What is Compensatory Leave?

When employees put in that extra effort and work overtime hours to close a project or compromise their weekend plans to commute to the office and work the entire week, they expect some compensatory benefits in return for their hard work.

Companies either offer these benefits by reimbursing for the total extra hours worked or offering compensatory leave, or ‘comp off,’ to reward employees for their dedication to the company’s growth.

This article explores the meaning of compensatory leave meaning, benefits, and everything else to learn about this leave policy.

Compensatory Leave Meaning

Compensatory leave, also called comp time, comp off, or comp leave, is paid time off given to employees in lieu of the additional time they worked beyond their usual working hours.

Thus, instead of paying extra or reimbursing for the extra hours worked, companies offer compensatory leaves to reward employees with well-deserved rest and time off.

Why is Compensatory Leave Important?

Unfortunately, not every company across the globe respects employee’s personal time. A recent dreadful incident that occurred in Pune, India, left everyone in shock where a young Ernst & Young’s employee died due to an intense workload. The deceased mother wrote a letter to the company’s chairman expressing that her daughter had to work day and night, including Sundays, resulting in such an unfortunate incident.

Offering compensatory leave is one of the factors that plays a huge role in avoiding such circumstances and allowing employees to take some time off to relax, relieve fatigue, and spend some time with their loved ones.

In addition, it also boosts motivation and job satisfaction among employees, improving their retention rate and productivity.

Besides employees, compensatory leave also benefits an employer. For instance, an employer can save on overtime reimbursement, which can get expensive compared to compensatory leave.

Types of Compensatory Leaves

Compensatory leaves vary in terms of circumstances in which the employee works overtime.

The different types of comp leaves are:

• Overtime compensatory leave: When employees work overtime than their designated hours, they can opt for overtime comp offs in lieu of an overtime payment. For instance, if an employee worked 9 hours extra, they’ll get 9 hours off as compensatory leave instead of 9 hours of overtime payment.

• Holiday compensatory leave: If an employee works on a non-working day, like a weekend, scheduled holidays, public holidays, or national holidays, they are allowed to take time off at a later date.

• Travel compensatory leave: Sometimes, organizations require employees to travel for work outside of their regular working hours. In return, the company grants travel compensation leave to compensate for the time they couldn’t spend in their personal lives.

• On-call compensatory leave: When an employee is required to be on-call (available beyond their normal working hours), organizations grant compensatory leave to such employees instead of overtime pay.

Who Is Eligible For Compensatory Leave?

Eligibility requirements for compensatory leave vary based on organizations, locations, and specific terms and conditions of labor laws.

For instance, in the U.K., there are no stringent or statutory laws about compensatory leave. Instead, organizations decide whether they want to include “time off in lieu” (TOIL) in their laws and what it should consist of.

On the contrary, the U.S. consists of strict laws regarding compensatory offs, which are included in the Fair Labor Standards Act (FLSA). FLSA divides employees eligible for compensatory leave into four different categories:

1. Public agency employees
2. Employees of certain states
3. Exempt (salaried employees)
4. Non-exempt employees (non-salaried employees paid on a wage or hourly basis)

Eligibility criteria for compensatory leave is determined by the comp off policy designed by companies based on factors like:

• Accrual rate: Determines how quickly an employee earns comp time. This rate is usually time and a half, which means an hour of overtime work equals 1.5 hours of comp off.

• Expiry: Some organization compensatory leave policies offer compensatory time for a specific period.

• Caps: It limits how many comps off an employee can accrue.

• Threshold: Companies often set threshold hours for comp leave eligibility. For instance, an employee needs to work at least 4 hours of overtime to be eligible for compensatory leave.

How To Calculate Compensatory Leave?

Here are the steps to calculate compensatory leave:

• Determine the number of overtime hours worked by an employee in a week. For instance, if the standard work hours of a week are 40 hours, and the employee works 46 hours, the overtime is 6 hours.

• Determine your company’s accrual rate, which can be 1 to 1.5 times of the overtime hours worked.

• Multiply the overtime hours with the accrual rate.

So, in our example, if a company’s accrual rate is 1.5, the compensatory leave an individual can earn is 6 x 1.5 = 9 hours.

How To Draft a Compensatory Policy For Your Company?

While the hustle culture had its time at one point, organizations across the globe are promoting the culture of work-life balance and offering comp and paid time off to their employees.

In fact, according to a report, 79% of employees working in the private sector are offered paid vacations, reducing stress and burnout and resulting in a harmonious work environment.

If you want to see productive and satisfied employees at work, here are the steps you can take to create an individual company policy highlighting compensatory leaves.

• Review your company’s existing policies to get a clear picture of the existing leave policy and comp off landscape to determine what can be approved.

• Determine the objective of your comp off policy—whether it’s minimizing overtime budget, boosting employee recognition and morale, or promoting work and schedule flexibility.

• Research and ensure compliance with relevant regulations and state or country-specific governing comp-off requirements.

• Based on the research done and data gathered, draft a compensatory leave policy that covers critical aspects, such as procedure to request for comp-off leave, eligibility, deadline/expiry, accrual rules, approval methods, situations/conditions when comp-off request is rejected.

• Share and effectively communicate the compensatory leave policy with your employees and staff to ensure they thoroughly understand it and all its intricacies.

• Review and periodically update your compensatory leave policy so it remains compliant with the necessary laws and regulations.

Conclusion

Rewarding employees and incentivizing them with paid leave is an excellent way to promote a healthy work environment, make employees feel heard and valued, and boost your company’s credibility.

When employees compromise their leisure time to go the extra mile and work extra hours for the company’s growth, they deserve to be compensated for relaxing and putting in additional effort after coming back to work.

Compensation management, which includes payroll and leave sanctions, can be a hassle without an expert team or a proper system in place. Investing in a tool that streamlines redundant and complex processes is key to a successful organization.

Darwinbox offers a comprehensive compensation suite that simplifies compensation management tasks with automation and a secure cloud HRMS platform.

By automating complex calculations, like leave management, you can ensure a smoother and more accurate process, which helps ensure compliance and drive data-driven decision-making. Schedule a demo today to learn more.

FAQs

How long is a compensatory leave?

The duration of a compensatory leave depends on an individual basis, specifically, the number of hours an employee has worked overtime. For instance, for every one hour of overtime work, an employee can receive either 1 hour or 1,5 hours (for a 1.5 accrual rate) of compensatory leave. However, the rules and amount of comp off can vary for different countries, states, and organizations.

What is the difference between comp time, overtime, and PTO?

Comp time is the time-off companies give to their employees in lieu of overtime pay. Overtime is when employees work more than their usual working hours and receive 1.5x their wage for the extra hours worked. PTO, or paid time off, is the scheduled day or time off employees use for their personal benefits like vacations or during an illness.

Can an employee use their comp off during their notice period?

Usually, companies and organizations forbid employees from taking leave during their notice period unless it is an absolute emergency. However, if the employees have worked extra hours and they have pending comp off, which they haven’t used, the company most likely reimburses it in the employee’s salary.