A common question from employers is whether they can use a “comp-time” system instead of making monetary overtime payments. The answer (unless you are a public-sector employer) is almost always “no.” A company in Asheville found that out the hard way when it was investigated by the U.S. Department of Labor (DOL) for alleged failure to pay overtime properly.

 

The DOL determined that Asheville gift and novelty wholesaler AFG Distribution ran afoul of federal law by using a comp-time system in which it banked overtime hours worked by some employees and offered them back to workers as paid leave on an hour-for-hour basis. By doing so, the employer failed to pay the additional half-time premium for the overtime hours, a violation of the Fair Labor Standards Act (FLSA). The agency recovered $287,923 in back wages and liquidated damages for 152 workers based on its finding that the unlawful comp-time system denied them the full overtime pay they earned.

 

In addition, the employer failed to pay the additional overtime premium on monthly commissions earned by sales personnel and on quarterly bonuses paid to employees when they worked more than 40 hours in a workweek. As a result of its investigation, the DOL’s Wage and Hour Division (WHD) recovered $143,961 in back wages and an equal amount in liquidated damages.

 

The DOL has permitted comp-time systems only in very limited circumstances. In an opinion letter, the agency has provided that such a system can be used only if the comp-time hours are taken in the same pay period that the overtime hours were worked, and the comp-time must be awarded at a time and a half rate. The limitations make the use of comp-time administratively unfeasible. It’s different for public-sector employers—by regulation, they are allowed to use a comp-time system to compensate for overtime hours.