Comp Time: What It Is And Examples

By Sky Ariella - Nov. 23, 2020
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When an employee puts in more than 40 hours in a given week, it’s considered working over a full-time schedule. Most organizations will compensate this time by paying them overtime pay for the extra hours they worked. Some, however, will opt to supply their employees with compensatory time instead.

What Is Compensatory Time?

Compensatory time is a mechanism that some companies will use to account for the overtime hours that their employees work. It works by supplying them with paid time off instead of increased monetary compensation for their hourly work. This is much less common than receiving overtime pay for your services.

How compensatory pay works is by offering equal time in paid days off as the amount they would’ve gotten for overtime hours the employee worked. This means that their overtime hours will be counted at one and a half times their value.

For example, if an employee at a company works 48 hours in a given week, they’d be awarded 12 paid-time-off hours, at one and a half times the original hourly. Sometimes the employee will be able to use the day off at their discretion. Other organizations may have more restrictions on how and when an employee uses their compensatory time.

Compensatory Time Vs. Overtime

Compensatory time is offered to employees instead of receiving paid overtime. While compensatory time and paid overtime function to serve the same situation as when an employee works more than a full-time weekly schedule, they are very different.

The traditional method of paid overtime refers to a payment schedule in which the employee receives one and a half times their usual hourly rate for every hour over 40 that they work per week. Providing overtime wages is required by the Fair Labor Standards Act (FLSA) unless an employee is exempt.

Alternatively, compensatory time takes these extra hours of the workweek and gives them to their employees as paid time off. There are specific guidelines and requirements for who can receive compensatory time instead of overtime, and it’s definitely not the norm. But, it can be a useful solution for individuals who have a flexible schedule and could use the extra time more than the money.

Who Can Earn Compensatory Time

Understanding who is eligible to receive compensatory time can be confusing at first glance. Laws differ between states, as well as under federal regulation. Do some research on state labor websites to learn more about your state’s specific compensatory time rules.

Regardless of state, most private employers are not allowed to give their non-exempt employees compensatory time and must provide overtime pay at one and a half times the regular hourly rate. It is a crime punishable with hefty fines and possible jail time to offer compensatory time in a situation that it’s not allowed.

Companies have the option to offer compensatory time at their own discretion for exempt employees, but it isn’t required to give these employees overtime by law and usually won’t happen.

The bulk of organizations that are permitted to give their employees the option of compensatory time are government agencies.

Jobs that may offer compensatory time instead of overtime pay include:

  • Fire department

  • Health care workers

  • Road maintenance workers

  • Law-enforcement

  • Education

Benefits to Offering Compensatory Time

There are a few benefits that make offering comp time to employees an attractive alternative to overtime pay.

  1. Improves employee satisfaction. Keeping your employees happy is a huge part of maintaining your company’s productivity. A team who feels appreciated by their employer will go above and beyond to ensure their work gets done. Offering compensatory time as an option instead of overtime pay may be extremely helpful and appreciated by many employees.

    Giving them options will also improve their satisfaction in their job.

  2. Allows for a flexible schedule. The great thing about receiving comp time instead of overtime pay is that it accommodates a flexible schedule. For many employees, the opportunity to save those hours and use them when they need it most can alleviate a lot of stress. Flexibility in schedule also makes working for your company more attractive to strong candidates you want to offer a job to in the future.

  3. Gives employees freedom. We’ve all been in the situation where we’re getting ready to leave for work only to find that the car has broken down or some other unforeseen emergency emerges.

    Having to use up a personal day to accommodate this hassle is a major headache, and many employees would prefer to have compensatory time for this kind of event. Offering compensatory time gives your employees more freedom in their lives to use their paid days off when they need it.

Limitations to Compensatory Time

Offering compensatory time instead of overtime pay, when applicable, can come with the upsides of employee satisfaction and flexibility. But it also has some limitations. Consider the following drawbacks of offering compensatory time to your employees.

  1. Employees may take advantage of the system. Once a system of compensatory time has been offered to your employees, they may take advantage of it. Knowing that they can work extra hours and secure a day off or multiple later can lead many people to work overtime on purpose to get this benefit.

    This isn’t the goal of offering compensatory time, and it can end up being a significant drain on your business if many employees begin intentionally working over 40 hours each workweek to get more paid time off.

  2. It can get confusing if an employee leaves the company. When putting together a plan for supplying your team with overtime compensation, you need to consider every possible aspect of this decision. In terms of compensatory time, it can quickly get confusing when an employee is terminated or quits.

    If an employee saves up many hours of paid time off and then leaves the company, the decision must be made of what to do with this time. It is technically wages of time owed to the employee, and they must receive it one way or another. Usually, this will translate to paying out the time for these hours.

  3. It may require more explanation. While most of the people you hire will probably be familiar with the concept of overtime pay, less are well-versed in compensatory time. Making a system of compensatory time work depends greatly on how well you communicate the terms with your employee during the onboarding process.

    Getting on the same page of how they can use their compensatory hours and details to the overtime system could require more time and clear communication.

  4. Heavily restricted by federal regulations. Overtime pay is a straightforward way of rewarding your employees for their extra hours while adhering to federal law. Choosing to use compensatory time instead of these comes with a lot of federal regulations. This can make it difficult, if not impossible, for a lot of businesses to offer this alternative.

Frequently Asked Questions About Compensatory Time

  1. Do paid holidays and sick days count as compensatory time? No, your compensatory hours are counted in addition to any paid time off that is included in your benefits package. Compensatory time is paid hours that you get from working more than 40 hours in a week. Holiday, personal, and sick paid days off are benefits given to employees at the decision of their company.

  2. How do I earn compensatory time? Employees eligible to receive compensatory time do so by working more than 40 hours in a workweek, which is considered overtime by federal law.

  3. Does my compensatory time expire? No, the comp time you’ve accumulated while working overtime will not expire unless your employer specifically states these terms.

  4. What’s the difference between non-exempt and exempt employees? In terms of overtime pay in accordance with federal law, exempt employees refer to people who are not required to be paid overtime for working more than 40 hours a week. The reasons for this can vary depending on the individual and position. Non-exempt employees are the ones who must be paid overtime for any hours over 40 that they work per week.

    In other words, they are not exempt from the law requiring that employers pay their employees one and a half times their regular salary for hours worked past a full-time schedule.

  5. Will the value of compensatory time be equal to the hours worked? No, although compensatory time is different from overtime pay, it is still paid out the same way. Employees will receive one and a half times the hours they’ve worked in compensatory paid time off. You can figure out of many hours you’d receive by multiplying the overtime hours you worked by 1.5.

  6. Is there a limit of compensatory hours I can get? Yes, most non-exempt employees receiving compensatory hours can receive a maximum of 240 hours. The maximum for certain jobs, like emergency response, is up to 480 hours of comp time. Once this limit has been reached, the employee will begin receiving overtime pay instead until they use up some of their comp time.

  7. Who decides if I can get comp time? The decision for if you can receive compensatory time is made based on your state regulations and position within the company. If you’re eligible for overtime and your state allows organizations to offer comp time instead of pay, your department and company will make the final call on if you can get it.

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Sky Ariella

Sky Ariella is a professional freelance writer, originally from New York. She has been featured on websites and online magazines covering topics in career, travel, and lifestyle. She received her BA in psychology from Hunter College.

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