Overtime Pay vs. Comp Time

Overtime can be a costly expense that can cut into your profits. Because overtime often is the result of an unforeseen event, it can be difficult to include the correct amount of overtime into your budget.

Consider the Alternatives

One alternative may be offering comp time instead of overtime pay. First, it's important to point out that some states do not allow comp time in place of overtime pay, so you'll need to check the laws in your state.

Comp time is paid time off that the employee can take instead of earning extra pay for working overtime. Obviously, this is not going to work for every business - and some employees are not going to like the idea.

Still, if it will work for you and the laws in your area allow it, you can make it your policy that overtime hours will be paid in comp time.

How to Do It

As with overtime pay, comp time should be given in an amount equal to 1 ½ to 2 times the number of overtime hours worked. For example, if an employee worked 2 hours of overtime, he should receive 3-4 hours of comp time.

You will want to make it clear to employees BEFORE they work overtime that this is your policy. Be sure to have employees sign a copy of the policy. Keep the signed copy in each employees file.

Some businesses handle their overtime by using a combination of overtime pay and comp time. You could, for instance, decide that the first 10 hours of overtime per month will be paid and the remainder will be reimbursed through comp time.

Be sure if you offer comp time that employees are able to take it as long as they give reasonable notice.

You can save thousands of dollars a year by offering comp time. Just be sure that the laws in your area allow it, and that your employees understand your policy.