Comp Time Instead of Overtime Pay Could Be the New Normal

It has been carved in stone for 70 years that the Fair Labor Standards Act (FLSA) forbids comp time in lieu of overtime for nonexempt employees. However, the House of Representatives has just passed a bill that may reduce that stone to rubble.

On May 2, 2017, the House passed the “Working Families Flexibility Act” (H.R. 1180) amending the FLSA to permit non-exempt employees to bank up to 160 hours of comp time for hours worked in excess of 40 in a week. Comp time would be earned at the “overtime rate” of one and a half hours for each hour of overtime that is worked.

What’s in the Bill?

Bear in mind that this is only the beginning and that nothing becomes law until the Senate passes their own bill and differences are hammered out.  Still, this could be the start of something seismic.

Some key portions of this bill are:

– There must be a written agreement between the employer and employee (although a labor union can agree to this on behalf of members).

– Employees would be eligible only if they worked for their employer for at least 1000 hours in the preceding 12 months.

– Employees could accrue no more than 160 comp time hours in a year.

– Employees could change their minds and request cash payout of comp time, with 30 days’ notice.

– Employers could also compel cash-out of comp time in excess of 80 hours, again with 30 days’ notice (during which the employee could presumably use the comp time to reduce the actual payout).

– Pay for comp time would either be at the employee’s current rate or the rate when the comp time was earned, whichever is higher.

– Employees must be permitted to use their comp time “within a reasonable period” after it is requested as long as the intended use of comp time does not “unduly disrupt the operations of the employer.”

– Comp time would have to be cashed out at termination.

What’s in the Weeds?

Perhaps the biggest issue is how the comp time provision fits with state law.  In Minnesota, for example, overtime payments are required for each hour in excess of 48 in a week.   This would place Minnesota employers in the position of being able to grant comp time for the first 8 overtime hours but not for any additional hours after that.

Whereas most employers reserve the right to deny vacation requests at their discretion, use of comp time can only be denied if it does not “unduly” disrupt the employer’s operation.  If an employer denies a request on that basis and a judge or arbitrator later rules that the there was no undue disruption, the employee might be awarded payment for the requested time as well as liquidated damages.

Smaller employers face particular hardship.  For one thing, while use of comp time during a busy season might not “unduly” disrupt operations, it could make those operations more challenging.  Moreover, multiple employees seeking payout of comp time during the slow season could significantly impact cash flow.

What’s Next?

As noted above, the Senate needs to take up the bill, and their view of this idea is not at all clear.  Much work remains to be done.

Bottom Line

This is not the first time that a comp time bill has been proposed but it has gotten further than ever before.  It is interesting that after all the preparation done in 2016 to get ready for fewer exempt employees and more overtime payments, we are now seeing the glimmer of possibility that employers will experience greatly reduced overtime liability.