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What Is Compensatory Leave? A Guide for Employers

HR & Compliance

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Updated on:
April 11, 2024
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Updated on :

April 11, 2024
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What Is Compensatory Leave? A Guide for Employers


Individuals who employ one or more people understand how difficult it can be to comply with all relevant employment laws.

While many larger organizations have dedicated internal human resources and legal teams that are subject matter experts on all things employment, small and medium-sized businesses often turn to the web to find the answers they're looking for.

Employers face the challenge of determining what employees are legally entitled to regarding hours worked, rate of pay, and time off. While navigating these topics can be tricky (particularly when hiring international employees), we've created this comprehensive guide on compensatory leave for employers hoping to educate themselves on the subject.

Continue reading to learn about what compensatory leave is, what types of compensatory leave are available to employers, which of your employees is eligible for compensatory leave, and how extended compensatory leave is.

What is compensatory leave?

Compensatory leave, also called Compensatory or comp off leave, is a type of paid leave that employers use instead of paying the employee for additional hours outside of their scheduled full-time work week.

According to the US Office of Personnel Management, the compensation leave definition for the American workforce force is paid time off that is offered to an employee by their employer instead of receiving traditional overtime pay for overtime work, regardless of if it's scheduled, occasional, or irregular.

Compensatory leave benefits employers because, rather than paying employees extra money for working overtime, they can simply offer them vacation time in exchange. While this may seem counterintuitive (as if you're paying your employee twice as much), consider the following example to illustrate this point:

If your employee works five hours of overtime in one week, you would be expected to pay them 150 percent of their standard wage for those five hours. The same rules apply when calculating compensatory leave time for employees, so you can multiply their hours of overtime work by one and a half percent to calculate how many hours of compensatory leave time they're entitled to.

This means that instead of paying your employee for 45 hours of work one week (five hours of which are higher than their standard rate of pay) and 40 hours the next week, you're instead paying them for 40 hours for two weeks of work, but they work five additional hours the first week and seven and a half fewer hours the second.

Employees often value compensatory leave options because it can also feel more beneficial to them, especially if they make a low hourly wage or work small amounts of overtime hours at a time that eventually accrue to full days off.

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Types of compensatory leave

Below are the different types of compensatory leave standardly offered in the United States. However, remember that each country has unique employment laws. Employers will need to research the specific laws around overtime rates and compensatory leave in the countries where they hire employees.

Overtime compensatory leave

The most common type of compensatory leave is a compensatory leave in place of overtime pay. For employees to be eligible for this type of leave, they must work outside their scheduled hours and accrue leave time commensurate to one and a half times the additional time they work.

For example, suppose one of your hourly workers is scheduled to work Monday through Friday with a regular schedule of 9:00 a.m. to 5:00 p.m. and is asked to stay late on Friday to help complete a project for a client. Any hours they work past 5:00 p.m. will turn into overtime hours that can be converted into overtime compensatory leave.

Weekend compensatory leave

Weekend compensatory leave is offered to employees when they are required to work on the weekends if their position typically states that they have weekends off. If employees are required to come in on Saturday or Sunday, employers will be expected to provide employees with overtime pay or compensatory leave.

However, this compensatory leave only applies to employees who have set Monday through Friday schedules, as stipulated in their employee contracts. Therefore, employees working in retail, restaurants, or the hospitality industry, where weekend work is typical, will not be eligible for this type of leave.

Holiday compensatory leave

Holiday compensatory leave is also commonly offered to employees who have essential jobs and thus are scheduled to work on holidays. To qualify for holiday compensatory leave, the employee must be expected to work on a federally recognized holiday or a company holiday in which some employees within the company have the day off. However, a small number of employees are still required to work.

For example, suppose you own a grocery store but want to remain open on Christmas day rather than paying your employees additional holiday pay. In that case, you can offer them holiday compensatory leave for any hours they work on Christmas.

Holiday compensatory leave benefits both employers and employees as it boosts employees' morale required to work on holidays. In addition, although they may not get to spend the day with their families, they get paid for their workday and another full vacation day to use whenever they choose.

Additional types of compensatory leave

You will be required to honor any other types of overtime work specified in your employee handbook, as employers are bound by the rules they set within their company policies.

Who is eligible for compensatory leave?

In the United States, employment status determines employees' eligibility for compensatory leave. In addition, the ability to receive overtime benefits, including overtime pay and compensatory leave, is defined by the Fair Labor Standards Act (FLSA).

The comp off meaning applies to the following types of employees:

FLSA non-exempt employees are always eligible for overtime benefits, and employers may provide them with compensatory leave instead of their typical overtime pay rate.

FLSA-exempt employees, on the other hand, are subject to much stricter regulations regarding eligibility for compensatory leave benefits. Firstly, any salaried individual making more than $35,568 per year is not eligible for overtime pay, which means they cannot be offered compensatory leave.

Additionally, exempt employees eligible for overtime benefits can only receive compensatory time off and are not eligible for overtime pay rates.

These eligibility requirements are only specific to employees in the United States. Each country has specific regulations regarding overtime rates and compensatory leave (if compensatory leave is an option), which makes managing payroll and leave options when hiring employees in multiple countries a near-impossible task.

Consider partnering with an employer of record (EOR) if you're considering hiring remote international talent to ensure that your company remains compliant with all local employment laws.

How long is compensatory leave

Companies in the United States must offer overtime pay at a minimum of one and a half times an employee's standard pay rate. The same rules hold for compensatory leave, and American companies can offer their employees no less than one and a half hours of compensatory time off for each hour of overtime they work.

Additionally, according to the FLSA, non-exempt employees in the United States may accrue no more than 240 hours of compensatory leave. However, certain occupations, such as emergency responders specified in the FLSA, are eligible to double the typical rate and can accrue up to 480 hours of compensatory time off.

Employees can use compensatory leave similar to traditional vacation time, and how they use leave time is subject to your company policies. For example, suppose your company guidelines stipulate that employees must provide at least two weeks' notice for requesting vacation time. In that case, these same rules can apply to compensatory leave time.

The US government has rigorous compensatory leave time, including employees' eligibility to receive the compensatory leave. Be sure to comply with compensatory leave time in foreign countries as you globally expand your team.

How Skuad can help you provide employees with compensatory leave

Remaining compliant with compensatory leave laws in the US can be confusing, but this process becomes even more complex as you globally scale your business.

Every country has overtime, compensatory leave, and other employment laws that make remaining compliant in each country challenging. By utilizing Skuad's EOR services, we can help you grow your international team while remaining compliant in more than 160 countries.

Skuad’s global employment and payroll platform enables organizations compliantly hire, pay employees and administer comprehensive compensatory leave laws for your employees. Schedule a demo to see how Skuad can help you begin growing your remote team today.

About the author

Catalina Wang is a Human Resource Consultant. She manages recruitment, onboarding, and contract administration staffing for many organizations and remote teams. She’s passionate about efficient HR management and the impact of tech on hiring practices.

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