Should Your Business Offer Overtime Pay or Accrued Vacation?

by Derek Jones, · 3 minutes
HOME blog should your business offer overtime pay or accrued vacation

On Tuesday, May 2nd, House Republicans voted to pass HR 1180, a bill that could potentially affect U.S. businesses who employ hourly employees. The bill would give private-sector employees paid time off in exchange for overtime pay which is typically paid at a rate of time and a half. There have been mixed reactions to the passing of this bill; supporters say it would give employees more schedule flexibility to earn time off for a better work-life balance while opponents say it could weaken the protection of employees.

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In a Washington Post article, Lisa Horn, director of Congressional affairs for SHRM, comments, “The bill has built-in protections to ensure employees aren’t coerced into choosing comp times.” The bill bans employers from “directly or indirectly intimidating, threatening, or coercing or attempting to intimidate, threaten, or coerce an employee”.

As the bill would give private-sector employees the option to choose to get overtime pay immediately or use their accrued comp time in the future, the employee would also be able to change their minds at a later date if they decide not to use the time off and get the overtime pay from their employer within a max timeframe of 30 days.

Australia has a similar labor law already in place. The concept of ‘Time off in Lieu’ (TOIL) allows employees and employers to agree to exchange time off ‘in lieu’ of overtime pay if certain conditions are met. Conditions include recording the start and end of the overtime, employees requesting overtime payment if they don’t use their TOIL, and properly documenting records maintained by the employer.

If the bill becomes a law, employers will have the business discretion on whether to offer it. Horn continues in repose to employer’s having to manage the option, “There’s the tracking of hours, and they carry the liability on their balance sheet in case there’s a cash-out.”

The bill now faces the Senate. The outcome remains unclear, but Majority Leader Mitch McConnell (R-Ky.) supported a similar bill in 2013, and it’s supported by Trump, so the chances the bill will pass are high.

As this bill directly impacts U.S. businesses who employee hourly workers, it’s good time to understand your options as it will require some planning and logistics to properly implement and track this time. And now more than ever, tracking employee time is critical as wage and hour litigation spending is also on the rise. According to the 2017 Annual Workplace Litigation Report by Seyforth Shaw, LLP, there is a 76% success rate for employee plaintiffs filing wage and hour class action lawsuits, a steady rise annually from 70% in 2014. A few of the most costly businesses wage and hour settlements in 2016 included Outback, FedEx, WalMart, and Bank of America.

If House Bill 1180 passes the Senate, your business will have to consider if offering the option of accrued time off for overtime would help or hinder your operations. If you offer it, then your employees could feel empowered and appreciate the additional flexibility your business provides, leading to higher morale, employee engagement and retention. The option for accrued comp time could impact your bottom line if employees want to take off during a time you need them to be working. For this case, be sure to have equally skilled employees on hand to cover that time.

If you decide to not offer accrued time off, you’ll want to consider what other businesses in your area are doing. If the majority of businesses near you are implementing it (including your competitors), you might find yourself struggling to attract the best talent in your area. Before spending the time and resources implementing this program at your business, your best bet would be to survey your employees.

We’ll see what transpires with the ruling, but “It’s better to be prepared than swift afterwards.” -Faroese proverb

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