Your business is booming, and you want to compensate your employees fairly when they put in extra hours.
And while you do give them overtime, you may be wondering if you should offer them comp time instead.
Don’t make this decision lightly. It can impact both your employees and your labor costs in some big ways.
Read on for an explanation of comp time, how it differs from overtime, and the rules and regulations governing it. This article also lists best practices to ensure your business stays compliant and keeps employees satisfied.
What is comp time?
Comp time, or compensatory time, refers to paid time off instead of overtime pay for extra hours worked. It’s important for employers, managers, and HR personnel to be aware of comp time and the provisions that govern it.
The US Department of Labor established the Fair Labor Standards Act (FLSA), which defines minimum wage and overtime regulations. Individual states may also have additional rules or labor laws to be aware of.
Generally, when it comes to comp time:
Only certain workers — or exempt workers — are eligible.
The location and type of business may play a role in eligibility.
It applies more to the public sector than the private one.
Failure to use comp time correctly could be costly.
Exempt employees are those who are not affected by the FLSA’s minimum wage and overtime pay regulations. They are paid an annual salary instead of an hourly wage.
Non-exempt employees are the opposite. As their employer pays them a minimum or hourly wage, they are subject to the rules and protections provided by the FLSA. This includes their right to earn and receive overtime pay for working beyond the established workweek hours.
What is the difference between comp time and overtime pay?
So, what exactly is the difference between comp time and overtime?
The difference comes down to how you compensate your employees for the extra hours they put in.
With comp time, you award employees paid time off.
With overtime, they earn extra pay at their normal rate plus one-half their rate. So, if an hourly worker makes $10 an hour, their overtime rate is $15.
It’s important to know exactly how many hours are in the typical work week to determine comp time and overtime pay. You also need to know the minimum wage and typical hourly wages in your industry to get an idea of how much overtime might cost.
The work week in the United States is 40 hours. The rate that non-exempt workers eligible for overtime receive depends on their hourly wage. The standard minimum wage is $7.25 per hour, although this varies considerably between individual states. For example, in Washington state, the minimum wage is $16.28 per hour.
In Australia, the standard work week is 38 hours, so comp time can be awarded for time worked over 38 hours.
Minimum wages are established by the award that oversees each industry or occupation in Australia. The national minimum wage is set at $23.23 per hour for all the others.
Like the US, Japan’s work week is 40 hours. Minimum wage varies by prefecture, ranging from 1,113 yen in Tokyo to 976 yen in Shiga.
What rules govern comp time, and what else should you be aware of?
In the US, the FLSA governs the rules and regulations regarding overtime.
Non-exempt employees in the US are eligible for overtime once they’ve put in 40 hours. Any extra hours are then calculated at 1.5 times their wage.
Employees who are eligible for comp time total the number of extra hours they work and multiply it by 1.5. For example, if an employee worked an additional five hours, they’d be entitled to 7.5 hours off.
It is usually illegal to award comp time in the private sector, although some states allow exceptions for certain businesses distinct from FLSA guidelines. In addition, some industries have union agreements governing comp time vs. overtime.
Ensure your business follows the guidelines with the greatest protections for employees. When in doubt, consult with legal counsel or experts for clarity.
It’s important to know the variances among different countries if you employ globally, too.
In Australia, wages and overtime are governed by the National Employment Standards.
Once an Australian employee works more than a 38-hour workweek, overtime is calculated at 1.5 times the hourly rate. However, some industries mandate that overtime is accrued at two times the employee’s wage once they pass the two-hour mark.
Unless their contract states otherwise, Australian workers are not obligated to work overtime or go beyond 48 hours of work for the week. If an employee does agree to work extra hours, the agreement must be documented in writing and signed off on by the employee.
Depending on the industry, employees may request comp time or a “time off in lieu” clause instead of overtime. The employer may not grant this if it’s considered unreasonable (e.g., in the midst of a time-critical project).
The Labor Standards Act governs Japan’s wage and overtime regulations. Employees are expected to work the statutory eight hours per day, totaling 40 per week.
Overtime rates are calculated according to different factors. For example, employees earn 25% or more of wages payable for a standard work day. However, this rate increases to 35% if the extra work occurs on a statutory holiday.
Employers also must know the off-hours maximum of no more than 45 hours per month or 360 per year.
Comp time is allowable in Japan under the Labor Standards Act if it was previously agreed to by labor and management representatives.
Comp time best practices for staying legal and compliant
Here’s how to ensure you stay compliant:
Clarify your policies
If you are in a position to offer comp time, put this in writing. All policies and procedures should be clear and easy for managers and employees to understand.
Include the definitions of exempt and non-exempt employees, along with examples for easy reference. You should also note whether managerial approval is required, the deadlines for employees to make comp time requests, and the expected timelines for approval or denial.
Above all, ensure your policies are consistent with local, state, and federal guidelines.
Focus on employee satisfaction
Whether you offer comp time or overtime, err on the side of the most employee protection. Confirm that the compensation type is consistent across employees and departments; if it’s not, outline the legal reasons why.
Keep in mind that employees value recognition for the work they do. If comp time isn’t an option, consider other ways your organization can reward them for a job well done.
Track employee time carefully
Here’s where the rubber meets the road. An efficient system for tracking employee attendance is necessary to calculate comp time and overtime hours accurately.
Choose an easy-to-access time attendance solution that tracks regular hours, overtime, and leave. With Lark, employees can clock in or out for their shift using their device through GPS or WiFi.
Automated timesheets make it easy to see if employees are accruing too much overtime so you can make immediate adjustments.
Consider flexible work schedules instead
If comp time isn’t an option, consider offering your employees a flexible work model — 87% of employees would opt for a flexible work schedule if given the choice.
A hybrid schedule provides many of the same benefits without the legal concerns. For example, rather than earning comp time to get an afternoon off, employees can get their working hours in at the times that work best for them.
How Lark can help you with comp time, time tracking, and employee attendance
Automated, centralized systems with multiple features, such as attendance management systems, are critical to today’s workforce. Automation streamlines various processes and improves collaboration and accuracy.
Lark’s inclusive platform helps you manage employee attendance, time tracking, and daily business operations. Here’s how:
Lark Attendance
Managers can log into Attendance to set employee shifts, manage overtime, and approve leave requests.
Opt between free shifts, fixed shifts, and big or small shift schedules by setting the shift rules applicable to your business.
Establish the overtime rules for your employees, including whether they are eligible for overtime pay or comp time.
Employees can simply download the Attendance app on their phones and use it to quickly clock in or out through their preferred method.
Lark Approvals
Ready to streamline leave requests? With Lark Approvals, employees can submit absence requests for time off, leave, or travel.
They simply create an approval from the app and submit it to their manager. From there, they can track how the approval is handled.
Lark Wikis
Lark Wikis is the go-to app for storing your operational information.
Access free Lark templates, including the Leave Application, and add them to Wikis for quick reference. Upload your docs from other platforms, such as Confluence, Word, or Excel, to keep everything at your fingertips.
Lark Help Desk
Another useful tool is Lark Help Desk, which enables both employees and those outside of an organization to get quick answers to their questions. Hot pot chain Haidilao, for instance, uses it to answer various employee queries about attendance and comp, saving their admin team over 60,000 hours every year.
Manage your employees effortlessly with Lark
Even if you can’t offer comp time, you can streamline your operations with the right tools. Lark’s all-in-one platform allows you to easily manage employee attendance, approve leave requests, and monitor overtime. You also have what you need to seamlessly email, chat, and collaborate so everyone on your team stays connected.
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