This piece was commissioned by Flying Cat Marketing for Homebase: offering free software and tools designed specially for hourly teams.
Comp Time: What Is It, Who Qualifies And How To Calculate It.
Running a small-medium size business (SMB) has the potential to be an enjoyable, streamlined, and most importantly – adaptable and personalised process, when scaling with the latest tech. Learning about how employees prefer to be compensated for their time can bring rewarding returns.
Compensatory Time (‘comp time’) is a public sector legal term: defined as a ‘non-exempt method of non-cash payment for overtime’ under the FLSA in the USA. This essentially refers to a flexible arrangement by which employees take extra time off, instead of receiving extra pay for their overtime hours.
No one loves legal jargon – so we’re here to break it down. This will help you find the best way of pooling resources and creating a fair exchange: especially if your SMB has limited funds for overtime pay, and employees value more time over more money, as a means of improving their wellbeing and work-life balance.
By the end of this article, you’ll have a solid grasp of:
- Who is eligible for comp time
- What the legal jargon really means
- How to avoid running into problems with the law
- In what ways such schemes can improve the lives of both managers and employees
- Why the two key factors for implementing comp time are a) tracking time and b) payroll
- The free tools and resources from Homebase for achieving this
As comp time predominantly refers to the public sector, terms like ‘personal days’ or ‘flexible time’ are more commonly used in the private sector. Personal time and flexible hours are more important to employees than ever. However nearly 30% of business owners are in legal jeopardy from implementing comp time incorrectly.
In the world of hourly work, learning how to successfully provide such benefits can lead to greater retention – saving costs on retraining and improving company culture; It’s often greater autonomy that draws employees to hourly sectors in the first place.
A well-implemented flex-time policy proactively addresses pain points, manages productivity and staffing, keeps expectations balanced, and is transparent about accountability. This creates positive feedback loops – improving deadlines, goals, and trust.
Homebase is a team management platform that aims to make work (and life) easier for the 100,000+ small but mighty businesses they call customers; providing an array of simple but cutting-edge tools designed specifically with the needs of hourly teams in mind.
Comp Time for Private Vs Public Sector Employees
The difference between the public and private sector varies based on applicable labor laws and regulations in each jurisdiction. However, a generalised overview of the legalities, eligibility, accumulation, and conversion of hours is provided below:
Is Comp Time Legal?
In the US, the public sector is governed by the FLSA and regulations are issued by OPM (US Office of Personnel Management); Whereas the private sector is informally covered by the FLSA and regulations are enforced by the DOL (department of labor).
First and foremost, an employer must make sure that an eligible employee both wants and has requested a comp time off scheme instead of standard overtime pay; As mandatory comp time policies are usually illegal.
Who Is Eligible For Comp Time?
In the public sector, ‘non-exempt’ workers are usually eligible for comp time (i.e. federal, state, and local workers that are not exempt from receiving comp time, are eligible). In the private sector, overtime pay for hours worked beyond the standard 40-hour work-week, is more common than comp time.
Therefore, comp time is usually legal in the public sector, but not the private sector. However, this depends on pay (salary), and exempt or non-exempt status (hours) – as workers that are ‘exempt’ are usually not allowed to work overtime in the first place. You can view the variations between States via this link.
A) For Exempt Employees (ineligible and exempt from comp time)
- Employees that are ‘exempt’ from the FLSA’s minimum wage and overtime pay requirements meet specific criteria related to their job duties and salary (they earn over a certain amount per week).
- Salaried Compensation: exempt employees may be paid on a salary basis that already offers a predetermined amount of compensation regardless of hours worked.
- Therefore, exempt employees do not qualify for overtime pay if they work more than 40 hours per week.
- Since they are exempt from overtime pay, they cannot accrue the hours necessary for comp time.
B) For Non-Exempt Employees (eligible and non-exempt from comp time)
- Employees that are ‘non-exempt’ from the FLSA’s minimum wage and overtime pay requirements usually earn below a certain amount per week.
- Hourly Compensation: non-exempt employees are typically paid on an hourly basis, and their wages are directly linked to their hours worked.
- In the private sector: these employees are more likely to be eligible for overtime pay, instead of comp time. This would be paid at a rate of 1.5 times their regular rate of pay, for each extra hour worked beyond the standard 40-hour work week.
- In uncommon cases, private sector employees may have the option to receive comp time off instead of overtime pay, but this is subject to local laws and regulations.
- In the public sector: non-exempt employees are eligible for comp time. This is time off (paid at the standard hourly rate) for each extra hour worked beyond the 40-hour work week.
How Do I Calculate Comp Time?
Whether an eligible employee receives comp time or overtime, they need to be fastidious about tracking their hours if they want to be fairly compensated. Remember that it’s always best to consult your local labor laws and company policies for accurate and up-to-date information, as the exact criteria will vary.
In the context of comp time, Collective Bargaining Agreements (CBAs) may include provisions that address the usage, accrual, and other aspects of compensatory time-off for employees. These agreements are negotiated between a labor union or employee representatives, and an employer or employer’s association – and govern the terms and conditions of the employment, including the allocation of comp time.
CBAs can also specify the rules regarding accrual and usage guidelines, conversion and pay-out, scheduling and approval, record-keeping and reporting, and compliance with applicable laws.
a) Accumulation for comp time employees
- Accrual rates: this is commonly based on a ratio – e.g. 1.5 hours of comp time for each hour of overtime worked.
- Accumulation limits: these prevent excessive accruals and ensure better work-life balance. Once an employee reaches this set limit, they may need to use their comp time before earning more. The limit is subject to specific caps defined by the employing agency or CBAs.
