Human Resource Blog

Compensation Time

Are there any laws that prevent a hourly employee from being compensated (with time only) for time worked over 40 hours in a week? Time that the employee stayed and was not required nor asked to.

Yes! It is absolutely illegal to avoid paying overtime by giving “comp time” to employees in business, under the federal Fair Labor Standards Act or FLSA. This law covers any employer who does business across state lines, or those with annual revenue of more than $500,000.

Under the FLSA, employees must be paid 1.5 times their usual hourly rate when they work more than 40 hours in a week. It doesn’t matter if the employer didn’t ask the employee to work overtime – if the employee is permitted to work overtime, they must be paid for it on the regular payday.

Non-profit employers are permitted to grant comp time instead of paying overtime under the FLSA, but only if the employee agrees. The employee must be given 1.5 hours off for each hour of overtime worked.

A number of states also prohibit “comp time” for smaller employers, although a few – like Michigan – permit it.

If you don’t want to pay overtime, it’s best to establish a no-overtime policy, or to give the employee time off during the same payroll week so that he or she only works 40 hours.