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As the phrase suggests, compensatory time off is a non-monetary way of compensating for employee work. The U.S. Office of Personnel Management defines it as “time off with pay in lieu of overtime pay for irregular or occasional overtime work.” That essentially means that employers compensate workers who put in overtime hours with comp time instead of overtime pay, giving them extra hours of vacation or paid time off rather than more money.
While some employees may actually prefer to receive compensatory time rather than overtime pay, in most instances this is a violation of the Federal Labor Standards Act (FLSA). Federal law requires that non-exempt employees in the private sector must receive overtime pay — not compensatory time — for working over 40 hours in a workweek.
Despite the federal law, regulations on who is eligible for compensatory time vary from state to state, and also depending on exempt positions. A tax-exempt employee, as defined by Department of Labor guidelines, is not entitled to extra pay for working overtime. However, an employer may choose to offer comp time as a non-monetary bonus to an exempt employee. It is important for employers who go this route to set clear and consistent policies — an hour of compensatory time for every two overtime hours worked, perhaps. Depending on union rules and state and local regulations, some public sector employees may also qualify for compensatory time.