourly employee. You need to give them their fair overtime rate or you could face fines. The employee's hourly rate needs to be at the minimum wage. That is the state minimum wage. Your employee also has the right to sue you for back pay you owe them for unpaid wages from hours of overtime.
- Exempt Employees
Exempt employees are usually salaried employees. They must earn at least $684 a week/$35,658 per year. They are also usually in administrative, executive, STEM and professional jobs.
If the employee meets the above criteria, they are ineligible for overtime pay or comp time. You could offer them compensatory time but it defeats the purpose of salaried work. If you are paying a salary for every week they work, this should cover their extra hours. At least by law. If you choose to offer comp time to one of your salaried workers that has been working extremely hard, that’s completely up to you!
So Who Is Eligible for Comp Time?
Reading this article so far, you’re probably thinking that you don't really have a choice between comp time and overtime. Why does it exist if it’s illegal?
Well, as always, there are nuances.
In some states, it’s legal to offer an employee comp time instead of overtime. This is only allowed if the employee agrees that they prefer comp time instead of the extra pay. You’ll have to check the state laws where you live to see if this is possible.
It’s still a bit of a gamble. State law vs Federal law is always touchy. It might be worth contacting an employment lawyer to help you understand your allowances better.
The only employer that is 100% safe to offer comp time in lieu of overtime pay is the government. Of course! Public sector employees have completely different company policies.
Government employees are very routinely offered compensatory time. They have maximum thresholds of comp time they can accrue depending on the job title and department.
For example, firefighters and law enforcement can accrue up to 480 comp time hours of comp time per calendar year. Whereas other government workers can only accrue up to 240 hours of comp time every year.
The moral of the story is this. Unless you’re a government employer, comp time is probably not worth the risk. Comp time violations are no joke. Hefty fines and even jail time are penalties for repeat labor law offenses. There might be a loophole with your local state laws, but do check with an employment law specialist. In general, private sector employers should probably avoid it.
For more guides on employee management and labor laws, head to our resource hub!