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What Is Compensatory Time Off: Definition, Rules & Examples
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Workforce Management

What is Compensatory Time Off, or Comp Time Off?

One Minute Takeaway

  • Compensatory time is a legal term that refers to an arrangement by which employees take time off instead of receiving overtime pay.
  • Under most conditions covered by the FLSA, it’s illegal to offer comp time in the private sector.
  • Personal days and flex time are more important to employees than ever.

HR leaders are looking for ways to recruit, reward, and engage employees without breaking the bank. Offering employees comp time, additional time off or flexible schedules, are some ways to do that. However, changes to scheduling, compensation plans, or benefits must follow applicable laws to ensure employees are treated fairly. To help you understand comp time, we’ve pulled together a few quick facts and watchouts as well as other ways to reward workers with time off.

What is Compensatory Time (Comp Time) and Who is Eligible?

In some instances, employees who have worked more than 40 hours in a work week can earn compensatory time or comp time in place of overtime pay. Comp time is most often used in the public sector by state and federal agencies to reimburse covered nonexempt or hourly employees for overtime under the Fair Labor Standards Act (FLSA). 

As a reminder, exempt employees are typically salaried employees exempt from the overtime provisions of the FLSA and include executives, professionals, or outside sales employees. Nonexempt employees are typically hourly employees and entitled to overtime pay when they work more than 40 hours in a workweek. 

Under most conditions covered by the FLSA, it would be illegal to offer comp time in the private sector.

Nonexempt or hourly employees who work more than 40 hours a week must receive overtime pay at a rate not less than time and a half their regular rate. Even if the employee would prefer time off, you’re still obligated to pay them. So, under what conditions can you offer comp time? Let’s find out.

What are the Rules for Comp Time?

The main guidelines that employers need to follow to replace overtime with compensatory time include:

  • Paying hourly rate times one and a half hours for every hour of overtime worked
  • Following union agreements about compensatory time policies
  • Developing terms of compensatory time and ensuring that they are followed before crediting payroll
  • Ensuring compensatory time is taken in the same pay period as overtime hours

Nearly 30% of business owners are in legal jeopardy from providing comp time to nonexempt employees.

Don’t Call it Comp Time

It’s important to note that compensatory time is a legal term. It applies to the public sector and is defined as a nonexempt method of noncash payment for overtime under the FLSA. If you are rewarding employees with time off, you may want to use another name such as personal days or flexible time off.

Personal Days

The FSLA does not require payment for time not worked, such as personal leave, vacations, sick leave, or federal or other holidays. If a company offers personal days above and beyond the employment agreement, employers should avoid hour-for-hour time off.

Flexible Work Schedules

According to an American Time Use Surveyconducted pre-COVID by the Bureau of Labor Statistics, 57% of wage and regular salary workers were allowed to use a flexible work schedule that varies arrival and departure times or gives them the freedom to choose their work hours. Depending on the company’s compensatory time policy, employees work a prescribed number of hours per pay period and may need to be present during certain times of the day. For some roles and remote work situations, employees have the flexibility to create their own work arrangement even though they work the same number of hours as a traditional schedule.

A well-implemented flex time policy addresses concerns proactively, manages productivity and staffing, keeps expectations transparent, and creates accountability for employees and management. It also helps build goodwill when employees meet deadlines, achieve goals, and earn trust.

Benefits of Personal Days & Flex Time Programs

Personal days and flex time are highly desirable perks in a tight labor market. These policies can help employees find more work/life balance, but they also help with less aspirational, more everyday challenges, like finding time to (finally) go to the dentist, get to the BMV, navigate parenting/co-parenting needs, etc. 

Schedule Management Programs & Compliance

Besides legal and regulatory compliance issues, 41% of CEOs say labor cost is the most important metric organizations should monitor and measure. The first step towards monitoring, measuring, and predicting labor cost trends is to automate and use time and attendance management software. Paycor Time allows HR leaders to collect and monitor employee hours and review overtime spend by department, manager, location and more. 

Paycor offers a single source of truth for all employee data; you will never have to switch platforms, log in to multiple systems, re-key information, or open multiple spreadsheets. Paycor allows you to focus on talent acquisition, employee engagement, developing your people and being a more strategic leader.