Should You Offer Your Employees Paid Time Off Instead of Overtime Pay?

The following appeared in the American Express OPEN Forum on May 30, 2017 and features comments from OperationsInc CEO David Lewis. To view the original article, please click here. 

by Julie Bawden Davis

As a business owner, you probably want to offer your employees as many options as possible for striking a healthy work-life balance. In an attempt to make it easier to juggle work and home life, the House of Representatives recently passed the Working Families Flexibility Act of 2017, also known as H.R. 1180, which allows employees to carve out more time for themselves using overtime pay.

If the bill becomes law, private-sector employees will be allowed to exchange overtime pay for compensatory (comp) time off for the first time. In lieu of monetary overtime compensation, employees may receive time off at a rate of not less than 1.5 hours for each hour of overtime employment. Currently, this is an option offered only to federal employees.

Potential Benefits of the Working Families Flexibility Act…

If the act becomes law, private-sector hourly workers will be able to choose between getting time-and-half pay when they clock out, or opting instead for an hour-and-a-half of comp time for each hour of overtime worked. Essentially, employees can decide if they prefer cash soon after working overtime hours if they want to wait and bank the hours for future use.

Employees are allowed to accrue up to 160 hours of comp time each year, but may decide to cash that time in whenever they wish for overtime pay. If employees with accrued time are terminated, it’s paid as overtime pay.

“The flexibility to have overtime work possibly turned into paid time off, versus an outlay of cash, can be a good thing for employers and employees,” says David Lewis, CEO of OperationsInc., a human resource consultancy.

Proponents of H.R. 1180 say that the act enables workers to choose between time and money, depending on their life circumstances. They say the bill could also end unfair discrimination against private-sector employees who are currently unable to make this choice (unlike federal employees).

For employers the reduction in cash outlay could be an advantage, while the possibility of more time off may be a good thing for employees, believes Lewis.

“For workplaces where the amount of time off awarded is not adequate to meet the needs of the employees, this gives them an option to essentially earn more time off,” he says. “That could lend itself to a population of employees who through such an option can achieve better work-life balance.”

In certain situations, trading overtime pay for time off can be a win-win for everyone, believes Ted Mayeda, co-owner of the Orange, California-based gardening center Fairy Garden Expert.

“Employers are glad to help improve the lives of employees by providing more time off, and the arrangement also helps employers manage overtime pay costs,” he says.

… and Potential Drawbacks of the H.R. 1180

Some business owners have concerns regarding the Working Families Flexibility Act and its effect on employers and employees.

“Employers could fail to put the appropriate valuation on the lost productivity and presence of some employees who earn paid time off, versus pay, causing issues with productivity,” says Lewis. “That can easily spill over to create a morale issue with others who then have to pick up the slack of what could be a disproportionately high amount of absences.”

There are also potential issues for employees, believes Lewis.

“There is the prospect that this paid time off never really gets taken,” he says. “In many states, employers are allowed to have a ‘use it or lose it’ policy on other types of paid time off. While the days you earn under this new law likely will not be allowed to ‘expire,’ other paid time off days will. This could lead to an employee working overtime and not receiving compensation for it.”

David Waring, co-founder of FitSmallBusiness.com, is also concerned about the impact of the act.

“I don’t believe the government should interfere and force private employers to pay anything more than what they feel they need to pay to attract and retain talent,” Waring says.

“While it may seem counterintuitive,” he continues, “the best thing that the government can do to help the average worker is to focus on helping companies be as successful as possible.”