Overtime: Steer clear of the comp time trap

Awarding comp time for extra hours worked is a common strategy that can backfire. The Fair Labor Standards Act lays out strict rules for what basis can be used for awarding comp time and when it’s illegal to give comp time in lieu of cash overtime.  

If you are a private-sector employer, paying comp time to nonexempt employees in lieu of overtime pay is illegal. There’s no leeway here; the law is crystal clear.

Nonexempt employees must always receive overtime pay of time-and-a-half for hours worked over 40 in a week. (Government agencies are allowed to offer comp time to their employees regardless of exempt/nonexempt status.)

The story is different for exempt employees. While private-sector employers are not required to give exempt employees comp time when they work more than 40 hours per week, nothing in the FLSA prohibits you from doing so.

If you decide to provide comp time, you may do so on any basis. It doesn’t have to be one-and-a-half hours off for every overtime hour worked. You may, for example, provide comp time on an hour-for-hour basis.

Note: Don’t try to avoid paying overtime by extending employees’ pay periods to two weeks and offering comp time instead. Employers may not average hours over more than one workweek to avoid paying overtime. However, the FLSA does allow employers to set up a “time off plan” for nonexempts that mitigates the costs of overtime in one week by reducing the hours worked in another week.