Compensatory leave, often referred to as comp time, is a workplace policy where an employee receives paid time off instead of a cash payment for hours worked beyond the standard workweek. This arrangement provides a mechanism for employers to compensate employees for excess hours without incurring immediate payroll expenses. For many workers, comp time offers a way to “bank” hours for guaranteed future time away from work. Federal labor law governs when, how, and for whom this type of compensation can be used.
Defining Compensatory Leave
Compensatory leave functions as an alternative form of compensation for non-exempt employees who work more than 40 hours in a defined workweek. Under the Fair Labor Standards Act (FLSA), comp time must be accrued at a rate of not less than one and one-half hours of paid leave for every one hour of overtime worked. This 1.5x rate mirrors the premium pay requirement for traditional cash overtime compensation. For example, an employee who works 10 hours of overtime in a week would earn 15 hours of accrued compensatory leave to use at a later date. This banked time off satisfies the employer’s legal obligation for overtime compensation.
Legal Differences Between Public and Private Sector Employment
The ability to offer compensatory time in lieu of cash overtime pay is sharply divided between the public and private sectors by federal law. The FLSA mandates that non-exempt employees in the private sector must receive cash overtime pay at the rate of time and one-half for all hours worked over 40 in a workweek. Private companies are generally prohibited from offering comp time as a substitute for this cash payment.
The exception to this rule grants state and local government agencies the authority to provide compensatory time. This provision allows public sector employers to offer comp time to their non-exempt employees under certain prescribed conditions. The use of comp time in the public sector was established to help government entities manage payroll cash flow while still meeting legal overtime requirements.
For a public agency to implement a comp time policy, a prior agreement or understanding must be established with the employee before any overtime work is performed. This agreement can be part of a collective bargaining agreement, a memorandum of understanding, or an individual agreement with the employee. The strict legal distinction is designed to ensure that private sector employees are fairly compensated immediately.
How Compensatory Time is Earned and Used
Compensatory time is accrued by eligible non-exempt employees in the public sector who work more than 40 hours in a workweek, provided the necessary agreement is in place. The time is banked at the required 1.5-hour rate, and records of accrual must be accurately maintained by the employer.
An employee who has accrued comp time has the right to request its use, and the employer is generally required to grant the request within a reasonable time. However, the employer can deny the request if granting the time off would create an “undue disruption” to the agency’s operations. This allows the public agency to balance the employee’s desire for time off with the need to maintain essential public services.
When an employee separates from employment, any unused accrued compensatory time must be paid out in a lump sum. This payment is calculated at the employee’s final regular rate of pay or the average regular rate earned over the preceding three years, whichever amount is higher.
Maximum Hours That Can Be Accumulated
Federal law places specific limitations on the total number of compensatory time hours an employee may accumulate before the employer must switch to providing cash overtime pay. For most public sector employees, the maximum accrual limit is 240 hours of compensatory time. This 240-hour limit is equivalent to 160 hours of actual overtime work.
A higher cap is permitted for specific groups of public employees whose work involves irregular or demanding schedules. Employees engaged in public safety activities, emergency response, or seasonal work may accrue up to 480 hours of compensatory time. This higher limit represents 320 hours of actual overtime worked. Once an employee hits their respective maximum, any subsequent overtime hours must be compensated with cash overtime pay at the time-and-a-half rate.
Compensatory Leave Versus Traditional Overtime Pay
Compensatory leave and traditional cash overtime pay are the two primary ways non-exempt employees can be compensated for working beyond the standard workweek. Traditional overtime requires the employer to provide immediate cash payment at one and one-half times the regular hourly rate. This provides the employee with an immediate financial benefit and is the standard legal requirement for most workers under the FLSA.
Compensatory leave, conversely, delays the benefit by offering guaranteed future paid time off instead of immediate cash. Employees may prefer comp time because it allows them to bank larger blocks of paid leave for extended vacations or personal needs. For the employer, comp time can serve as a cost-control measure by deferring the cash outlay, though it still represents a financial liability that must eventually be paid out as time off or cash. The choice between the two, where legally available, often comes down to an employee’s preference for an immediate financial gain or a larger bank of paid leave.