What is Compensable Time?

Defining compensable time can be an important issue for employers of all sizes. In fact, the U.S. Department of Labor (DOL) reported that it has recovered more than $1.4 billion in back wages in the last five years. How do you as an employer ensure you are properly compensating employees for time worked as required by applicable wage and hour laws? Here's what you need to know.

What is the Definition of Compensable Time Worked?

Before defining how and when employees should be compensated, it's important to define work itself. The U.S. Department of Labor defines “hours worked” as including:

1. All time an employee is required to be on duty or on the employer’s premises or at any another prescribed place of work.
2. Any additional time the employee is allowed (i.e., suffered or permitted) to work.

Under federal law, hours worked is further clarified and expanded in the Fair Labor Standards Act. In addition, individual states may provide further guidance as to what constitutes hours worked and when employees must be paid. Let's look at some of the specific federal laws and regulations that provide further guidance for compensating workers.

FLSA and Portal-to-Portal Act

Both the Fair Labor Standards Act (FLSA) and the Portal-to-Portal Act have helped to clarify the notion of compensable employee work time at the federal level. The FLSA establishes hours worked and rules around work-related activities, particularly for covered nonexempt workers. The Portal-to-Portal Act addresses how employees are to be compensated for specific job-related activities, such as travel.

Fair Labor Standards Act

Established in 1938, this law defines hours worked as described above and established a federal minimum wage, overtime provisions, restrictions on child labor, and equal pay for equal work between men and women (as amended).

The minimum wage and overtime provisions of the FLSA apply to non-exempt employees, who do not meet one of the FLSA exemptions. These workers qualify to be paid one and one-half times their regular rate of pay as overtime when they work over forty hours in a workweek. There are certain principles used to define FLSA hours worked when determining what is considered compensable time for non-exempt employees. For example, short breaks of 20 minutes or less are typically compensable, while lunch breaks greater than 30 minutes may not be. However, if an employee works during lunch, they must be compensated.

After the FLSA was passed, clarification was still needed on which activities were covered or not covered by the legislation. Even if the company is not a covered enterprise according to the FLSA enterprise test, employees may be covered individually. If an employee is involved in interstate commerce for the employer, then they're covered by the FLSA.

Portal-to-Portal Act of 1947

As an amendment to the FLSA, the Portal-to-Portal Act clarifies that certain activities are generally not compensable working time under the FLSA. More specifically, the Portal-to-Portal Act provides that employers are not required to pay employees for the time that they spend on activities occurring before or after they perform the principal activities for which they are employed. For example, the Portal-to-Portal Act addresses when the workday officially begins and ends under the FLSA, including preliminary and "postliminary" activities.

Determining When Time is Compensable

Employers must review and comply with the laws and regulations – federal, state and local– applicable to their business.

Principal Activities

When an employee is engaged in their principal job activities, during regularly scheduled work hours, calculating compensation can be straightforward. Questions may arise in situations that are not as clear cut, such as the following examples, which are considered integral to work, and therefore compensable.

• Maintenance of work equipment
• Early report to distribute materials (e.g., coming in earlier than a normal shift to print out materials to distribute)
• Doffing and donning as required by tasks

Other-than-Principal Activities

Other-than-principal activities which need to be done in order to complete one's job should also be reviewed to determine if they fall under the definition of compensable time, according to FLSA guidance.

• On-Call time — Depends on where the employee is physically located and what restrictions are placed on them while on call. If they required to wait at work, they must be compensated. Generally, if they are permitted to wait at home while on call, they are not considered to be working.
• Waiting Time — If an employee is required to be at work, such as a security guard or receptionist stationed at the front entrance to a building, they may not be actively engaged at all times, but they are still considered to be on the job.
• Rest and Meal Periods — Short rest and meal periods — about 20 minutes or less — are commonly included in hours worked. Longer meal periods of 30 minutes or more, when no work is required to be completed, are not generally considered to be compensable hours.
• Sleep Time — When an employee is required to work around the clock, they are generally paid for sleeping time, unless by mutual agreement employer and employee decide to exclude certain hours which are reserved as sleep time. This sleep period must be at least five hours in duration.
• Lectures, Meetings, and Training Programs — Time spent in meetings, seminars and training is generally compensable unless all four of the following conditions are met:
  1. Attendance is voluntary
  2. Outside normal work hours
  3. Not job-related
  4. No other work concurrently performed

When an Employer Must Pay for Travel Time

The principles which apply in determining whether time spent in travel is compensable time depends upon the kind of travel involved. The examples below are based on federal law under the FLSA, but employers should also review applicable state law.

• Home-to-work travel — An employee's home-to-work travel is generally considered non-compensable time.
• One-day out of town assignments — When an employee travels away from their normal fixed location and returns home the same day, travel time is generally compensable, but the employer may deduct the employee's normal commute time from hours worked.
• Travel that's all in a day's work — This is travel considered part of a principal job activity. Compensable hours in this case include time spent during the workday where the employee must travel from job site to job site. An example of this activity would be housekeeping employees traveling from one home to another in order to perform their work duties.
• Travel away from home — Overnight travel away from home is considered compensable when it occurs during the normal workday or corresponding hours on a non-work day. Exceptions to this policy include the time an employee is using transportation while away from their home community overnight, during non-work hours. In these cases, the time is not necessarily compensable.

Employer responsibilities

Put simply, employers must accurately track, document, and pay for employee hours worked. The FSLA does not stipulate a specific format for employee recordkeeping, but lists specific information that must be maintained for minimum wage and overtime workers. Other special situations, such as employees who receive lodging or those working under uncommon pay arrangements, may also be subject to additional recordkeeping requirements. There may be additional state and local laws and regulations that businesses need to comply with.

Rounding Rules

The FLSA permits employers to round employee work time to the closest quarter of an hour (15 minutes) based on 7-minute increments. But it is important to be accurate and consistent. Employers are not permitted to always round time down to the advantage of your business. In some cases, these rules may be established by union contracts. Businesses should review any additional state and local laws and regulations.

Compensable Time and Your Business

These topics are just some of the factors that must be considered when determining employee compensable time. Don't become part of the trend of employers facing rising fines and recovered wages. If you work with a payroll provider, be sure that they have a team of compliance professionals who can help keep you aware of regulatory changes that could affect how you pay your employees.