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What is Compensable Time?

Payroll
Article
05/21/2018

Defining what is compensable time is a serious issue for employers of all sizes. In fact, the amount of wages recovered by the U.S. Department of Labor (DOL) due to employers failing to pay employees for compensable time totaled more than $1 billion from 2014 to 2017, with an increase from $240 million in 2014 to $270 million in 2017. That’s an average of $1,123.84 per worker in 2017 (or about 3.3 paychecks for a retail cashier).

At the 2018 American Payroll Association (APA) Congress, Hope Williams, CPP and Andrew Garboden, CPP, directors of payroll training for the APA, conducted a presentation on the common wage and hour compensable time issues faced by businesses today.

What is the definition of time worked?

Before defining time worked, it’s important to define work itself. When referred to for regulatory purposes, work is any activity that benefits the employer, as well as activities the employer controls. According to Williams and Garboden, time worked then relates to:

  1. All time an employee is required to be on duty, on premises, or at another prescribed workplace.
  2. All time suffered (meaning the employer has responsibilities during this time) or permitted (such as when an employee is allowed to work overtime when necessary), whether or not it’s required.

Now that we’ve defined work and time worked, let’s take a look at some of the regulations that define what is compensable time.

FLSA and Portal-to-Portal Act

Fair Labor Standards Act (FLSA)

The FLSA was established in 1938. It defined hours worked as described above and established a federal minimum wage, a cap on overtime, restrictions on child labor, and equal pay for equal work between men and women. The goal of this last point has yet to be achieved, according to recent statistics.

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

Portal-to-Portal Act of 1947

Established nine years after the FLSA, the Portal-to-Portal Act provided clarification on when the workday officially begins and ends for regulatory purposes, including preliminary and “postliminary” activities.

Principal activities: Is the work being done at a particular time an integral part of principal activity, indispensable to performance? If an employee can’t do their job, can the next person down the line do their part?

The following types of work are considered integral under the Portal-to-Portal Act:

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

These types of work are not considered integral:

  • “Doffing and donning” for personal convenience. That is, putting on and taking off job-required clothing. For example, a police officer has a choice whether to put on the uniform at work or at home.
  • Waiting in line to punch in or out
  • Passing through a security device
  • Travel time to the job site

Other-than-Principal activities: These activities are defined as things you need to do in order to accomplish the core responsibilities of your job.

  • Call-back pay – refers to when an employee is called back after their shift is over. For example, when the employee is the only person who can fix an issue, and they need to come back into work to take care of it, all time from when they leave home is considered on-call time eligible for compensation.
  • Show-up pay – This refers to when an employee reports to work, then is sent home for lack of work. On the federal level, if you show up for work and can’t work that day, employers must pay only for the time from when the shift started until they tell you to go home. States and union situations can vary. Show-up pay may not be included for overtime premium calculations.
  • Waiting to work – When an employee is engaged to be waiting depends on whether the employer restricts behavior (ex. when a system is down so you can’t do your work). To be compensated, employees must also not be able to conduct personal business during that time, like leaving to go shopping.
  • Waiting to be engaged – An example of this type of activity would be when an employee is asked to leave during the work day due to an event like a power outage. In this case an employer may say they’ll pay the employee for the time up to the outage, ask them to come back when the power is on, and start paying them again. The employee is waiting to be engaged if they’re:
    • Not on the employer’s premises
    • Able to conduct personal business
    • Required to answer their phone or beeper for work purposes

They’re not able to be included for overtime premium calculation on the federal level unless the employee waits upon arrival. Continuing the previous example, this would happen if the power were still out when the employee came back, and they needed to wait there before starting work.

  • Preparing to work – This activity may include insignificant periods of cleaning time that is not part of the employee’s job description, waiting for the day to begin at the work site before the employee is allowed to clock in, and waiting for work to begin. For example, an employee’s time is compensable when what they need to do their work is not available yet, so they’re waiting.
  • Meal and break times – It’s not officially a break unless the employee is relieved of all duties and responsibilities. If they’re required to answer their work phone, it doesn’t count – even if the employee is eating during that time. Generally, employees are given at least thirty minutes for lunch, but it’s not mandated by federal law (FLSA). Check your state’s laws and any applicable union contracts for meal and break time regulations that may affect your business.
  • Home-to-work travel – This is the activity the Portal-to-Portal act was named for. An employee’s home-to-work travel is not what is compensable time, even if the employee travels to a different work site. One exception is when the employee is already home and then called into work during an emergency, when the employee has an assignment in another city, and when they must travel after hours.

    Another exception is for a special one-day assignment. In this case, travel time is compensable and the employer may deduct the normal commute time.
  • All in a day’s work – This is travel considered part of a principal job activity. Compensable time in this case includes 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. However, employers do not need to pay the regular rate for work during that travel time.

Exceptions include situations where an employee is using an employer-provided vehicle while not participating in a principal activity (ex. when taking a work vehicle to a car wash and it’s not a principal activity of their job).

Another situation where employees do not need to be compensated is when they’re away from their home community overnight. The time an employee is using transportation in this case is not necessarily compensable. Companies usually compensate employees for this time though, because it’s easier.

  • Seminars and meetings – If all four of these conditions apply, a seminar or meeting is not considered compensable time:
  1. Outside normal hours
  2. Attendance is voluntary
  3. Not job-related
  4. No productive work is accomplished
  • Remedial education – Up to 10 hours per week over 40 hours is compensable in this case. There is no overtime premium for this activity, it must not be job-specific, and it should cover basic skills. The remedial education activity is only applicable for employees who have not earned a high school diploma or their G.E.D.

Employer responsibilities

After all regulations and activities are taken into account, put simply, employers must correctly report hours worked. Employee approval of that time is not required, however, if an employee has been keeping their own records and they file a complaint with the U.S. Department of Labor that your time paid is in error, the DOL may use the employee’s records in their investigation.

Overtime

Your overtime responsibility is only for time worked, not for time compensated. Read more information from Paychex on overtime responsibilities.

Rounding rules

It’s legal to round an employee’s time to the closest 10th of an hour (6 minutes), or every quarter of an hour (15 minutes). Be consistent. You’re not allowed to always round time to the advantage of your business, but you may establish different rounding rules for different groups. In some cases, these rules may be established by union contracts.

These situations described by Williams and Garboden of the APA are just some of the factors which must be taken into account when determining what is compensable time. Don’t become part of the trend of 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.

Worried about payroll? HR? Compliance Issues? We can help.
This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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