Offering Comp Time to Employees – Considerations for Employers

It’s not law yet (as of May 5, 2017) but the U.S. House of Representatives has passed House Resolution H.R. 1180 that allows employers to offer their hourly employees an option to accept compensatory time off instead of paying them over time compensation. The new law is titled the Working Families Flexibility Act of 2017 and will amend the Fair Labor Standards Act of 1938 that governs much of the labor law in the USA. It is important to know that employers are not required to offer comp time in lieu of overtime payments and whether to offer a Compensatory Time plan is at the sole discretion of the employer.


How Much Time is Comp Time?

Per the rules, compensatory time should be accrued at no less than one and one half hours for each hour of overtime elected to be treated as comp time.

The 1000 Hour Rule

Per the bill, comp time can only be offered to employees provided they have worked at least 1000 hours for the company in the preceding 12 month period.

Maximum Amount

How much time can an employee accrue? Per the rule an employee may not accrue more than 160 hours of compensatory time. Employers also have the option to “cash out” an employee’s accrued comp time for any amounts over 80 hours provided they have provided the employee with 30 days prior notice.

Stopping Comp time and Cashing Out

Employees may elect to cease accruing comp time at any time. They also can (by written request) “cash out” their comp time for all unused time. The employer has up to 30 days to completed the requested payment to the employee.

How can comp time be used?

Similar to vacation time, the law states that compensatory time “shall be permitted by the employee’s employer to use such time within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the employer.”

Can employers force workers to accept Comp Time instead of overtime payment?

No. No. No. The rule states that: “An employer that provides compensatory time under paragraph (1) to an employee shall not directly or indirectly intimidate, threaten, or coerce or attempt to intimidate, threaten, or coerce any employee for the purpose of—“(A) interfering with such employee’s rights under this subsection to request or not request compensatory time off in lieu of payment of monetary overtime compensation for overtime hours; or“(B) requiring any employee to use such compensatory time.

Paying off Comp Time

Upon termination, employers must make payment for all accrued comp time amounts. For employers this may be trickier than it looks. The law states that: “If compensation is to be paid to an employee for accrued compensatory time off, such compensation shall be paid at a rate of compensation not less than—“(i) the regular rate earned by such employee when the compensatory time was accrued; or “(ii) the regular rate earned by such employee at the time such employee received payment of such compensation, whichever is higher.

For Employers – Things to Consider before implementing a Comp Time Policy

If this new bill becomes law, employers have some things to consider before offering a comp time program in their company. First of all, read the H. R. 1180 bill and know the provisions of the law. Can employers offer comp time to some employees and not to others? This would seem to open the employers to accusations of disparate treatment of workers. Companies considering offering a compensatory time program need to carefully consider the cost of comp time implementation and the ongoing administration costs.

Employee Handbook Changes

A company that wants to offer a comp time plan for their eligible employees will need to update their employee handbook to clearly communicate the procedure for employees to follow when electing to treat overtime compensation as comp time and conversely to stop such treatment. In addition company policy for requesting comp time usage or comp time payment must be established and communicated to employees.

Payroll Processes and Systems

Effectively implementing a comp time program will require that the company use a payroll system that:

  • Tracks the employees eligibility for comp time election:
    • Employee is hourly
    • Minimum 1000 hours worked in last 12 months
    • Current comp time balance not over 160 hours
  • Tracks whether the employee has elected to treat the current payroll period overtime as comp time. Time cards or other time and attendance systems may need to be modified.
  • Tracks the employee pay rate at the time the comp time was earned.
  • Provides employee with a pay advice (payroll stub) showing the comp time earned and comp time balance available.

Interestingly, implementing this plan will require payroll systems to differentiate between employee wages earned and wages paid. Items like employer costs for workers compensation insurance premiums and state unemployment taxes need to be considered. Other complications like wage garnishments, IRS levies or child support orders may get involved.

Employer Liability

Comp time owed to employees represents a financial liability of the company and accounting treatment should recognize this situation. Companies with a comp time plan need to implement accounting practices that recognize their future liability and ensure that funds are available to meet their associated financial obligations. Investors considering purchasing an interest in a company with a comp time plan in place need to be aware of potentially significant obligations they may inherit.

How will Professionals Employer Organizations React?

It can be expected that if H.R. 1180 (Working Families Flexibility Act) is implemented into law, some PEO clients may want to offer their work-site employees the option to accept comp time in lieu of overtime compensation. As we discussed above, there are many moving parts to get right. PEOs are experts in the rules, processes and operational aspects of implementing these HR best practices.