By Partner David B. Walston
For years we have fielded a question about overtime from our clients: “Why can’t I give an employee time off instead of paying them overtime?” The answer always been “Because the law doesn’t allow it.” Soon we may have a different answer.
Since 1985, the Fair Labor Standards Act (“FLSA”) has allowed “public entities” and their employees to agree to a “compensatory time off” arrangement (“Comp Time”) in lieu of a monetary payment of overtime compensation. A public entity is a state or a political subdivision of a state. Comp Time works very simply: rather than pay an employee 1.5 times their regular rate of pay, a public entity may give an employee 1.5 hours off for every hour of overtime worked. An employee who works five hours of overtime would be given 7.5 hours off in lieu of overtime compensation. An employee who works 30 minutes of overtime would be entitled to 45 minutes off.
A Comp Time agreement must be reached before the overtime work is performed. The word “agreement” is given a broad meaning. An “agreement” is reached if an employer published a manual, policy or notice that it intends to award Comp Time in lieu of overtime compensation. An employee continuing to work after such publication is considered to have agreed to the arrangement. Also, an employee’s knowing acceptance of Comp Time constitutes an “agreement.”
The FLSA allows public safety employees to accrue up to 480 hours of Comp Time, while other non-safety employees can only accrue up to 240 hours. The employer must allow the employee to use Comp Time “within a reasonable period” after the employee makes a request, provided the use does not unduly disrupt the operations of the public entity. The employer, in its sole discretion, may at any time require an employee to use accrued Comp Time.
Payment for accrued Comp Time is at the employee’s then current regular rate of pay. The public employer must cash out accrued Comp Time when an employee leaves employment for any reason. When cashed out at the end of employment, Comp Time is paid at the employee’s regular rate of pay, or the average regular rate of pay earned in the previous three years, whichever is higher.
You may have wanted a Comp Time option for your business for years, but did not qualify if you are not a public sector employer. So why is this discussion relevant for you? Read further.
The Working Families Flexibility Act
The U.S. House of Representatives has just passed a bill sponsored by Rep. Martha Roby of Alabama that allows private sector employers and employees to agree to Comp Time arrangements. Under the bill as currently drafted, the rules for Comp Time will be somewhat different from the rules governing the public sector. Key provisions include:
- To be eligible, an employee must have worked at least 1,000 hours in a period of continuous employment with the employer during the preceding 12-month period. (Similar to the FMLA but with fewer hours required.)
- The arrangement must be an expressly mutual agreement between employee and employee and be affirmed in writing. Where the employee is represented by a union, the agreement to take Comp Time must be part of the collective bargaining agreement negotiated between the union and the employer.
- The employer may not make agreement with a Comp Time arrangement a condition of employment. In other words, the employer cannot unilaterally impose a Comp Time arrangement on employees on threat of discharge or other adverse action.
- An employee can accrue up to 160 hours of compensatory time each year and any accrued, unused time must be paid out at the end of the year, or at the end of employment with the employer.
- An employer must allow an employee to use Comp Time within a reasonable period after a request unless the use will disrupt operations.
- An employer cannot require an employee to use Comp Time. However, an employer has the right to cash out an employee’s unused compensatory time in excess of 80 hours after giving the employee at least 30 days notice.
- An employee can withdraw from a Comp Time arrangement at any time and for any reason. An employee who withdraws must be paid monetary overtime compensation for accrued but unused Comp Time within 30 days. (For “serial” withdrawers, an employer can decline to enter a Comp Time agreement with that employee).
- Employers who wish to discontinue offering Comp Time arrangements entirely must provide employees 30 days notice of the decision to discontinue offering Comp Time, providing workers and their families an opportunity to adjust to this change in the workplace.
The bill is unlikely to pass in its current form, if at all. The White House has announced its support of the bill in its current form. However, the vote on the bill in the House of Representatives was along party lines – no Democratic representative affirmatively voted for the bill, and it will likely face a filibuster in the Senate. It takes 60 votes in the 100-member Senate to break a filibuster, and Republicans hold only 52 seats. If a private sector Comp Time rule is to be enacted, there will need to be compromises on both sides of the aisle. Just what those compromises may be remain to be seen. We will keep you posted.