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Comp time vs. overtime – What you need to know


When employees work more than 40 hours in a week, can they be paid with compensatory time (comp time) vs. overtime? In many cases, overtime pay is the only option.

The Fair Labor Standards Act (FLSA) governs what employers must do under federal law. Understanding and properly applying the FLSA is essential for any company, whether you have four employees or 40,000. Following the law is important for obvious reasons, however, there are also intangible benefits.

FLSA legal definitions

First, it’s helpful to understand some key terms and their legal definitions:


This is a premium of 1 ½ times the regular rate of pay for any hours in excess of 40 hours in a work week.

Compensatory time:

Commonly referred to as comp time, this is paid time off given to an employee in lieu of overtime pay. This is available only to governmental entities as defined by the FLSA.

Exempt and non-exempt employees:

Non-exempt is not the same as “hourly.” There is a misconception that employees who are paid by the hour are the same as non-exempt employees.

Using the same logic, some people think salaried employees are automatically considered exempt from overtime, but neither of those beliefs is necessarily true.

Exempt and non-exempt employees are determined by how their job functions are classified, not solely how they’re paid. A salaried employee can be eligible for overtime and protected by FLSA, if their job is also classified as non-exempt.

Understanding state law

The legal requirements of each state also factor into what options might be available to you as an employee or as the employer.

Violations of the law relating to overtime pay can be viewed as wage theft and an attempt at evading the law, which can be accompanied by high fines and prison time in some states. A company with a reputation, whether or not it’s deserved, for skirting overtime laws can have a more difficult time attracting strong talent.

It’s essential to follow the overtime laws surrounding how work time must be counted and compensated. You should always consult with an expert in wage and hour issues to best understand how to offer flexibility, yet still allow the company to maintain compliance with the FLSA.

Offer flexibility in work schedules

There are ways for you to both clear the legal hurdles and provide your employees with options that give them the freedom to achieve a healthy work-life balance.

For example, if you operate in a state that doesn’t require daily overtime, a common situation is to allow employees to request to work one extra hour Monday through Thursday. In exchange, the employee would receive a half day off for a four-hour workday on Friday. They would still maintain a 40-hour work week and would not earn any overtime.

Flexible weekly scheduling benefits the employer as they would not have to pay the overtime premium. The upside for the employees is it gives them access to short periods of time off each week that they might need to attend to personal matters or simply spend more time with their families.

There are limits to such opportunities, which is why knowing the overtime laws – both state and federal – are so very important.

Working off the previous example, an employee could not work 48 hours in one week and then use purported accrued “comp time” to work less hours in a different work week. Each work week stands alone under federal law, and this would not be considered flexible scheduling.

In some states, such as California, state rules impose daily overtime requirements. An employee who works more than eight hours in a day must be compensated at their regular rate of pay.

Define your rules and stick to them

Though often popular with employees, there are potential shortcomings for the government agencies able to offer comp time. (Remember: offering comp time in lieu of overtime is not available to private employees.)

All employees need to be aware of the company rules regarding comp time. Managers need to enforce those rules every time.

Downsides of comp time include:

  • If comp time is offered regularly, employees may come to expect it every time they work overtime.
  • It can lead to wage and hour claims and disputes over whether employees are truly exempt or non-exempt.
  • Some employees may take advantage of the offering and work overtime unnecessarily so they can get a day off in the future.
  • If an employee has saved up a lot of comp time and then leaves the company, do you need to pay for those banked hours?

Each of these points needs to be addressed in writing and should be presented to current employees as well as new hires during onboarding. Employees should be directed to ask questions about comp time in advance. Otherwise, employees could make assumptions, putting you or their supervisor in a difficult position.

The takeaway

Your leadership team needs to ensure that a clear and concise policy is in place outlining the attendance expectations of their employees. Being able to offer time off and weekly scheduling flexibility to allow an employee to make up time for unexpected short absences gives employees the ability balance their work and personal life.

However, comp time in lieu of overtime is not compliant. There are many other ways you can make your employees happy without exposing yourself to liabilities and problems with the Department of Labor.

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