Compensatory Leave

Compensatory leave meaning

Compensatory leave is paid time off given to employees in lieu of overtime pay for hours worked beyond their standard work schedule. It is often a desirable alternative for both employers and employees to balance uneven and demanding schedules.

Compensatory leave is often referred to as “comp time” or “pay in lieu” of overtime because it is accrued to compensate workers for putting in extra hours.

Compensatory leave is most commonly implemented in industries where it’s common to work long, irregular hours, such as healthcare, first responders, or law enforcement. Organizations must ensure that their compensatory time policy aligns with applicable laws and regulations.

How does compensatory leave work?

Comp time is granted by the hour when an employee would normally collect overtime pay. Employees must sign an agreement to accrue comp time instead of overtime, and in return, they can take paid days off when there is less work or less demand for team hours. 

Accrual

Comp time is generally accrued at a rate of time and a half. For example, if an employee works 10 hours of overtime, they would be entitled to 15 hours of compensatory leave.

Both hourly and salaried employees can earn comp time. Hourly employees accrue it based on the overtime they work, including on designated days off. Salaried employees may also accrue comp time, especially if their employer mandates working more than 40 hours a week.

Usage and expiration

In the U.S., specific usage and expiration terms for comp time can vary by employer. Commonly, some employers require that comp time be used within a certain number of pay periods, such as the next 26 pay periods from when it was earned.

In the UK, a concept similar to comp time is known as time off in lieu (TOIL). It typically requires that employees agree to work more than 48 hours a week. The rules for expiration and usage of TOIL are often set at the employer’s discretion.

Limitations

Some states in the U.S. may cap the total amount of comp time an employee can accrue, often around 120 or 240 hours. It’s important for both employers and employees to be aware of regional regulations that may affect comp time accrual.

Legality

In the U.S., comp time is generally allowed for government employees, but there are stringent restrictions for private-sector employees under the FLSA. In the private sector, employers typically must provide overtime pay rather than comp time.

Policies around comp time must comply with relevant overtime laws, ensuring that employees are properly compensated. Failure to adhere to these regulations can lead to legal consequences for employers. Therefore, understanding the compensatory leave rules applicable in your jurisdiction is crucial for both employers and employees.

Who is eligible for compensatory leave?

Eligibility and rules for compensatory leave can vary by country, organization, and the specific terms of employment contracts or labor laws.

Public vs. private sector employees

• Public sector: Most public sector (government) employees are eligible for compensatory leave in lieu of overtime pay. This is often used as a standard practice due to specific provisions in labor laws like the Fair Labor Standards Act (FLSA) in the U.S.
• Private sector: Private sector employees are generally less likely to be eligible for compensatory leave. The FLSA, for example, restricts the use of comp time for private sector employees, allowing it only under certain conditions.

Exempt vs. non-exempt employees

• Non-exempt employees: These employees are typically eligible for overtime pay and, in the public sector, often for compensatory time. They are paid on an hourly basis and are covered by wage and hour laws.
• Exempt employees: These salaried employees are generally not eligible for overtime under labor laws. However, some employers, especially in the public sector, might offer compensatory leave as a benefit or incentive.

The specific policies of a company and the local labor laws also significantly influence eligibility for compensatory leave. Some organizations may have policies allowing for compensatory leave for overtime work, depending on the job’s nature and the agreements between employer and employee, with these details usually outlined in the employee handbook or employment contract.

Types of compensatory leave

1. Overtime comp time: This is the most common type of compensatory leave where employees earn time off in lieu of payment for overtime hours worked. For every hour of overtime worked employees typically accrue 1.5 hours (or another predefined rate) of comp time.
2. Travel comp time: Employees who travel for work outside of their regular working hours may be entitled to comp time. This type of leave compensates for the personal time spent traveling, recognizing it as part of the job’s demands.
3. Holiday comp time: When employees work on scheduled holidays or official non-working days, they may earn compensatory leave in addition to or instead of extra pay. This type of leave allows employees to take time off at a later date in exchange for working on a day when they would normally be off.
4. On-call comp time: For employees required to be on-call beyond their standard working hours, some organizations provide compensatory leave if the on-call period doesn’t actually result in work being performed but restricts the employee’s ability to enjoy their leisure time.
5. Flextime comp time: This refers to arrangements within flexible work schedules where employees who work extra hours on some days may take time off on others, balancing out their total hours worked in a given work period without involving overtime payments.

How to calculate compensatory leave

Here’s how you can calculate compensatory leave based on the overtime hours worked:

1. Identify overtime hours: Determine the number of hours worked beyond the standard workweek (usually 40 hours in the U.S.).
2. Calculate comp time accrual rate: Compensatory leave is often accrued at the overtime rate, which is typically 1.5 times for each hour of overtime worked. This is the same rate at which overtime pay would be calculated.
3. Apply the formula: Multiply the number of overtime hours worked by the comp time accrual rate (1.5).

Example calculation

Suppose an employee has worked 45 hours in a week, and their standard work week is 40 hours. Here’s how you would calculate their compensatory leave:

• Overtime hours worked: 45 hours (total hours worked) – 40 hours (standard workweek) = 5 hours
• Compensatory accrual rate: 1.5 times the normal rate.

Compensatory leave earned = Overtime hours worked × Compensatory accrual rate
5 hours × 1.5 = 7.5 hours

This means the employee would earn 7.5 hours of compensatory leave for the 5 hours of overtime worked.

Comp time vs. overtime

Let’s summarize the differences between comp time and overtime.

You may also wonder about the difference between compensatory leave and PTO (paid time off). 

PTO is usually granted as a benefit and part of the compensation package. It is part of the agreed compensation for performing a role, while compensatory leave is a sub-category of PTO granted only for overtime hours that go beyond the role’s initial definition.

HR best practices when developing a compensatory leave policy

Compensatory leave is a valuable tool for HR professionals to manage employee work hours and promote a healthy work-life balance. When creating your compensatory leave policy, you need to consider the following:

• Familiarize yourself with federal, state, and local laws regarding comp time, overtime, and employee classification. Ensure your policy adheres to these regulations
• Make overtime calculations a top priority
• Make sure your employees agree to and are happy with comp time instead of overtime
• You need to guarantee that there’s enough time for everyone to spend their compensatory leave
• Effectively communicate the comp time policy to all employees and make sure they understand how it works, how they accrue it, its limitations, and how they can use it
• Periodically review and update your compensatory leave policy so it remains relevant and compliant with changing laws and organizational needs.

HR tip

Compensatory leave is based on overtime pay. Calculate all employee’s rightful overtime before implementing a comp time policy. Ensure the employees agree to receive it before you can substituting their overtime pay for paid time off. It is also vital that employees are able to spend their compensatory leave, which is why this policy is most common in industries with irregular working hours.

FAQ

For informational purposes only: This HR Glossary entry is only intended for general information purposes and does not constitute professional advice. Always consult with a qualified professional for accurate, complete, and current information.