Comp Time: what is, who qualifies, and how to calculate it

Comp Time: what is, who qualifies, and how to calculate it

Overtime isn’t for everyone. While some employees leap at the chance to earn extra money, others want to keep a strict work-life balance. 

But if you have a busy week, you may struggle to adequately staff your business while respecting each team member’s preferences.

And using overtime isn’t a sustainable strategy. Sure, occasional emergencies and one-off events might get absorbed into your labor budget. But if you rely on overtime every week to cover shifts, the increased labor costs will overtake your profits.

Comp time is a way to solve these problems in one move. By offering days off in exchange for overtime, you can avoid paying overtime rates, adequately cover every shift, and encourage your team to work more hours.

As comp time is a complex topic, we’re covering all the guidelines you need to be aware of before you start using it. Our article explores:

  • Whether comp time is always legal
  • Which staff are eligible
  • How to calculate comp time
  • How to set up comp time for your business

What is comp time?

Comp time (otherwise known as compensatory time off) is the practice of offering employees additional paid time off in exchange for working beyond their normal hours. This PTO is instead of standard overtime pay.

That way you can reward employees for taking more shifts and ensure full shift coverage while reducing overtime.

Offering comp time can also improve morale and increase retention rates. Employees may struggle to pack vacations and personal commitments into PTO or find they need more days off after they’ve used all their allotted vacation. Comp time gives your team more control and flexibility over working hours so they can manage time off better.

In some cases, comp time helps you hang onto staff. For example, students can save days off for exam season instead of handing in their notice.

Is comp time legal?

Comp time is legal according to US federal law but there are many rules and restrictions. The Fair Labor Standards Act (FLSA) states that:

  • Employees must agree to the arrangement
  • They have to use the time off they accrue within the same pay period
  • Employers must also honor comp time once they make the agreement
  • They must also pay unused comp time if it expires
  • Comp time can’t exceed 240 hours per year (except for some healthcare and emergency service workers who can take 480)
  • The minimum rate is 1.5 hours of comp time per hour of overtime

The laws on comp time also vary between states. For example, Alaska has banned this practice outright and California only allows it for a few cases. 

Check your state’s Department of Labor (DOL) website for the most up-to-date regulations on comp time in your area.

Who’s eligible for comp time?

The main rules and regulations surrounding comp time concern different types of workers. So, let’s identify the different categories and which rules apply to each.

Comp time for exempt vs non-exempt employees

Before we delve in, let’s clarify the difference between exempt and nonexempt employees. Think of ‘exempt’ as ‘exempt from overtime pay.’ So, exempt employees can’t earn more money by working extra hours whereas nonexempt employees can.

Note: Exempt doesn’t always mean salaried. If salaried staff have executive, administrative, or professional roles, and earn less than $684 a week, they count as exempt.

The rules are generally as follows:

  • Exempt employees are eligible for comp time if overtime is mandatory at their company.
  • Nonexempt employees may receive comp time depending on their sector, local labor laws, and how they get paid.

Comp time for hourly and salaried employees

Salaried workers have fixed schedules and pay so they aren’t usually eligible for comp time. The idea is that employers shouldn’t make teams work beyond the hours in their contracts.

But businesses with salaried employees can have an informal arrangement where, for example, bosses give everyone Friday off for working extra hours on a project. 

And, as we’ve noted, nonexempt salaried staff are an exception. 

On the other hand, hourly employees don’t have fixed schedules and their pay directly corresponds to the amount of time they work. If workers exceed their regular hours, the law states that employers must pay them overtime. These businesses can’t implement comp time unless:

  • Local labor laws allow it
  • There’s an agreement with the workers’ union
  • Employees work in specific public sector roles (which we outline below)

Comp time for private and public sector employees

Some public sector roles are eligible for comp time because they involve working long, irregular hours. This includes the following industries:

  • Social services
  • Healthcare 
  • First responders
  • Law enforcement
  • Public works
  • Government agencies

It’s worth noting that employees who work for privately owned businesses in the same industries may be ineligible. If you run a private clinic, for example, you can’t offer your nurses comp time just because they work in healthcare.

In fact, most private sector employees don’t count for comp time unless the local labor laws say otherwise.

So, if you’ve ruled out all the other scenarios where your staff may be eligible for comp time, check your state rules and regulations. Make sure your information is up to date and applies to your industry. 

There are also consulting services like Homebase’s team of HR professionals which can offer you guidance on business policies like this.

What if my employee isn’t eligible for comp time?

