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Federal Law Restricts The Use Of Compensatory Time By Employers

Editor’s Note: This article by Nicholas J. D'Ambrosio, Jr., from Business Council member firm Bond, Schoeneck & King, PLLC first appeared in the Capital District Business Review in June 2000. It remains a timely topic for private sector businesses and a reminder of the inaction of our federal elected officials.

The Fair Labor Standards Act requires that non-exempt employees be paid at a rate of one and a half times the employee's regular rate for all hours worked over 40 in a workweek. However, the act allows public sector employers to offer employees compensatory time (time off from work) instead of overtime pay when an employee works more than 40 hours in a workweek, as long as certain conditions are met.

For instance, the compensatory time may only be offered to employees pursuant to an agreement, such as a collective bargaining agreement or an employment agreement, and public sector employees may not be allowed to accumulate more than 240 hours (or 320 hours for certain public safety, emergency response and seasonal activity employees) of compensatory time before the employee must be compensated monetarily.

To the surprise of many, however, the act does not provide for the use of compensatory time in lieu of overtime pay for private employers, even when both employer and employee prefer compensatory time. Private employers may offer employees compensatory time in lieu of overtime pay only through use of a formal "time off" plan.

Under a time off plan, an employee who works over 40 hours in a workweek must be given one and one half hours off for every hour worked over 40 hours in a workweek, and the employee must take the time off within the same pay period during which the employee worked over 40 hours in a workweek.

For instance, if an employee is paid every two weeks, and works 50 hours in the first week, the employer could give the employee 15 hours off during the second week instead of paying the employee overtime for the 10 hours he or she worked.

As can be seen, however, a time off plan generally is not feasible. For employees who are paid on a weekly basis, and even for those employees who are paid once ever two weeks or semi-monthly, it is not always possible to grant a significant amount of time off on such short notice. Time off plans are rarely used by private sector employers because of the difficulty in administering them.

For at least the last decade, there have been initiatives in the Congress to amend the law to allow private sector employers to offer their employees compensatory time in lieu of overtime pay. The initiatives recognize that employers and employees would prefer more flexibility, and since at least 1988, Congress has been considering proposals to broaden the use of compensatory time in the private sector.

The latest initiative in the Senate seeks to allow private sector employers to offer compensatory time under circumstances very similar to those required of public sector employers.

The "Family Friendly Workplace Act," introduced in the Senate in June 1999, would allow private sector employers to offer compensatory time to employees if done in accordance with a collective bargaining agreement or an agreement or understanding arrived at between the employer and employee.

According to this legislation, the agreement must be entered into before the performance of work involved in the agreement or understanding, and the agreement must be entered into knowingly and voluntarily by the employee.

Essentially, the employee must not be forced to utilize compensatory time in lieu of overtime pay as a condition of employment. Under the proposed law, an employee may not accrue more than 160 hours of compensatory time off and, as of January 31 of each calendar year, the employer must pay the employee for any unused compensatory time that was accrued as of December 31 of the preceding calendar year.

Similar legislation has been initiated in the House of Representatives. Like its Senate companion, however, that legislation has been referred to committee for consideration and has been stalled by its opponents. Specifically, opponents of the use of compensatory time in the private sector claim that the Fair Labor Standards Act already affords employers ways to offer employees time off without skirting the obligation of overtime pay.

The opponents argue that the use of "flextime" by many companies allows employees to arrange their schedules as necessary. At the same time, however, these opponents, mostly labor unions, argue that allowing private sector compensatory time would enable employers to "manipulate" work schedules to deprive employees of overtime pay.

While the issue of the use of compensatory time in the private sector has been given much attention by Congress, the initiatives continue to be stalled by filibuster and the threat of presidential veto. Since the initiative in Congress seems to have gained more support in recent years, private sector employers may, in the future, gain the ability to offer employees compensatory time in lieu of overtime pay.

Unfortunately, until the existing law is amended, employers must take care to ensure that they are offering employees compensatory time pursuant to less practical time off plans.