Home / Management / Overtime vs. Comp Time: Knowing Which to Offer When

Overtime vs. Comp Time: Knowing Which to Offer When

Posted by Eric Friedman

overtime

There are some areas of Human Resources that make you want to scratch your head. For many, the question of overtime payment versus compensatory time falls into that category. Knowing the legal regulations of when to offer which, how to offer them, how to inform employees about their options, and what guidelines to have in place can quickly feel like an information overload. However, if you want your company’s overtime and compensatory programs run smoothly and successfully, it’s important to have a good grasp on them. When overtime and comp time aren’t offered and processed correctly, it can cause legal problems and impact your bottom line.

Offering Overtime

Overtime pay is mandated by the Fair Labor Standards Act (FLSA) and requires that any non-exempt employee who works more than 40 hours during a one-week period be paid overtime. According to the FLSA, overtime hours must be paid at a rate of one and a half the employee’s regular hourly wage. There are also some state laws that companies must adhere to, such as regulating when the overtime is earned (day-to-day versus weekly) and other issues.

Offering Compensatory Time

Comp time may be offered to exempt employees, to allow them to accrue a bank of hours for overtime worked. They may make a  “withdrawal” from this bank of comp time rather than using their vacation or sick time. Some companies are very flexible with their comp time, allowing employees to work late certain evenings and leave early on others, while other companies keep a strict record of comp time and require employees to submit a request to use it. Oftentimes, companies find a balance by utilizing a bit of both methods.

Important Considerations

After you’ve determined the best policy for your employees, you need to let them know about it. Develop a policy that outlines who receives which type of compensation, how they should request it and submit for it, and how much of each type is allowed. Consider whether there should be limits to the amount of overtime an individual can put in for on a monthly, quarterly, or yearly basis. For comp time, determine whether it needs to be used within a certain time period and what happens when an employee leaves with comp time remaining in his or her account.

While we are trying to provide general guidelines here, please keep in mind that you need to follow your local as well as federal guidelines. Each state has different laws, and when you throw in FMLA and DOL, it gets complicated very quickly. Make sure that you’re up-to-date with the laws and regulations that apply to your situation and/or talk to an attorney. Employment law does vary by state. What are your experiences with comp time versus overtime?

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About Eric Friedman

Author

Eric Friedman is the founder and CEO of eSkill Corporation, a leading provider of Web-based skills testing for pre-employment and training. With academic degrees in Psychology and Business, and experience with both mature and expansion-stage company growth, Eric has focused on how best to hire and motivate team members to be the best they can be for their companies.

7 COMMENTS Join the discussion
  • Connor Biggs April, 15, 2014

    I think those employers who do value their employees and do their business in accordance with the law will go with paying the overtime. It’s really easier to do, and you may pay for overtime weekly or monthly, depending on your organization. Whilst things are much more complicated with compensation time.

  • Stanley Wilden April, 16, 2014

    What if employee worked on a national day-off because it was an emergency, how is compensation time calculated for the loss of this valuable time an employee could have spent with his/her family? It’s clearer with overtime payments, but as we know not everything is calculated in money, and some people really need that time off they’ve lost because of some deadline in the company.

  • Daniel April, 16, 2014

    From my hands-on experience I’ve noticed that most employees choose paying overtime, and probably with most employees it’s ok, but I would really appreciate it if I had another option. Of course sometimes you can be satisfied with more money on your account, but there’re situations when you could use the lost time.

  • Leslie April, 22, 2014

    Is it mandatory that comp time for exempt employees be offered or can an employer mandate that an exempt employee work overtime hours uncompensated?

  • Margaret April, 22, 2014

    This article and the info it contains is misleading on so many levels. Proceed with caution.

  • Michael D. Haberman, SPHR April, 23, 2014

    Eric, I want to make a comment about your statement “That said, most employees earning more than $23,600 a year are exempt and can be offered comp time.” That is not correct. The $23,600 is the minimum amount that someone must be earning in order to meet the salary requirement of being an exempt employee, but that is not the only hurdle. There is also the duties test and the fact that they have to be paid a salary. So it is not just a matter of taking a look at how much money someone makes. If they are not an exempt employee they must be paid overtime.

    Under the FLSA there is no requirement to pay an exempt employee anything beyond their salary. So if someone works 45 hours or 50 hours there is no extra compensation due. In the same vein if they work only 30 hours or 35 hours they can also not have any wages deducted. Compensatory time off is a good way to reward hard working employees and I recommend it, but it is not required.

  • Eric Friedman April, 30, 2014

    I apologize for the confusion. My intention was to address the subject in general terms, while at the same time encouraging payroll managers to consult their local as well as federal guidelines.
    To clarify, here is more information on the exempt status.

    For most professions, an individual is an exempt employee if he or she meets the following three tests:
    1. Is paid at least $23,600 per year (or $455 per week)
    2. Is paid on a salary basis
    3. Performs exempt job duties

    – See more at: http://employment.findlaw.com/wages-and-benefits/exempt-employees-vs-nonexempt-employees.html

    But again, each company needs to verify the laws and regulations that affect it specifically, before putting a policy into effect.

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Guest April, 30, 2014