Have you ever offered employees “comp time” (compensatory time) in exchange for them working overtime? If you have, you won’t like the next sentence: Giving comp time in lieu of overtime pay is a violation of the Fair Labor Standards Act (FLSA). But don’t feel alone. According to a survey by TSheets (via Barbara Weltman), one-third of 500 non-government employers surveyed have done the same thing.

Warning! You may be using comp time illegally

The U.S. Department of Labor (DOL) describes compensatory time, or “comp time,” as “paid time off the job that is earned and accrued by an employee instead of immediate cash payment for working overtime hours.” Although compensatory time off for full-time employees is an acceptable practice among government employees, the DOL does not permit its use for nonexempt employees* in non-government employment. (The DOL has published guidance to state and local government employees regarding compensatory time.)

But according to the TSheets survey, the word apparently hasn’t gotten out to lots of employers.

30% | Percentage of business owners who have used comp time instead of overtime
18% | Percentage of business owners who have given the option to employee of time off or overtime pay. (Note: Even if nonexempt employees do prefer comp time to overtime, the FLSA still mandates they be paid overtime instead of being provided comp time.)
17% | Employers who aren’t paying their employees either overtime or compensatory time

Comp time for ‘exempt employees’ is legal

Under the FLSA, exempt employees (salaried employees)* are not eligible for overtime pay, so any comp time offered for hours worked in excess of 40 per week falls at the sole discretion of the employer. If you choose to offer comp time to exempt employees, it’s important to create a policy that governs how and when comp time will be offered, so the benefit is applied consistently.


Penalties for comp time violations

Rules about comp time are enforced by the Department of Labor. Penalties can be extremely steep for both knowing and unknowing violations:

  • $10,000 | Willful violators can be fined up to this amount
  • 200% | The employee can receive up to twice the amount of back ages owed
  • Legal fees | If an employee lawsuit is successful, the employer may have to pay legal fees
  • Jail time | Repeat offenders face jail time and civil penalties up to $1,000 per infraction
  • Additional fines | For retaliating or discriminating against employees who file complaints

NOTE | This article involves serious legal issues. If you need to know more, seek the assistance of a human resources professional or employment lawyer.

Also on SmallBusiness.com

What Should a Small Business Do Now That The Federal Overtime Rule Has Been Blocked?

*Definition of “exempt” and “non-exempt” workers:

Workers who are paid by the hour are covered by the FSLA and receive “time-and-a-half” overtime pay if they work more than 40 hours a week or more than eight hours in one day. Salaried employees (those paid by the year) are not covered by overtime regulations, and thus are described as “exempt workers.” Such salaried employees can include a wide range of professionals, administrative workers, and executives. The term “non-exempt worker” is a convoluted way of explaining that an hourly employee is not a salaried employee.

To keep companies from calling every employee a salaried worker, the law includes an exception for salaried workers whose salaries have been less than $455 a week, or $23,660 a year; they must be paid time-and-a-half for overtime. An executive order by President Obama was scheduled to go into effect in the fall of 2016 raising the  “earning threshold” for exempt workers to $913/week ($47,476 per year). Increasing the exemption to that amount would have expanded time-and-a-half overtime pay to an additional 4.2 million workers. However, that increase was blocked by a federal judge and will not likely go into effect soon.

VIA | TSheets.com
HT | Barbara Weltman, author of J.K. Lasser’s Small Business Taxes (and many, many other helpful books)

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