If you’re in the United States, there’s a good chance that your employer will have some sort of comp time policy. Comp time is basically the same thing as vacation, but instead of taking it at once, employees can take it in chunks throughout the year or save up their hours to take them later.
What is compensatory time?
Comp time is a form of paid time off for employees.
Comp time is earned at the straight time rate and can be used as extra vacation or sick leave, or it can be used as payment for overtime worked. Compensatory (comp) time does not have to be taken in advance of taking the day off; it is simply accrued.
Comp time does not have to be taken at once and may be taken at any point after it has been earned, with certain restrictions depending on what type of comp plan your employer has implemented. If you receive comp hours under an employer’s qualified retirement plan or cafeteria plan, they will not count toward your annual limit on benefits under these plans.
The FLSA does not require that employees be paid for this extra time at the end of the pay period
The FLSA does not require that employees be paid for this extra time at the end of the pay period or when employment ends. Employees may be paid for unused comp time at the end of their employment, but they can also choose to receive comp time instead of overtime pay.
If an employee chooses to receive comp time, the employer must pay the employee for overtime hours at 1.5 times their regular rate of pay. Comp time is not considered “cash” and cannot be used as a substitute for wages owed by an employer under FLSA.
Exempt employees may earn time off at straight time instead of receiving overtime compensation
If you are an exempt employee, you may earn time off at straight time instead of receiving overtime compensation if you work more than 40 hours in a workweek.
You must be eligible to earn comp time under the Fair Labor Standards Act (FLSA), which requires your employer to first notify you in writing that they intend to allow comp time rather than pay.
The employer does not have to pay for days spent on vacation, sick leave, or personal leave during the same period when earned comp time can be taken.
To qualify as compensable overtime work, the extra work must benefit the employer and occur during an established work period
Comp time is a form of compensation in which nonexempt employees receive time off to compensate for overtime work. Employees may receive comp time instead of cash payment, at the rate of one and one-half hours of paid leave for each hour worked over 40 in a week.
To qualify as compensable overtime work, the extra work must benefit the employer and occur during an established work period — usually a workweek. The Fair Labor Standards Act (FLSA) requires that employers pay non-exempt employees one-and-one half times their regular rate for all hours worked over 40 in any given week (or other applicable period). However, many employers use comp time instead or as part of their compensation plans — often as part of an employee’s total compensation package — with some limitations set by state laws or collective bargaining agreements.
An employee must receive compensatory time off at a rate not less than 1½ hours for each hour of overtime worked
Comp time is provided at the end of the pay period in which it was earned. An employee must receive compensatory time off at a rate not less than 1½ hours for each hour of overtime worked. Compensatory time can be used after it has been earned and must be given in the same pay period as it was earned.
Employers may limit the total amount of comp time accrued to 240 hours
There are some limits to compensatory time, however. Employers may limit the total amount of comp time accrued to 240 hours (which is equivalent to six weeks). In other words, if an employee works more than 40 hours in a given week, they will accrue comp time on top of their base pay. Once they reach 240 hours, they are no longer eligible for additional compensation beyond their regular paycheck and cannot work overtime until they use up some or all of those accrued hours.
Although comp time is by definition accrued leave that is “earned,” it cannot be considered an earned benefit under an employer’s qualified retirement plan
Comp time is by definition accrued leave that is “earned,” but it cannot be considered an earned benefit under an employer’s qualified retirement plan. Although comp time may be paid in addition to other compensation and benefits, it should not be included in calculating an employee’s final pay on termination of employment or when determining whether the employee has met any vesting requirements for pension benefits.
For example, if a company offers employees the opportunity to earn up to 200 hours of comp time per year at 1 hour per day as part of its overall compensation package, this is considered a special non-qualified benefit that does not meet the definition of wages under IRC Sec. 3121(a)(3). The value of this benefit will therefore remain taxable on top of any regular wages received from the employer and will also be subject to FICA tax withholding requirements.