Compensatory leave—also known as comp time—is paid time off that employees receive in exchange for overtime hours worked. It can typically be offered to salaried employees. However, there are strict rules around offering comp time to hourly employees, who must be paid overtime under the Fair Labor Standards Act (FLSA).
Comp time may be offered at a one-to-one rate for overtime hours worked. That is, for every one hour of overtime worked, an employee may receive one hour of comp time that they can use later. Companies also have the option to offer comp time at a higher rate to incentivize overtime work during busy periods.
How does compensatory leave work?
Your organization can offer comp time in exchange for the hours of overtime that an employee has worked. As an example, one of your salaried employees has worked 10 hours of overtime in a week to meet a specific deadline. That employee can be offered 10 hours or more of compensatory leave to account for their overtime. Comp time can typically be used just like any other paid time off.
As an employer, you are not required to offer compensatory leave to your employees. However, it can be used to reward employees for overtime work or to incentivize them to put in extra hours during particularly busy periods. For employees, compensatory leave makes sense because it allows them to earn extra paid time off.
Who is eligible to receive compensatory leave?
FLSA exempt employees
Compensatory leave can be given to all FLSA exempt employees, which typically includes salaried employees. If a private employer decides to offer compensatory leave, it must be offered fairly to all FLSA exempt employees throughout the organization.
Flsa non-exempt employees
FLSA non-exempt employees—which typically includes hourly employees—must be paid overtime and cannot receive compensatory leave except under special circumstances.
One exception is that employees of state and federal government agencies can be given comp time instead of overtime even if they are FLSA non-exempt. Another exception is that FLSA non-exempt employees can receive comp time during a week in which they work over a holiday but work less than 40 hours total throughout the week.
Note that certain states—including Washington—allow comp time for non-exempt employees of private companies in lieu of overtime compensation. However, this is not compliant with FLSA requirements. You should consult with a compensation attorney before offering compensatory leave to non-exempt employees in states where this is allowed.
Giving an FLSA non-exempt employee compensatory leave rather than overtime pay in cases where it is not allowed is illegal and can lead to underpayment lawsuits.
Calculating compensatory leave
Private employers are not required to provide compensatory leave to FLSA exempt employees. If a private company does choose to offer comp time, they can determine whatever accrual rate that they desire.
Many private employers offer comp time at a one-to-one rate—meaning that one hour of overtime worked equals one hour of compensatory leave. Whatever rate is chosen must be applied evenly to all FLSA exempt employees throughout an organization.
Public employees must accrue compensatory leave at a rate of 1.5 to 1. So, one hour of overtime worked equals 1.5 hours of comp time. Public agencies must agree with a union—if there is one involved—about the compensatory leave rate. If there is no union, employees must agree to the comp time policy before working overtime.
Considerations for creating a compensatory leave policy
There are several important things to consider when crafting a compensatory leave policy for your organization:
- What types of overtime work qualify for compensatory leave?
- How will overtime hours that qualify for comp time be tracked?
- Does compensatory leave need to be agreed upon prior to an employee working overtime?
- Can employees use comp time just like other paid time off, or are there restrictions on when and how comp time can be used?
- Are there limits on how much compensatory leave employees can accrue or for how long it remains valid?
Compensatory leave can give your organization more flexibility to get your salaried employees to work overtime during busy periods. It can also enable your employees to accrue more paid time off in exchange for working overtime.
Private employers can offer compensatory leave to FLSA exempt employees at their discretion. FLSA-non exempt employees must usually be paid overtime, although there are certain cases where they can qualify for compensatory leave instead.