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Do you know that you can offer compensatory time off to your non-exempts?

March 13, 2015

Article courtesy of SBAM Approved Partner ASE

Back on May 27, 2014, the Michigan Workforce Opportunity Wage Age Act repealed and replaced Michigan’s old Minimum Wage Law.  At the time, the focus of all the publicity fell on the gradual increases in Michigan’s minimum wage, a process that started last September 1 and will continue through January 1, 2018. However, the law included another very important provision that mostly went unnoticed at the time. It allows Michigan employers to offer their non-exempt employees compensatory time off.

Compensatory time off is defined by the U.S. Department of Labor (DOL) as paid time off that is earned and accrued by a non-exempt employee instead of immediate cash payment for working overtime hours. Compensatory time off is earned at a rate of one and one-half hours for each overtime hour worked instead of equivalent pay in cash.

Currently under the federal Fair Labor Standard Act (FLSA), compensatory time off policies for non-exempt employees are generally illegal, at least for private employers.  The reason is to make sure employees are not unfairly prevented from receiving overtime pay.  However, state and local government agencies have an exception under section 7(o) of the FLSA allowing them to offer comp time under certain circumstances. The DOL has published guidance to state and local government employers regarding the use compensatory time.

When it comes to exempt employees under the FLSA, they must be paid a set salary no matter how many or how few hours they work in a week, even if they work less than 40 hours in a workweek.  The salary of an exempt employee may only be reduced under very specific circumstances.   While certainly not required, some employers offer their exempt employees extra time off for working additional hours.  The FLSA does not prohibit such a practice as it does for non-exempt employees. 

Employers may want to be cautious of offering comp time to exempt employees by matching time worked hour-for hour.  It may give the impression that exempt employees are being treated like non-exempt employees and employers don’t want to do anything that might jeopardize that exemption.  In addition, employers should consider calling this time off something other than “comp time,” because Compensatory Time is a legal term under FLSA.

While the federal FLSA generally prohibits compensatory time for non-exempt employees, the state of Michigan has provisions that allow such a program under the Michigan Workforce Opportunity Wage Act (the name of the state’s new minimum  wage law).  This Act applies to employers who employ two or more employees 16 years of age and older.  In addition, employees under 16 years of age, individuals employed by a summer camp for less than four months, and employees with disabilities who are covered by a blanket deviation certificate issued under section 14(c) of FLSA are not covered by the Act.

A compensatory time off program for non-exempt employees may only be offered by employers covered by the Act and ones that already allow their employees to take a total of at least 10 days of leave per year without loss of pay. Employers are not required to offer a comp time program, but if they do, they must follow these rules:

  • Employers must have a written policy outlining the comp time program. The policy must detail that comp time is a voluntary (by the employee) option to receive time off in lieu of overtime pay.
  • Employees must provide a voluntary written request to their employer for comp time off in lieu of overtime pay before the performance of the overtime work. The employer must receive and keep on file the written consent of the employee requesting compensatory time before the compensatory time is earned.
  • Employers may not force or coerce employees to accept or request comp time.  When assigning overtime hours, employers may not base their decisions as a result of an employee’s choice to request or not request comp time.
  • Employees may not accrue more than a total of 240 hours of comp time.  Once an employee’s comp time balance reaches 240 hours she must be paid overtime wages.
  • Upon the request of employee who has earned comp time, the employer shall, within 30 days of the request, provide monetary compensation for that time off at a rate not less than the regular rate earned by the employee at the time the employee performed the overtime work.  The request does not need to be in writing.
  • An employee must be permitted to use compensatory time as requested unless use would be unduly disruptive.
  • Employees will receive compensatory time off at a rate that is not less than 1½ hours for each hour worked for which overtime compensation is required to be paid.
  • The employer must provide the employee a statement of compensatory time earned and compensatory time paid in the pay period the compensatory time is earned or paid.
  • The payroll record maintained by the employer must show compensatory time credited in the period it is earned.
  • Accrued compensatory time must be paid to an employee leaving employment.
  • Unless prohibited by a collective bargaining agreement, an employer must give employees 60 days notice of the cancellation of a compensatory time or compensatory time off plan.

For employers that are considering offering a comp-time program, it provides additional flexibility for employees who are interested in more time off and work/life balance versus overtime pay. The downsides  to the law are 1) It puts more control in the hands of employees to choose how and when they want to use the time off. This may hinder management’s scheduling options;  and 2) It contains a number of administrative tracking requirements that may make offering a comp time program too burdensome for employers.

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