The Fair Labor Standards Act (FLSA) establishes the federal standard for minimum wage, recordkeeping, and overtime compensation for employees across the country. Compensatory time, often called comp time, is a federally regulated method of compensating non-exempt employees for working overtime hours. It functions as paid time off, granted in lieu of the traditional cash overtime payment when employees work beyond the standard workweek.
Defining FLSA Compensatory Time
FLSA compensatory time is earned when a non-exempt employee works hours that qualify for overtime, typically exceeding 40 in a workweek. Instead of receiving a cash payment, the employee accrues paid time off. This time off must be granted at a rate of not less than one and one-half hours of compensatory time for every one hour of overtime worked. This mirrors the time-and-a-half rate required for cash overtime. Compensatory time is not an automatic right; it requires a prior agreement or understanding between the employer and the employee before the overtime work is performed.
The Public Sector Distinction
The ability to offer compensatory time in lieu of cash overtime is generally reserved for public employers. The FLSA only permits state, political subdivision of a state, or interstate governmental agencies to offer this option to their non-exempt employees. Private sector employers, including private non-profit organizations, must pay non-exempt employees cash overtime at a rate of time-and-a-half for all hours worked over 40 in a workweek. Private companies cannot legally substitute comp time for cash overtime, even if the employee agrees to the arrangement. A public agency can only implement a compensatory time system if it is established through a collective bargaining agreement, a memorandum of understanding, or a separate agreement reached with the individual employee before the overtime hours are worked.
Rules for Accruing Compensatory Time
The FLSA places specific statutory limits on the amount of compensatory time an employee can accumulate before the employer must switch to cash overtime payments. These limits are divided into two tiers based on the nature of the employee’s work.
Standard Accrual Limit
Most state and local government employees may accrue a maximum of 240 hours of compensatory time. This limit represents 160 hours of actual overtime work (calculated at the 1.5 multiplier).
Higher Accrual Limit
A higher cap of 480 hours applies to employees engaged in public safety activities, emergency response activities, or seasonal activities. This larger allowance represents 320 hours of actual overtime worked.
Once an employee reaches the applicable 240-hour or 480-hour cap, the employer must compensate any additional overtime hours with cash payment at the time-and-a-half rate.
Employee Rights and Employer Obligations for Use
Once a public employee has accrued compensatory time, the FLSA provides protections regarding its use. An employer must permit an employee who requests the use of their accrued comp time to take that time off within a “reasonable period” after the request is made. This obligation is balanced by the condition that granting the time off must not “unduly disrupt” the operations of the public agency. The standard for an “unduly disruptive” denial is high; mere inconvenience is not a sufficient basis to refuse a request. The employer retains the right to mandate that an employee use their accrued comp time to prevent the employee from reaching the statutory cap, which would force the agency to pay cash overtime.
Cashing Out Unused Compensatory Time
The FLSA treats accrued compensatory time as an earned wage, meaning the employer has a financial liability for the balance. When an employee terminates employment for any reason, the public agency employer must pay the employee for all unused accrued compensatory time. The payment for the unused time must be calculated at a rate that is the higher of two possible rates. The employer must compare the employee’s final regular rate of pay against the average regular rate received by the employee during the last three years of employment. This payout requirement also applies if the employer decides to pay down the balance of an employee’s accrued time before separation occurs.
Distinguishing Comp Time from Paid Time Off
FLSA compensatory time is distinct from other forms of paid time off (PTO), such as vacation, sick leave, or holiday pay. The defining difference is that FLSA comp time is a direct substitute for federally mandated overtime wages. As such, it is governed by federal rules regarding accrual, usage, and the required cash-out rate upon separation. General PTO is a benefit governed by state law or the employer’s internal policy, and its rules are not dictated by the FLSA. Confusing the two can lead to compliance issues, as only FLSA comp time carries the 1.5-to-1 accrual rate and the higher-of-two-rates payout calculation.