Comp-Time Payments, Base Hourly Rate, and the FLSA

Today’s FLSA Question: I am a full-time firefighter in a small combination fire department. My department has a long history of providing FLSA comp time instead of paying FLSA overtime. However, the department uses the firefighter’s base hourly rate when using accrued comp time. This base rate does not include any wage incentives or stipends. Additionally, the fire department allows firefighters to voluntarily “sell-back” some accrued FLSA comp time at the end of the year. This “sell-back” is paid at a pre-determined set rate. Basically, the set rate is around fifty to seventy-five percent of the employee’s hourly rate depending on the individual’s rank and longevity. Doesn’t the FLSA require accrued comp time be paid at the employee’s regular rate? Is there an exception for a voluntary end-of-the-year sell-back?

Answer: Yes, you are correct. The FLSA requires that “payments for accrued compensatory time” be “paid at the regular rate earned by the employee at the time the employee receives such payment.” The FLSA requires that all remuneration for employment be included in an employee’s regular rate. As a general rule, medic stipends, longevity pay, hazardous duty pay, and other similar wage augments must be included in the regular rate calculation utilized to pay out comp time.

There is one minor exception to the rule posted above. Department of Labor (DOL) regulations require a slightly different analysis when an employee has accrued unused comp time and terminates his or her employment. When a firefighter or other overtime eligible employee terminates employment [i.e., quits, gets fired, retires, etc.] that employee must be paid for all accrued FLSA comp time. The rate for this pay-out must be the higher of either (1) the regular rate earned by the employee at the time of seperation, or (2) the employee’s average regular rate for the last three years of employment.

This is an important distinction. The FLSA and corresponding DOL regulations are intended to protect workers and ensure that the Act’s minimum and overtime requirements are followed. Allowing an employer the ability to reduce an employee’s regular rate in the final days of employment in order to reduce or evade the employer’s FLSA overtime requirements would be at odds with this general overarching purpose. As such, the regulations contemplate this possibility and provide a mechanism to ensure compliance.

Now, the second part of your question requires a bit more thought. The FLSA and DOL regulations do not per se forbid an employer from paying out accrued comp time at a pre-determined rate of pay. However, if that pre-determined hourly rate is not at least equal to, or is less than the employee’s regular rate of pay, those comp time payments would not meet FLSA or DOL requirements. In other words, there is no end-of-year exception.