Earlier this week, the U.S. House of Representatives passed, by a 229-197 margin, the Working Families Flexibility Act (HR 1180). The Act, if passed by the Senate and signed by the President, will introduce the concept of “compensatory time” (a/k/a “comp-time”) to the private sector workplace. Under the Fair Labor Standards Act, comp-time has existed in the public sector for many decades, but absent the passage of this Act, it is not permissible in the private sector.

The Comp-Time Concept

The concept of “comp-time” is essentially a way for employees to earn time off with pay in lieu of being paid time and one-half their regular hourly rates for hours worked over 40 during a workweek. This time off is earned at the rate of one and one-half hours for each hour of overtime worked. In the public sector, the FLSA allows employees to accrue 240 hours of comp-time (or 480 hours for public safety employees), to be used or paid per specific federal regulations. The system envisioned by this Act for the private sector is similar to its public sector counterpart, but different in some significant ways. These differences if they survive the passage of the bill may lessen the attractiveness of comp-time programs for private sector employers.

The Comp-Time Structure under the Working Families Flexibility Act

Under the Act as passed by the House, private sector employees could accrue up to 160 hours of comp-time.

  • Only employees who have worked at least 1,000 hours during the 12-months preceding the beginning of the comp-time arrangement will be eligible to participate in a comp-time arrangement.
  • Participation in a comp-time arrangement must be voluntary (i.e., the employer may not directly or indirectly intimidate, threaten or coerce employees to work under the comp-time arrangement) and initiated only pursuant a collective bargaining agreement, written agreement with the employee or other verifiable record maintained by the employer.
  • Any accrued comp-time not used within a designated year must be cashed-out to the employee within 31 days after the year-end at the rate the employee is earning at the time of the payment or when the hours were earned, whichever is higher.
  • During the year, the employee also may cash-out any accrued time, at the employee’s discretion.
  • During the year, the employee must be allowed to use the comp-time accrued as requested, unless the time-off would unduly disrupt the employer’s operations.
  • The employee may also opt-out of the comp-time arrangement at any time by giving the employer written notice. The employer may terminate the comp-time arrangement only by giving the employee 30 days’ prior written notice.

Good News or Bad News?

So is this good for business? It depends. Over the years—beginning in the Clinton era—similar bills have been introduced by both parties in Congress. The premise of the bills has been that allowing employees to earn and use comp-time may be more desirable than earning overtime pay, since the quid pro quo for losing some time with one’s family would be earning the ability to take off even more time at a later date, with pay, to be with one’s family.

To those against the bill, there’s a fear that employees will be coerced to accept comp-time as a condition for working overtime, or that the payment of earned overtime pay will be unfairly deferred. These fears do not appear to be very realistic given the structure of the Act.

Due to the employee’s right to cash-out accrued time at any time and rescind the comp-time arrangement, the advantages of employees working overtime for comp-time in lieu of being paid overtime pay are less clear for employers. Employers like comp-time because they can avoid the out-of-pocket cost of overtime while allowing employees to take off more time during slower times of the year. Under the Act, while these advantages still exist, they can be readily lost based on the employee’s whim to cash-out their time and terminate the relationship. Also, by forcing employers to cash-out accrued time not used by the year-end, much of financial savings will be lost to employers while the employees will also lose their ability to bank time for use at later time.

These disadvantages do not exist in the public sector, and it’s unclear as to why the model for the private sector needs to differ than that used in the public sector. Nonetheless, this is the course currently being taken by Congress.

Prospects for Passage?

While the President has endorsed the bill as passed by the House, its future in the Senate is unclear. If the bill moves through committee and to the floor, it is likely that some changes will be made to gather the 60-vote margin needed to avoid a filibuster. If this happens, then what will be shaped in Conference Committee is even more unclear. Time will tell.

Impact on Other Comp-Time Plans

Employers should realize, though, that the concept only applies to overtime worked by non-exempt employees. Under the FLSA, the Act would not apply to permissible comp-time arrangements which may be in place with respect to hours worked beyond a normal workweek of 35 or 37.5 hours, but less than 40, for example, nor does it impact comp-time arrangements in place with respect to exempt employees. Further, as currently drafted, the Act would not apply to public sector employers in any respect.