In the private sector, the ability of employers to offer “comp time” for nonexempt employees—future time off as a reward for working extra hours, in lieu of overtime pay—is quite limited.  To avoid having to pay for overtime work, the employer would generally have to ensure that the “comp time” is taken in the same workweek as the extra hours are worked.  For example, if an overtime-eligible employee who regularly works 8 hours a day Monday to Friday performs 12 hours of work on Monday and 8 hours of work Tuesday through Friday, the employee would normally be entitled to 4 hours of overtime pay for the week.  Under a “comp time” model, the employee could be given 4 hours of “comp time” on any other day that week, such that at the end of the week, the employee would only have worked 40 hours in total and therefore be owed no overtime pay under federal law.  But the employer could not offer “comp time” in a subsequent workweek to avoid paying for those 4 hours of overtime in the current workweek.

The House passed a bill on May 2 that would amend the Fair Labor Standards Act and change the private sector “comp time” rules.  The bill, called the “Working Families Flexibility Act of 2017” (H.R. 1180), would change these longstanding rules and allow for private sector “comp time” in limited circumstances.

Under the bill, an employee can choose to receive—in lieu of overtime pay—compensatory time off at a rate not less than one and one-half hours for each overtime hour worked.  The practice would only be allowable if the employee and employer entered into an agreement—before the performance of the overtime work—in which the employer has offered and the employee has chosen to receive “comp time” in lieu of overtime pay.  (If the employee is a member of a union, the union can agree to such a practice on behalf of its members.)  The agreement must be “knowingly and voluntarily” on the employee’s part, and could not be a condition of employment.

There are number of other rules and limitations in the bill:

  • “Comp time” would only be allowed for employees who have worked at least 1,000 hours for the employer during a period of continuous employment with the employer in the 12-month period before the date of agreement or receipt of “comp time.”
  • An employee cannot accrue not more than 160 hours of “comp time.”
  • An employee who has accrued “comp time” must be allowed to use such time within a reasonable period after requesting to do so, provided the time off does not “unduly disrupt the operations of the employer.”
  • An employee who has agreed to receive “comp time” can withdraw the agreement at any time.
  • Within 30 days of an employee’s request, the employer must cash out all accrued but unused “comp time.”
  • The employer can cash out an employee’s accrued but unused “comp time” in excess of 80 hours at any time, on 30 days’ notice to the employee.
  • On or before January 31 of each year, the employer must cash out any accrued but unused “comp time” from the prior year.  (The employer has the right to choose a different 12-month period—for example, its fiscal year—and cash out the unused “comp time” within 31 days after the end of such 12-month period.)
  • Upon termination of employment for any reason, an employee must be cashed out for accrued but unused “comp time.”
  • Except where a collective bargaining agreement provides otherwise, an employer that has adopted a policy offering “comp time” to employees can discontinue the policy on 30 days’ notice.

The bill prohibits an employer that offers “comp time” from directly or indirectly intimidating, threatening, or coercing (or attempting to intimidate, threaten, or coerce) any employee for the purpose of interfering with the employee’s right to request or not request “comp time” or requiring the employee to use accrued “comp time.”

Importantly, in any circumstance where “comp time” is cashed out, it must be paid at the higher of the “regular rate earned by such employee when the compensatory time was accrued” or “the regular rate earned by such employee at the time such employee received payment of such compensation.”  This creates the possibility that an employer is liable for more overtime pay than it would have owed had it not offered a “comp time” option in the first place—which many employers might view as problematic.

For example, an employee who receives a raise after accruing “comp time” and then requests payment for the accrued “comp time” would, under a plain reading of the bill, be entitled to a higher payment than she would have received had the employer simply paid her for her overtime hours when worked.  Similarly, an employee who requests and receives payment of accrued “comp time” during a week in which she receives commissions, weekly bonuses, shift differentials, or other compensation in addition to her base pay may well have a significantly higher regular rate than the week in which the “comp time” was earned.

The combination of an employee’s right to request payment of accrued “comp time” and the employer’s obligation to pay for that time at a potentially higher regular rate of pay than when it was earned would seem to make the arrangement unattractive for many employers.  Predictable payroll is a basic budgeting necessity for employers.  Especially for larger employers, the possibility of multiple employees requesting a payment within 30 days for up to 160 hours of accrued “comp time” would be very concerning.   For example, if 100 employees with 100 accrued hours of “comp time” earning $15 per hour each requested payment for accrued “comp time,” the employer would have to write a $225,000 check within 30 days.

Beyond this, it is unclear whether a “comp time” arrangement under the bill would satisfy state overtime requirements.  Employers generally must consider federal, state, and local laws with respect to minimum wage and overtime obligations, and the ability to substitute “comp time” for overtime pay under the FLSA may not necessarily discharge a state law obligation to provide an overtime payment.  If not, the bill is of limited utility to employers.

Finally, the administrative burden of tracking “comp time” for payroll purposes, and of paying it out when requested or otherwise when required, would seem considerable.

It is unclear whether the bill—which contains a sunset provision under which the law would expire within five years of enactment—will pass the Senate.  With only a slim Republican majority in the Senate and the reality that the bill may face some bipartisan opposition, the potential for defeat or a Democratic filibuster is significant.

Stay tuned to our Wage and Hour blog for further developments..