“Use It, or Lose It” Policy Not an Option for FLSA Comp Time

Today’s FLSA Question: I am a non-exempt battalion chief for a municipal fire department. Our department requires all non-exempt chief officers, like myself receive FLSA comp time in lieu of FLSA overtime. Recently, the city changed some comp time policies. First, the maximum number of comp time hours an employee can accrue is now capped at 300 hours. Previously, we could accrue up to 480 comp time hours. Second, the new policy states “comp time accruals in excess of 300 hours will be forfeited if not utilized.” First, does the FLSA allow an employer to limit an employee’s comp time accruals? And second, can an employer institute a “use it or lose it” policy related to FLSA comp time?

Answer: The FLSA allows public agency employers provide employees with comp time in lieu of FLSA overtime if certain conditions are met. There are numerous Department of Labor (DOL) regulations governing the accrual, usage, and cashing out of FLSA comp time.

To answer your first question, the FLSA does not per se prohibit and employer from limiting the maximum number of comp time hours an employee can accrue. Based on the limited information that you provided, the city can most likely institute this type of change. Obviously, there could be collective bargaining or other factors that impact the city’s ability to make this change, however the FLSA does not. Now, onto your second question. The FLSA prohibits employers from instituting a “use it or lose it” policy related to FLSA comp time.

The FLSA limits the number of comp time hours an employee can accrue to four-hundred and eighty. However, nothing in the FLSA or Department of Labor (DOL) regulations limits the ability of a public agency to reduce that maximum comp time accrual. For example, a fire department can reach an agreement with firefighters to limit the maximum number of comp time hours that can be accrued to two-hundred. That would be acceptable under the FLSA and DOL regulations. However, a fire department could not reach an agreement with firefighters to increase the maximum accrual beyond the FLSA limit of four-hundred and eighty. That agreement would be unenforceable, since it violates the FLSA.

The FLSA and DOL regulations also contain specific provisions regarding the proper cashing out of earned FLSA comp time. For starters, earned comp time payments made to employees as part of their continued employment [i.e., not at retirement or separation from service], must not be less than the employee’s regular rate at the time of the payment. The regulations contain slightly different requirements for paying earned comp time at separation of employment. When an employee terminates his or her employment, they must be paid for all unused FLSA comp time. The rate of pay for these comp time hours is determined by examining the individual employee’s regular rate over the previous three years of continued employment. The employer must pay the employee the higher of either (1) the regular rate when paying out the accrued comp time, or (2) the average regular rate for the previous three years of employment. This ensures that the employee receives proper compensation for any accrued/unused FLSA comp time.