Perhaps you’ve gone through the sections above only to discover that your team isn’t eligible for comp time. But there are other ways to manage time off more effectively and give staff more flexibility over their schedules. Here are some of the most popular ideas:

  • Flexi-time: If your business doesn’t require employees to work set hours, you can let them decide their own schedules. That way they can fit in commitments like childcare and studies without the need to take days off.
  • Remote work: Another way to solve the issue of family care is to let staff work from home. That’s on the proviso that their personal lives don’t interfere with their professional responsibilities.
  • Seasonal and temporary work: Some employees need long periods off. For instance, parents can’t always work during the summer holidays and retirees may relocate for the winter. Offering temporary contracts allows these team members to take as many days off as they need.
  • Company-wide time off: During certain festivals, your business may slow down. You can save operational costs and spare employees from using their PTO by closing for these days.
  • Personal days: Staff might find they’ve taken all their PTO when they suddenly get hit with legal obligations, transport problems, or home emergencies. Offering personal days helps them save time for vacation and unforeseen circumstances.
  • Self-scheduling: Letting your staff arrange their own swaps and covers gives them more control over their hours. Apps like Homebase have scheduling and chat features to help your teams coordinate and approve shift changes.

How do I calculate comp time?

If you discovered your employees are eligible for comp time, let’s look at how to calculate their extra PTO.

First, check the local laws to see if they set a minimum rate. The standard rule is that staff get one hour of comp time per extra hour worked. So, if Mal usually works 15 hours but agrees to stay two hours later on Tuesday evening, you’d get:

2 hours of extra work = 2 hours of comp time

But if an employee works more than 40 hours in a week, they’re into overtime and you change their comp time accordingly. This is often at a minimum rate of 1.5 for each hour of overtime. Let’s say Lena works a 40-hour week but stays 4 hours late on Sunday, now you’d get:

4 hours of extra work x 1.5 overtime rate = 6 hours of comp time

But what happens if staff don’t normally work 40 hours but their extra hours take them into overtime? Now, you would have to apply different rates. Imagine Ace does 30 hours a week but picks up 15 hours of extra shifts one week for comp time. You calculate:

10 hours of extra work = 10 hours of comp time

5 hours of extra work on the overtime rate x 1.5 = 7.5

10 + 7.5 = 17.5 hours of comp time

On looking at these calculations, you may decide you need labor more than you need to reduce overtime pay. For example, maybe you can’t afford to lose Ace for 17.5 hours later in the month.

If team members don’t use their comp time before it expires, you simply reverse these calculations and add these hours to your payroll as you would ordinarily.

How do I set up comp time for my employees?

Once you’ve checked your employee’s eligibility for comp time, and seen whether the rates above suit your business, you’re good to go.

Now to set up comp time policies for your business and introduce them to your staff. We’ve listed the essential steps below.

  • Review labor laws and regulations: That means going beyond eligibility. For instance: What is the minimum overtime rate? Do you need to obtain written consent?
  • Decide who’s eligible: If you have different types of workers, you may want to keep matters simple and only offer comp time to full-timers. Scheduling may become overly complicated and time-consuming if part-time employees keep moving around their shifts.
  • Determine an accrual rate. As we’ve discussed, you have to comply with the state minimum. But maybe you want to offer a more generous rate to encourage employees to take extra shifts. Say, there’s a one-off event your team all hates working, you could offer two hours of comp time per hour worked to reward them.
  • Set accumulation limits: You may struggle to staff your business if all your staff take comp time during busy periods. In that case, restrict how much they can take and use in a month to suit your labor demands.
  • Develop a policy: With all the above figured out, write a policy. Homebase’s HR professionals can help you draft one that suits your specific needs and preferences while staying compliant.
  • Explain the policy: Make sure employees are aware of and understand the policy. You can announce the changes via your team chat, hold a meeting to discuss the rules, and add the policy to your handbook.
  • Train managers: As managers may oversee comp time shifts, let them know what to expect. If you’ve previously told them to send employees home when they approach overtime, they may find the changes confusing.
  • Track comp time: You can lose track of hours if you don’t record them properly. Have teams track comp time on their time clock to ensure mistakes don’t lead to them getting under or overpaid.
  • Review: Teams change and so do their priorities. They may find comp time doesn’t suit them anymore and stop using it after a while. Keep checking how much staff use it and consider tweaking your policy if they’ve lost interest.

Compensatory time off: Key takeaways

When you come across a policy like comp time that benefits you and your team, no doubt you want to take advantage of it. 

Because let’s face it, you don’t want to assign staff long hours or undesirable shifts any more than employees want to take them. And comp time is a way to incentivize staff to take these hours without going over your labor budget.

But navigating the labor laws surrounding comp time can be a challenge. That’s especially when you already have a business to run and can’t spend hours researching rules and regulations.

There’s no need to tackle new business policies alone, though. Homebase has compliance features that:

  • Update you on changing labor laws related to comp time
  • Advise you on whether your team is eligible for this practice
  • Help you draft a comp time policy and add it to your handbook

That way you can easily introduce comp time to your business without worrying about incurring heavy fines or disrupting your business flow.

Remember, this is not official legal advice. If you have any concerns, it’s best to consult an employment lawyer.