Will Overtime Comp Hours Help Workers Find Flexibility Or Hurt Families?

The United States Congress is considering a major change to federal overtime laws, one that could offer hard working employees more free time – and less extra money. While we covered this proposed legislation in a previous post, it’s worth a deeper dive. Here’s our full guide to the Working Families Flexibility Act of 2017.

Congress’ New Plan For Overtime

Current federal law, as set forth in the Fair Labor Standards Act, requires that millions of American workers get paid time-and-a-half overtime wages after working more than 40 hours in a single week. Employers don’t have a choice; paying overtime is mandatory in most cases.

Republican lawmakers say this strict requirement also deprives employees of a crucial choice. What about workers who would like more time, rather than more money? What about the employees looking for more flexible schedules, instead of more purchasing power? The workplace of today is radically different from the factory floors and sweatshop labor of the Great Depression, a period in American history alive with labor abuses that inspired the Fair Labor Standards Act’s minimum wage and overtime requirements. GOP legislators say they’re simply trying to update our federal laws to better reflect the realities of the contemporary working environment.

Paid Time Off Instead Of Cash Wages

While the bill has only just reached the Senate floor, the Working Families Flexibility Act of 2017 hopes to offer employers and their employees a choice between overtime wages and comp time. Instead of accepting higher earnings for their extra hours, private workers would be allowed to opt instead for additional vacation time. Public employees already have this opportunity, in large part because members of Congress (with a base salary of $174,000 per year) are eager for more time off. Now, representatives like Marth Roby, a Republican from Alabama, want to extend a right to comp time to private sector employees.

There’s no guarantee that the Working Families Flexibility Act will pass into law. Initial votes on the topic have split roughly down party lines, so Republicans will have to curry the favor of a few Democrats to push the legislation through. But here’s how the law would work, as it’s written now:

1. Comp Time Won’t Be Automatic

Employers won’t be allowed to force workers to accept vacation time in lieu of overtime wages. Both an employer and their employee have to agree, before the overtime hours are actually worked, that vacation time is what they both want. If there’s no agreement, federal law reverts back to normal and the worker is automatically entitled to overtime wages at their usual premium rate. There’s a hitch, though, that could make securing vacation time compensation difficult in practice, but we’ll get to that in a second.

There’s also a second sense in which comp time won’t be automatic. Vacation time will only be offered to workers with established employment relationships. Having worked 1,000 hours for the same employer is a precondition of receiving the option. Just started your job? You’ll receive overtime wages, in cash, until hitting the 1,000 hour mark. Then vacation time becomes an alternative.

2. 1.5 Is Still The Order Of The Day

Currently, overtime wages must be paid at a rate of 1.5 times a worker’s regular rate. So employees who make the federal minimum wage, $7.25 per hour, are entitled to at least $10.87 for every hour worked beyond 40 in a work week. That’s $7.25 multiplied by 1.5. The switch to comp time would retain the importance of this 1.5-to-1-hour ratio. Every hour of overtime would be worth 1.5 hours of vacation time. A worker who put in 45 hours in one week, for example, could opt to receive 7.5 hours of comp time, which is 5 overtime hours multiplied by 1.5 hours. In other words, the value of an overtime hour stays the same; it’s just converted from dollars to time.

3. There’s A Limit

Workers won’t be allowed to rack up an unlimited amount of vacation hours. There’s a max for the year: 160 hours in comp time. In other words, employees will be limited to cashing out around 106.5 overtime hours as comp time. Accrue more than 160 hours worth of overtime in a year and you’ll be forced to accept cash wages instead, whether or not you want to.

4. Unused Vacation Hours Turn To Cash

Don’t use up all your earned vacation hours before the end of the year? That overtime compensation will be automatically converted in cash wages, but not at your applicable overtime rate. Instead, these unused hours will be paid out at your regular rate, either your hourly wage or your salary converted into an hourly wage.

This overtime compensation must be paid within 31 days of the end of your working year, which is usually the calendar year but can also be an artificial year defined by your employer. If you got a raise at some point during the year, your collection of overtime hours have to be paid at your new wage. This logic flips if you suffered a pay cut during the year. You’ll always be entitled to the higher wage, whether or not it’s your current rate. You’re also entitled to receive cash compensation for accrued comp time even if you get fired involuntarily.

Regular rates can be complicated, though. In some cases, employers are required to factor commissions and bonuses into their overtime calculations. That can make a huge difference in your paycheck, which is why every worker should read up on the proper way to calculate overtime in our handy guide.

5. Your Boss Can Switch His Or Her Plans

Employers would be allowed to take comp time off the table, as long as they give their employees at least 30 days’ notice before doing so. Where individual employees are concerned, employers will be able to convert agreed-upon comp time back to overtime wages, but only for comp hours accrued over 80 in the year. Again, 30 days’ notice is required before this option becomes illegal. In short, employers can decide that offering comp time to an individual employee is bad for business, but only after the worker has already earned 80 vacation hours that year.

6. You Don’t Decide When To Use Your Comp Time

Here’s that hitch we mentioned earlier.

Employers will have the final say on when an employee can actually use their earned comp hours. The law doesn’t provide really concrete guidance on this point, or, if it does, it cedes a lot of power to employers.

When an employee asks to use their accrued vacation hours, the employer is obligated to honor the request, but how quickly is unclear. The bill says that a company needs to grant the request “within a reasonable period.” The definition of “reasonable” is left up to the employer’s discretion. Employers are allowed to decline a request to use comp time if losing the worker for a few hours would “unduly disrupt the operations of the employer.”

This might seem like a reasonable concession. After all, employers need their employees to work and some days are busier than others. It’s conceivable that a worker could use their comp hours at a time that actually hurts the business, which probably wouldn’t be good for the employee in the long run. The potential for abuse, though, should be obvious and Democrats have seized upon this snag in the Working Families Flexibility Act to buttress their opposition to the bill.

Is Comp Time Bad For Workers?

Here’s how House Democrats outlined their resistance to the idea of comp time in a meeting of the Committee on Education and the Workforce on April 26, 2017. The Working Families Flexibility Act, they wrote, “forces working people to choose between their hard-earned pay and time with their families, when they need both.”

While Republicans are offering the bill as a way for employees to get more paid leave, opponents argue, it’s really just a sham – designed to distract from truly progressive efforts to expand paid sick days and family leave. There’s a paradox at the heart of the conservatives’ proposal, according to Democratic representatives. In hopes of earning more time with their families, workers will have to spend more time at work. In practice, we’ll see parents spending less time with their loved ones and toiling longer hours, just for the opportunity to earn some free time at an unspecified point in the future.

Paid Leave Is Cheap For Employers

Comp time is cheaper for employers to pay out than overtime wages, according to the left-leaning Economic Policy Institute. How will private employers who use mandatory overtime policies to shore up staffing shortages respond to the Working Families Flexibility Act? Democrats say that, since the law could make overtime labor even cheaper for employers, many workers, like nurses, who are often forced to work extra hours will see their shifts get even longer.

There’s also the possibility that unscrupulous employers will try to force employees into accepting comp time instead of overtime wages – by assigning more overtime hours to people willing to opt for time off in compensation. Workers who need more cash, roughly 40% of low-wage employees by one estimate, would see their overtime opportunities dwindle, or worse, be coerced into accepting comp time that they don’t really want.

Another potential problem is that enforcing labor laws could become even more complicated than it already is. As House Democrats have pointed out, overtime violations are staggeringly common. Some estimates suggest that up to 3 in 4 employees who work overtime hours aren’t being paid properly. Adding complexity to the overtime picture will just make things worse.