In May of this year, the U.S. House of Representatives passed the Working Families Flexibility Act (H.R. 1406), which seeks to amend the federal Fair Labor Standards Act (“FLSA”) to permit private sector employees to use compensatory time off, or “comp time,” in lieu of overtime pay.  Supporters cite the flexibility for working families that the availability of comp time provides.  On the other hand, detractors claim that permitting payment for overtime work via time off will unfairly reduce the wages currently earned by overtime-eligible employees.  Since it is unlikely that the amendment will be enacted into law any time soon, employers should take stock to be sure that they are complying with the current law.

Frequently, employers use comp time to allow employees who work overtime in one workweek to take time off as compensation in some other workweek.  Either an employer wishes to compensate an employee for overtime with time off, or an employee wishes to accrue time so that he or she can have paid leave available for use in the future.   It sounds like a good deal for all concerned.  The problem is that, under most circumstances, it is illegal under federal and state law to require or even to allow employees who are eligible for overtime compensation (“non-exempt employees”) to use comp time.

Minimum wage and overtime are governed by the FLSA, 29 USC § 201 et seq., and the Kentucky Wage and Hour Act, KRS Chapter 337.  According to the U.S. Department of Labor (“DOL”), “The use of comp time instead of overtime is limited by Section 7(o) of the FLSA to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency.”  The law in Kentucky is the same.  Therefore, a private sector company cannot compensate a non-exempt employee by the use of comp time.

The next question is:  What about giving exempt (the so-called “white collar”) employees comp time?  If they truly meet the exemption – not simply because they are paid on a salary basis but because their duties meet the statutory and regulatory definitions – there is no prohibition against it.  But be careful about using comp time for salaried employees, and remember, just because an employer can give comp time to supervisors, it does not mean that it can be done for other, non-exempt employees.

Interestingly, the DOL Field Operations Handbook describes a “time off plan” under which an employer may use a version of comp time within the same pay period.  Although courts have recognized their validity under the FLSA, such plans are of limited utility for employers, because the time must be used within the same period and cannot be carried over into a subsequent pay period.

Here are some practical guidelines private sector employers should follow:

• Comp time policies should be reviewed and revised, if necessary, to comply with the FLSA and the Kentucky Act.

• You cannot opt out of the FLSA or Kentucky Act by agreement with your employees.

• If you use comp time for exempt employees, be aware that how comp time is used and accrued is a factor in determining whether your employees are truly paid on a salary basis.  If your comp time policy means that your exempt employees do not meet the salary test, then they are not really exempt.

• You cannot average workweeks to leave out hours worked.

• You have to pay time and one half for hours worked which exceed 40 in a single workweek.

• You cannot substitute time off for earned overtime, even if the employee asks you to.

Minimum wage and overtime laws are full of traps for unwary employers.   Comp time is one of those traps.  If you have questions about whether a specific position is exempt, contact an attorney who is knowledgeable in this area, as the law is constantly changing.