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Private sector use of compensatory time—permitted?

August 05, 2014

Generally, the use of “compensatory time” is impermissible in the private sector.

However, the federal Department of Labor does allow the use of so-called “time-off” plans for nonexempt employees by both public entities and private-sector firms. Time-off is very similar to “comp time,” but involves leave taken during the same pay period. (Under traditional comp time, comp time hours can be banked and used in later pay periods). In accordance with court rulings and Department of Labor decisions, time-off plans are permitted only under the following conditions:

• the employee must get time off at time and one-half for all hours over 40 worked in a week; and
• the employee must take the compensatory time off during the same pay period in which it was accrued.

For example, consider an employee who works 60 hours (40 regular hours + 20 overtime hours) the first week of a two-week pay period and then takes off 30 hours (the 20 overtime hours from the first week multiplied by time and one-half) the second week of the pay period, working only 10 hours the second week. Thus, the employee would work 60 hours the first week and 10 hours the second week. Under this arrangement, the employee would receive his/her normal salary for the pay period, but would not be due premium overtime pay for the first week. If a company provides for time off in lieu of overtime compensation, the time off must be provided at time and one half, not just time equal to the amount of overtime worked.

It is also important to recognize that some state laws may not allow for this kind of arrangement. Wisconsin does allow for it, but other states may not.

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