HR Glossary  /  Compensatory Time Off
Compensatory Time Off5 min read
Table of Contents:

What is Compensatory Time Off?

Many companies ask employees to work overtime, but not every organization is fair and square with their employees about it. In a survey, employees from the private sector confessed they worked weekends. Considering companies are not required to compensate them for those extra hours, many employees are not rewarded proportionally for that extra mile.

Besides traditional overtime pay, one way to fully reward them for that effort is compensatory time off, also known as comp time. In this guide, we’ll go deeper into all these issues surrounding compensatory time off, what it means, who is entitled to it, how to use it, and its benefits.

Let’s start with the compensatory time off definition. Compensatory time off, often abbreviated as Comp Time, is a workplace arrangement where employees earn paid time off in exchange for overtime pay for hours worked beyond their regular schedule. Instead of receiving the standard overtime rate (typically time and a half their regular pay), employees are awarded paid time off that can be used later.

How is overtime regulated in the US? What is a regular schedule?

In 1938, the Fair Labor Standards Act (FLSA) set the official workweek for nonexempt employees at 40 hours—the regular schedule—and required a 50% increase in pay for hours worked beyond 40 hours. Note how exempt employees are not paid overtime. Salaried employees get a set amount of money, no matter how many hours they work.

Can private companies offer comp time? No, but…

No. private companies can’t strictly offer comp time because the FLSA clearly states that comp time is for the public sector. But companies can give exempt employees time off as a reward for extra work. It's not required by law—same as PTO—and, to avoid confusion, this benefit shouldn't be called “compensatory time.” If your company calls it something else, like flexible time off, then it’s good to go. For the sake of clarity, we’ll still call it comp time or compensatory time off.

Guidelines for Compensatory Time Off

As we’ve said, compensatory time is a system where employees earn paid time instead of overtime pay for hours worked beyond their regular schedule. But what is the best way to put into practice this alternative compensation policy?

Compensatory time off accrues at a rate of 1.5 hours for every hour of overtime worked for each pay period. For instance, employees who work 2 hours of overtime will accumulate 3 hours of compensatory time off.

Then, when the employee can use the new hours depends on the policy. It doesn't have to be in that same pay period. In any case, the best way for an organization or employee to calculate this is with a tool that does it for them.

Differences in Guidelines Across Sectors (Public vs. Private)

In addition, the rules that govern compensatory time off vary a great deal based on several factors:

  • Public vs. Private sector: As we’ve mentioned in the introduction, private companies are not allowed to offer compensatory time off. On the contrary, state workers are entitled to this benefit. However, there’s a way your business can offer this benefit and still stay compliant—you can just not call it Comp Time. You can use customizable time-off tracking software like TalentHR's to include it in your PTO policy.
  • Exempt employees don’t get it, but non-exempt employees do get it: Exempt employees (usually salaried workers) can't receive overtime pay, but nonexempt employees (usually hourly workers) can get overtime pay under certain conditions.
  • Federal vs. State laws: Regulations governing compensatory time off differ between the federal government and state jurisdictions. The FLSA puts strict limitations on compensatory time off for private sector nonexempt employees.

Exempt vs Non-Exempt Employee: What is the Difference? →

Compensatory time off is earned when an employee works overtime. The general process is as follows:

  • An impacted employee counts their additional hours: Employees keep track of how many extra hours they work.
  • Employees and companies calculate the meaning of those extra hours: Overtime hours are multiplied by 1.5 to determine the accrued compensatory time off.
  • The employee or company add them to their balance: Unless there’s a solution to keep track of it, employers will have to resort to cluttered spreadsheets to know how many days a worker has earned.

When Can Employees Take Compensatory Time Off?

The possibility of claiming compensatory time off depends on employee eligibility—not all groups get it—and employer policy. If it’s private, for example, then it depends entirely on the employer to offer it or not. There’s also the matter of regulation. Compensatory time off must be offered in compliance with federal, state, and local labor laws. For instance, Colorado law allows for compensatory time off for public sector employees but imposes some specific limitations and conditions.

Let’s now take a closer look into compensatory time off benefits for both employees and employers.

Benefits for Employees

Compensatory time off offers several advantages for employees:

  • Increased flexibility: Compensatory time off enables employees to have more control over their work-life balance. They'll leverage their unused compensatory time when they most need it.
  • Improved well-being: Employees who have the chance to recharge are often more productive and engaged in their work.
  • Higher job satisfaction: When employees feel like their employer cares about their work-life balance, they are more likely to be loyal and committed to the company.

Benefits for Employers

If you look twice, the benefits for employees are also benefits for employers. Those are two sides of the coin. Explicitly, offering compensatory time off can also be advantageous for employers in these ways:

  • Cost savings: The key is to manage when employees take their comp time to avoid disrupting work. If done right, it costs you nothing extra beyond regular planning and scheduling.
  • Increased employee retention: Happy and satisfied employees are more likely to stay with an organization. Studies strongly suggest that engaged employees are 59% less likely to look for new jobs and 18% less likely to change employers within a year.
  • Attracting and retaining top talent: Companies that offer flexible work arrangements, such as compensatory time off, may have a competitive advantage in attracting and retaining top talent. In fact, 73% of employees claim that they would stay with their current employer if they had more useful benefits. Comp time—remember not to call it this way in your employee handbook—could be that leading-edge benefit.

Efficiently managing compensatory time off requires reliable tracking and record keeping. Consider using PTO Tracking Software like the one offered by TalentHR. Tools like this can make it easier to manage time off because they offer:

  • An easy way for employees to see their balance (which is automatically calculated).
  • Workflows to submit requests and accept them with one click.
  • The possibility to set time off limits for entire departments, locations, or divisions.

Employers and HR professionals can get signed up to TalentHR in seconds. And it’s free. Try it now.

Is compensatory time off mandatory for all employers?

Compensatory time off is not mandatory for all employers. While it can be a smart strategy for managing overtime, it's not a legal requirement. In fact, is technically non-legal—but you can offer a similar benefit without calling it that way to hourly employees and salaried employees alike.

Can compensatory time off be denied by an employer?

Yes, an employer can typically deny a compensatory time off request. However, the reasons for denial should be fair and consistently applied.

How is compensatory time off calculated for irregular shifts?

Calculating comp time off to make up for shift changes can be difficult. The best and most fair way is to have a tracking tool.

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