Can Employers Offer Compensatory Time to Exempt Employees?

By: Doug Hass

July 29, 2015

Recently, two blog readers asked a question about the use of compensatory (comp) time in the private sector during a discussion about tracking exempt employees’ hours worked. One reader’s company tracked exempt employees’ hours worked, and permitted the employees to “flex” any hours worked in excess of a normal workweek, either later that week or in future weeks on an hour-for-hour basis, subject to work loads and scheduling requirements. Another reader wondered if banking “flex” time would be an illegal use of comp time by a private employer. Let’s debunk that myth: Can you offer comp time, flex time, or some other additional compensated time off to your exempt employees? Yes! This is legal and permitted by the Fair Labor Standards Act (FLSA) regulations.

As you know by now if you have been reading this blog, the FLSA requires all employers to pay “non-exempt” employees time-and-one-half their regular rate of pay for all hours over 40 that those employees work in a given week. If an employee is exempt from the FLSA’s overtime requirements pursuant to one of several exemptions, like the “white collar” executive, administrative, or professional exemptions, these so-called “exempt employees” need not be paid overtime for hours that they work in excess of 40 hours in a week. However, the FLSA also includes provisions for comp time for certain public and private employees, though the rules work differently for each sector.

Compensatory Time Under the FLSA for Public Employers

Section 207(o) of the FLSA allows public employers at the federal, state, or local level to compensate non-exempt employees for hours worked in excess of 40 with comp time in lieu of cash overtime. Because public, non-exempt employees’ comp time is in lieu of overtime, public employers must credit that comp time at the same rate as cash overtime: no less than one and one-half hours of comp time for each hour of overtime work. A public employer that compensates its non-exempt employees overtime with hour-for-hour comp time violates the FLSA regulations.

Public employers who use comp time for non-exempt employees can do so in lieu of all cash overtime, or only some of it. Public employers may restrict non-exempt employee comp time to particular employees, job titles, or even particular assignments (emergencies, weekends, holidays, etc.). The only prerequisite for public employers is that the non-exempt public employee agree beforehand to be compensated with comp time instead of cash overtime, either in a collective bargaining agreement, memorandum of understanding or other agreement, or via some other agreement or understanding arrived at with the employee before the work is performed (while certainly helpful, the understanding need even not be a written one).

The regulations specify that public employers may allow their nonexempt employees to accrue only up to 240 hours of comp time, unless the employees work “in a public safety activity, an emergency response activity, or a seasonal activity,” in which case they may accrue up to 480 hours. Public employers also must allow employees to use their accrued comp time “within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the public agency.”

Importantly, the DOL’s regulations do not authorize “use or lose it” comp time policies. Remember that comp time is simply a substitute for cash overtime. You cannot force a non-exempt employee to forfeit or convert cash overtime into something else, and you similarly cannot force a non-exempt employee to forfeit comp time or to convert it to sick time, vacation time, or other PTO.

The FLSA and its regulations require that public employers pay employees for unused comp time when their employment terminates for any reason:

at a rate of compensation not less than—

  1. The average regular rate received by such employee during the last three years of the employee’s employment, or
  2. The final regular rate received by such employee, whichever is higher.”