Understanding Comp-time
(from Maine Townsman, October 2000)
by Antoinette Mancusi, Technical Advisor, MMA EDITOR'S NOTE:  The following is an update of an article written by MMA Personnel Services Manager David Barrett in the January 1992 Maine Townsman.

As municipalities struggle with limited budgets, administrators and elected officials look for every possible way to conserve town funds.  Limiting employee overtime pay is often viewed as a way to reduce costs.

As a result, many communities turn to the use of  “compensatory time” as a method of controlling the outflow of tax dollars.  However, it is important to note that a downside to such a practice also exists.

Accumulated comp-time is an outstanding liability to the town; one that will have to be provided to the employee in time off, or paid in cash upon the employee’s separation from employment (at the employee’s current rate of pay).

The town owes this money and it should be budgeted as a liability and funded accordingly.  The town should keep a very close watch on the amount of comp-time employees are accumulating, especially if large amounts are being committed to employees.

Nonetheless, there are defensible reasons for using comp-time and these shortfalls should not discourage towns from considering the use of comp-time.

There are very specific laws and regulations that govern overtime, and particularly, the use of compensatory time off in lieu of cash overtime.

The Fair Labor Standards Act (FLSA) requires that most municipal employees be paid overtime after working a set number of hours.  For most employees, the limit is 40 hours per week.  For police officers, the limit works out to 43 hours per 7-day workweek; for firefighters the limit works out to 53 hours per 7-day workweek. Note, however, there is a complete overtime exemption (not a minimum wage exemption) for any employee of a police or fire department that employs less than 5 employees during a workweek. For purposes of calculating employees, police and fire personnel are counted separately (29 C.F.R. § 553.200).

In order however, for a public employer to use a work period longer than one week (for calculation of law enforcement or fire protection overtime only) the period must be specified by the employer in advance.  If properly done, establishing such alternative work periods (known as a 7(k) Exemption) increases the FLSA overtime thresholds beyond the normal 40-hour week.  This means that officers in such departments are not entitled to FLSA overtime until they have exceeded the “7(k)” thresholds set up by the municipality. A summary chart – provided under federal regulation 29 CFR 553.230– is included with this article giving “maximum hours standards” or permissible thresholds for both law enforcement and fire protection employees.

Any hours an employee works over these limits must be compensated at 1.5 times the employee’s regular rate of compensation.  There are two ways to compensate employees for this overtime – overtime pay or compensatory time off.

It is important to note that FLSA does not regulate comp-time for “exempt” employees.  Generally, employers are free to fashion comp-time plans for “exempts” as they see fit.  A word of caution however, employers must be certain that an employee meets the stringent test for exempt status prior to assigning such status to an employee.

Like payment of overtime with cash, compensatory time must be paid at the 1½ times the regular rate.  That is, for each hour of overtime worked by the employee, the employee must receive 1½ hours of time to take off at a later date.  This time may be placed in an account to be used in the future.  The employer must provide opportunities for employees to take this time.

It is important to understand that because comp-time is earned, there may not be a “use it or lose it” policy. Once the employee earns the comp-time, he or she must be compensated for it either in time off or salary.

There are however, maximum limits to the amount of comp-time that can be accumulated under the FLSA.  For non-public safety employees, the limit of accumulated hours is 240 hours. (160 hours actually worked at 1½ times).  For public safety employees, the limit is 480 hours (320 hours actually worked at 1½ times).

Employees can “bank” comp-time up to these limits.  Once an employee reaches the 240 or 480-hour limit, no more comp-time may be given to that employee.  All additional overtime the employee works must be paid in cash at that time.  Note also that these limits provided by law are maximums.  Municipal employers are free to set up lower limits.  For example, a municipality might want to establish a 60 hour of comp-time maximum.

Another important element to remember is that the decision to use comp-time instead of cash overtime is one that must be agreed to by both the municipality and employee(s).  The town cannot unilaterally decide to use comp-time, even in a non-union setting.  However, in order to keep levels of outstanding comp-time down, employers may require employees to use accrued comp-time.  A word of caution however, it is illegal to change an employees workweek in order to avoid paying overtime. 

On May 1, 2000 the Supreme Court in Christensen v. Harris County (Docket # 98-1167) held that “nothing in the FLSA or its implementing regulations prohibits a public employer from compelling the use of compensatory time.”  The Court further opined that the intention behind the relevant regulations was to “simply ensure that an employee receive some timely benefit for overtime work…[the regulations] say nothing about restricting an employer’s efforts to require employees to use time.”  The Court also remarked that under the FLSA “[e]mployers are permitted to decrease the number of hours that employees work, and employers also may cash out accumulated compensatory time by paying the employee his regular hourly wage for each hour accrued.”

       The comp-time/cash overtime decision is essentially a “pay me now or pay me later” situation.  As long as the municipality plans for and budgets for comp-time liability, it can save money today.

There is, however, a potential shortcoming to this general rule.  In the event the employer has to replace the employee out on comp-time with another staff person, the employer winds up paying two employees in order to effectuate the use of comp-time.  As a result, in municipalities where staff is limited and it is necessary to have alternate employees cover for employees out on comp-time (i.e., the employee out on comp-time is in a position that requires coverage and there is no other person performing that job), it would be more cost-effective to use overtime pay. 

            One other very important aspect to keep in mind is that the municipality is incurring a debt when using comp-time; one that will have to be paid someday, in either time off or cash.  It can only be hoped that when the municipality does pay off its comp-time obligation, it is at a time when the municipality can better afford to pay.

SIDEBAR:

Fire Protection & Law Enforcement

Maximum Hours Standards

Overtime compensation (in premium pay or compensatory time) is required for all hours worked in excess of the following maximum hours standards (rounded to the nearest whole hour):

Work Period (days) 

Fire

Police

28

212 171
27 204 165
26 197 159
25 189 153
24  182 147
23 174 141
22 167 134
21 159 128
20  151 122
19 144 116
18 136 110
17 129 104
16 114 98
15 106 92
14  98  86
13 98 79
12  91 73
11 83 67
10 76 61
9 68 55
8 61 49
7 53 43