- Usage and expiration: comp time can be used at a mutually-agreed upon time, subject to operational requirements and scheduling considerations. Some jurisdictions or policies may impose limits on the time within which comp time must be used to avoid excessive accumulation.
- Eligible employees: may be offered the option to receive comp time instead of overtime pay, subject to preference, applicable laws, regulations, and policies.
b) Accumulation for overtime pay employees
- Accrual rates: overtime pay is compensated at a higher rate than the regular hourly pay rate – e.g. 1.5 times the regular hourly rate for each extra hour worked.
- Usage: overtime pay is typically received in the pay check following the pay period in which the overtime hours were worked.
Can Comp Time Be Converted?
In the public sector, comp time earned but unused within a specific period (e.g. 1 year) may be converted into monetary payment based on the employees’ regular rate of pay.
In the private sector, there is generally no provision for converting unused comp time into monetary payment, as overtime hours are compensated solely through overtime pay.
What If My Employee Isn’t Eligible For Comp Time?
Alternatives to comp time for exempt employees
Comp time is not always available even if companies and employees want it, as the FLSA generally exists to prevent people from being overworked or exploited. Instead, it aims to encourage companies to hire more employees if they need more work done, creating new jobs and sustainably fuelling economic growth.
Exempt employees may have alternative arrangements in their work schedules, which would allow for more time off even if the same number of hours are worked:
- Enhanced Flexibility: flex-time or compressed workweeks can offer more desirable schedules. For example, an employee may choose to work four 10-hour workdays to make up 40 hr week and have a 3-day weekend.
- Time-off Policies: exempt employees often have access to vacation or paid time off (PTO) policies. These policies allow employees to take time off for personal reasons or vacation.
- Floating Holidays: some organizations offer floating holidays as a benefit for exempt employees. These are additional paid days off that employees can use at their discretion for personal reasons or observance of specific holidays not included in the regular holiday schedule.
- Personal Days and Discretionary Time: employers may provide exempt employees with a certain number of personal days or discretionary time that can be used for various purposes, such as attending to personal matters, handling family responsibilities, or taking care of emergencies.
- Remote work or Telecommuting: depending on the nature of the job and the organisation’s policies, exempt employees may have the option to work remotely or telecommute. This flexibility allows them to work from a location outside the office, providing more control over their work-life balance.
- Sabbaticals or Extended Leaves: in some cases, exempt employees may have the opportunity to take sabbaticals or extended leaves of absence. These can be granted for various reasons, such as professional development, personal growth, or extended time off for personal reasons.
How do I set up comp time for my employees?
The steps outlined below provide a general framework, but it’s important to tailor the implementation process to fit the needs of the organisation, while considering legal requirements and industry-specific factors.
- Review labor laws and regulations: understand the labor laws and regulations applicable to your jurisdiction regarding comp time. Ensure that your comp time policy aligns with these laws to avoid any legal issues.
- Define eligibility criteria: determine which employees will be eligible for comp time. Generally, comp time is available to non-exempt (hourly) employees who are eligible for overtime pay. Exempt (salaried) employees are usually not eligible for comp time. Confirm eligibility based on labor laws and your organisation’s policies.
- Determine accrual rates: establish the rate at which comp time will be accrued. It is commonly based on a ratio—for example, one-and-a-half hours of comp time for each hour of overtime worked. Ensure that the accrual rates comply with labor laws or collective bargaining agreements.
- Set accumulation limits: decide on the maximum amount of comp time that employees can accrue. This is typically to prevent excessive accumulation and encourage employees to take time off. Determine a reasonable limit and clearly communicate it to employees.
- Develop a comp time policy: create a comprehensive policy that outlines the guidelines and procedures for comp time. Include information about eligibility, accrual rates, accumulation limits, usage, scheduling, request procedures, and any other relevant details. Make sure the policy is in line with labor laws and consult with legal professionals if needed.
- Communicate the policy: clearly communicate the comp time policy to all employees. This can be done through employee handbooks, internal memos, or company-wide meetings. Ensure that employees understand the policy, its benefits, and how to request and use comp time.
- Implement tracking systems: establish a system for tracking comp time accruals and usage. This can be done through manual record-keeping, spreadsheets, or dedicated time and attendance software. Ensure accuracy and maintain records for future reference.
- Train managers and supervisors: educate managers and supervisors on the comp time policy, their role in implementing it, and how to handle employee requests. Provide guidance on fair and consistent application of the policy.
- Monitor and review: regularly monitor comp time accruals, usage, and compliance with the policy. Review the effectiveness of the policy and make any necessary adjustments based on feedback, changes in labor laws, or organizational needs.
- Seek legal and HR advice: if you have any concerns or questions regarding comp time policies, it is advisable to consult with legal professionals or your HR department to ensure compliance with labor laws and regulations specific to your jurisdiction.
Comp Time: Key Takeaways
Comp time can be a win-win situation that makes both employer and employee happy, but it must be a mutual exchange that consults both parties – pooling resources and priorities, in order to meet the larger aims of the enterprise, while abiding by the law and local regulations.
Once approved, companies can track comp time just like regular pay and overtime through easy-to-use scheduling software, whereas competitors such as Toggl now charge a fee – you can track hours for free using the Homebase time clock today. Home Base advises, simplifies and automates essential processes as a uniquely complimentary, all-in-one solution.
By implementing a well-designed comp time policy and leveraging effective HR solutions, you can modernise operations, reduce administrative burdens, and promote a positive work environment. 97% of customers say Homebase payroll is easy to use, and on average they save 30+ minutes every time they run payroll through us. We are committed to supporting businesses of all sizes in maximising staff wellbeing and ensuring compliance across multiple industries.