Starting Point
All employees who work more than 40 hours in a week must be paid overtime at the rate of 1.5x for each hour above 40 worked…unless there’s an exception.
Exceptions to the Rule
Those employees who meet the exemption requirements for
Administrative,
Professional,
Executive,
Computer, or
Outside Sales
occupations don’t need to be paid overtime—these determinations should be made with care, confirming that all parts of the relevant test(s) are met. See this post for more information.
Comp Time Specifically
Comp time either refers to “compensatory time” or “compensation time” depending on who you talk to, and what they ate that day. Either way, you’ll notice that neither the rule nor the exception use the words “compensatory” or “compensation,” and that’s because comp time is not part of the overtime rule…at least not for private companies.
At it’s core—and this is the really simple part—comp time is only available to government employees. The type of government or employee can change, like federal/state/local, or investigator/scientist/firefighter, but the overall concept can’t. If you’re a private employer, you cannot have your nonexempt employees use comp time. Doing so fully violates the Fair Labor Standard Act, the same law that creates the minimum wage. The FLSA defines the type of government entities that can use comp time below (and here):
State and local government employers consist of those entities that are defined as public agencies by the FLSA. “Public Agency” is defined to mean the Government of the United States; the government of a State or political subdivision thereof; any agency of the United States, a State, or a political subdivision of a State; or any interstate governmental agency. The public agency definition does not extend to private companies that are engaged in work activities normally performed by public employees.
Emphasis was added to help show that even government contractors, whose entire existence is built on working with or for the federal government, can’t use comp time in lieu of overtime for their employees; it’s explicit in the law. They need to pay overtime unless their employees are exempt from the overarching overtime rules…and no, your employee agreeing to take comp time isn’t a defense, even if it’s in writing, signed with some weird blood oath.
It’s still breaking the law, and they will still win in a lawsuit.
So how about comp time for “Exempt” employees? Those people validly working in Administrative, Professional, or Executive capacities with duties that fall perfectly in line, and salary standards that at least hit the minimum? I mean, you can give them comp time…but why? People who are actually exempt don’t need to be paid overtime, it’s already understood that they may need to work more than 40 hours in a week, and that’s why they make those (relative) fat stacks. Comp time then just comes down to a nice gesture with a mountain of logistics in tracking. For your actually exempt employees, you can just give them time off as things slow down to keep morale up, without instituting a Comp Time system.
What’s the harm for using Comp Time instead of overtime for regular employees? Backpay, and in this case “Backpay”=(Back pay + a penalty equal to the back pay + attorneys fees), fines of up to $10k, and for those special repeat offenders: jail time. For someone that’s been with you years, the monies owed add up fast. And once one person sues, everyone else in the office tends to find out, and you’ll owe them too. Funnily enough, because you have a Comp Time system you likely have accurate records of precisely how much you’ll owe them in back pay, which the court will use to tally those final numbers…although if you had a good lawyer, you probably would have been paying them legal wages all along, without risk of penalties or lawsuits.
What’s the TL;DR?
If you’re a privately owned business that uses “comp time” as a way to avoid overtime, you’re in for a bad time.
As usual:
Don’t make business decisions because of something you read the internet
This is legal information, not legal advice
These laws might not apply depending on where you live
I might be a lawyer, but I’m not your lawyer