What's wrong with being paid in compensatory time instead of overtime?
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What’s wrong with being paid in compensatory time instead of overtime?

Federal government efforts to appeal to the business community are beginning to loosen the Federally mandated rules on overtime. The Federal overtime rules are contained in the Fair Labor Standards Act FLSA). The practice of mandating overtime pay dates from the time of the Great Depression in 1938 when President Franklin D. Roosevelt signed the FLSA which set out the overtime standards.


Employment Standards Law:

  • Employees covered by the act must receive time-and-half-overtime pay for any work over 40 hours in a work week.
  • The work week is a fixed and regularly recurring period of 24 hours X 7 days (168 hours).
  • The work week may or may not coincide with the conventional Sunday through Saturday designation.

The 2016 final overtime rule applies to workers whose salaries are at or below the 40th percentile of full-time earnings in the lowest wage census region (currently the Southern region with average salary is $913 per week or $47,746 a year). Any employee not paid on a salary basis, or deemed an executive, professional, outside sales (paid on a commission basis) and computer professionals are exempted from the overtime rule and do not have to receive overtime pay.  


Upgrading Overtime Coverage:

In 2015, President Obama signed an executive order raising the cutoff standard for exemptions to include more employees under the overtime program from $23,700 to $50,000, allowing nearly five million more people to receive mandated overtime pay. That increase in overtime eligibility never went into effect and is currently not in effect. The Trump Administration went to the Fifth Circuit Court of Appeals to get the deadline for the increased pushed forward. The Washington Examiner reported  that. “It is highly unlikely the administration will support the rule [on raising the eligibility limit].”


Compensatory Leave for Public Employees:

Under section 207(0) of the FLSA, non-exempt public employees who fall into the eligibility for overtime can be offered compensatory hours in lieu of money. The “comp time” must be offered at the same hours/dollar rate as would have been offered as overtime pay. The employee must agree ahead of time either through a collective bargaining agreement, a memorandum of understanding, or another form of legally recognized agreement. The comp time must be accumulated indefinitely–not on a use it or lose it basis. The employee must be paid the back overtime when their employment terminates.


Compensatory Leave in the Private Sector:

Offering compensatory time is not legal for private sector employees who fall under FLSA (although exempt employees can be offered comp time). Under most circumstances, private sector non-exempt employees must be paid all overtime in dollars. Some states do allow private employers to override federal FLSA rules and offer comp time to non-exempt employees. Each state’s laws are different and the conditions under which comp time can be granted may be complex. The original FLSA rules were formulated because of concerns about possible employer abuse.


California is one of the states where it is legal to institute a comp time system in lieu of overtime pay to nonexempt employees. The legal freedom to do so is subject to a strict set of conditions according to California Labor Code section 204.3.


  • The employer and employee have to agree in writing to the comp time arrangement.
  • The employee has to request the comp time in writing.
  • The employee has to be regularly employed full-time (40 hours per week).
  • The comp time paid has to be at the same dollars per hour rate the employee would have received had he or she been paid in money.


Eligibility for comp time in the private sector is a matter of some confusion. Many employers do not correctly classify their employees as the FLSA requires. They may offer comp time to hourly employees whom they believe are in the exempt category, but may not be. They may incorrectly classify some managers who are non-exempt from FLSA rules as exempt because of an assigned job title. Comp time is often very popular among employees who prefer time off to money. However, offering comp time illegally is not necessarily good business practice.

  • If comp time is offered regularly, employees may come to expect it every time they work overtime.
  • Comp time may lead to wage and hour claims and disputes about eligibility.
  • Some employees may work overtime unnecessarily so they can accumulate comp time.
  • Non-exempt employees may work significant overtime hours then resign, expecting a cash payment for the hours.


Workplace Conditions and Compensatory Leave:

What we call “comp time” may mean the replacement of working hours with time off. These practices have become part of a way of eliminating worker protection. Proposed “workplace flexibility legislation” is aimed at eliminating the 40 hour work week with a “comp time accrual system.” Employers could get more control of their employees work weeks. The effort to replace time-and-a-half pay with comp time could end up eliminating the time-and-a-half overtime pay practice. Offers of comp time may induce employees to work extra hours, allowing employers to avoid hiring more employees.


Aiman-Smith & Marcy is a small-medium size law firm that focuses on employment law, consumer fraud and class actions in California. Please contact us to learn more.