Matters Column

‘Comp time’ in the private sector: much ado about nothing?

July 12, 2013
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House Republicans are touting the Working Families Flexibility Act (H.R. 1406) as a means of accommodating workers, especially women, who want a better mix of career and family life. The bill would allow private employers to give employees paid time off ("compensatory time" or "comp time") in lieu of immediate cash payment for working overtime. Democrats aren't so keen on the idea.

Currently, federal law requires that employers pay certain non-exempt employees one-and-a-half times their regular rate for each hour over 40 worked in a given week. Under the bill, those employees entitled to overtime pay could choose to take paid time off instead. 

The Act would let employees bank up to 160 hours of comp time. They can also exchange accrued comp time for cash — at their regular pay rate — whenever they please. Each year, the employer would have to pay for any unused comp time accumulated during the previous year.

In theory, the bill could allow employers to more easily accommodate flexible work schedules.

As an example, suppose a mother worked 50 hours one week, which is 10 hours over her statutory limit. Instead of time-and-a-half overtime pay (which would be the equivalent of 15 hours at her regular rate), she chooses to receive comp time. For that first week, she is paid only for her regular 40 hours. But now, in future weeks, she can take 15 hours of paid time off. 

She is happy, because though she forewent pay for those extra hours of work, she can now take a few afternoons off to spend time with her children. 

Her employer is happy too, because it avoids paying overtime and can schedule her paid time off so that the damage to the bottom line is minimal. 

Detrimental to workers?

Yet Democrats insist the bill does more harm than good for workers. The fear is employers will pressure employees into taking comp time instead of overtime pay and then force them to work erratic hours at the employers' convenience. At the end of the day, employees may end up taking lots of paid time off, but they will also end up with less total income.

A related worry is that when scheduling overtime hours, employers may favor workers who have chosen to receive comp time, because awarding paid time off is less costly than paying overtime wages right up front. 

Another issue is the employee's ability to use accrued comp time. Under the bill, the employer has to allow the employee to use comp time within a "reasonable period" after the employee makes a request, so long as it "does not unduly disrupt the operations of the employer." Malleable standards like these are begging for employers to push the limits of "reasonableness."

Moreover, if an employee is never able to use accrued comp time, she may not receive the overtime pay she's entitled to for up to a year. Employers with cash flow problems may be tempted to take advantage of this interest-free loan.

The bill purports to address these problems with a few protective provisions. For one, employees can only receive comp time if they consent to it, either individually or through a collective bargaining agreement. 

Additionally, agreeing to take comp time cannot be a condition of employment. And employers are prohibited from threatening, intimidating, or coercing their workers into using accrued comp time.

Worth it for employers?

But should self-interested employers even bother using the comp time alternative at all? Perhaps not.

Comp time has become a nightmare in the public sector, where the practice is currently legal. In order to stay within their budgets, lower-level managers will award comp time in lieu of expensive overtime when they need employees to stay late.

But all this does is pass the buck to the finance department, who at the end of the year needs to set aside cash to account for the massive hidden liability. 

Workers tend to accumulate dozens of hours and use them like vacation time, and employers have the crushing burden of trying to accommodate all of these requests. Courts have said that incurring additional expenses is not an "undue disruption" of operations, so employers are often stuck granting paid time off and then paying someone else overtime to fill the gap. 

Two hours of overtime one week can turn into three hours of paid time off the next, which an employer may need to pay four-and-a-half hours of wages to cover.

While many are concerned about the bill's implications for employee welfare, it is unlikely to pass the Democrat-controlled Senate, and even less likely to survive the president's veto. And even if it does become law, the damage should be minimal since businesses and employees are likely to revert back to overtime over time.

Jeff Koelzer is a summer associate in Varnum LLP’s Grand Rapids office who attends The University of Michigan Law School.

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