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What Is Compensatory Time Off?

Key Takeaways

1. Compensatory time off is a type of paid leave, credited to employees in exchange for hours worked over and above their scheduled hours.

2. Compensatory time off is also known as, “comp time”, “compensatory leave” or “time off in lieu”, depending on the country. 

3. Depending on the law that applies, and the compensatory time off policy applied in that business, it is often set at 150% of the extra hours worked (commonly referred to as “time-and-a-half”).

4. Compensatory leave is distinct from other types of leave (sick leave, parental leave, annual leave, unlimited PTO etc) since time off is accrued, in most cases, hour by hour, meaning for every hour of overtime worked, one hour of comp time is accrued.

Compensatory time off is a common employee benefit in large companies and public agencies. In many cases, providing compensatory time off is a legal requirement, yet some employers are non-compliant: Accounting SaaS Quickbooks estimates that 17 percent of employers in the US are breaching their overtime pay or compensatory time off obligations. 

In this article, we explain the meaning of “compensatory time off”, look at the different types of compensatory time off, explain who is eligible for it, and what the compensatory time off rules are. 

What does “compensatory time off” mean?

The meaning of the term “compensatory time off” is paid time off in exchange for working overtime.

Compensatory time off is viewed by many companies as a non-mandatory benefitPaid vacation leavesick leave, and health care benefits have become the norm, but compensatory time off — in the private sector at least — is often at the discretion of the employer. Some employers in the private sector use terms other than compensatory time off, such as “personal day”, “flexible time off” or “flexitime”.

“Compensatory time off” is the terminology most commonly used in the US and the Philippines. In the US, the Fair Labor Standards Act (FLSA) defines the circumstances under which workers can receive compensatory time off, as it applies to “non-exempt” employees (more on what this means below).

Sometimes in the US, this term is shortened to “compensatory time”,  “comp time”, or “comp time off”. 

In India and Canada the term “compensatory leave” is more common to refer to the same concept. 

In the UK, Australia, New Zealand, and Ireland, the term “compensatory time off” is not used, but the very same concept is known as “time off in lieu” (“TOIL”) or “time in lieu.” The “in lieu” refers to being ‘in lieu’ or instead of being paid overtime wages — reflecting the fact that many employees prefer time off rather than a wage increase.

Whichever term is used for the concept, many employees value the flexibility of working long hours one week and then “banking” those hours for later: Employers value the flexibility to schedule employees for extra hours during busy times and to allow time off when the business may be slower.

What are the compensatory time off rules?

The FLSA sets out strict rules for the allocation of compensatory time off in the US. The rules are:

  1. All non-exempt employees are entitled to overtime pay at a rate of 1.5 x their normal rate, unless one of the exceptions below applies. Note, the exemptions in the FLSA are substantial and include those in Professional, Administrative, Executive, Outside sales and Computer-related roles.
  1. An exception applies to employees of public agencies. It is legal for them to be remunerated with compensatory time off, at “time and a half” (i.e., 90 minutes accrued for every hour worked), rather than overtime pay. However, all compensatory time off must be paid in accordance with an applicable collective bargaining agreement, memorandum of understanding, or other applicable document or policy.
  1. If the work remunerated with compensatory time off is a public safety activity, an emergency response activity, or a seasonal activity, the employee may accrue no more than 480 hours of compensatory time. Any work over that time must be compensated with overtime pay at the regular rate.
  1. If the work remunerated with compensatory time off is any other type of work, the limit is 240 hours. Any amount after that must be compensated with overtime pay at the regular rate.
  1. Employees have a right to take their compensatory time off within a reasonable time period, as long as it does not disrupt operations.

If a US employer is not covered by the FLSA, generally speaking, the rules for compensatory time off are within the employer’s discretion, though state laws sometimes apply and employers should consider the impact of any collective agreement.

Who is eligible for compensatory time off?

Any employee who has a contract with an employer providing for compensatory time off or compensatory leave is eligible to receive it.

Note also that employees of public agencies in the US are generally eligible for compensatory time off under the FLSA (see above).

Generally speaking, compensatory time off applies to wages, rather than salary, as salaried employees are generally not entitled to be paid overtime. But some companies may choose to do so to distinguish themselves as a fair and generous employer.

Canada also applies rules to compensatory leave for federal government employees.  The Compensatory leave must be granted within a reasonable amount of time. There is also a time limit for its use of the end of the leave year in which the work was performed. There are exceptions for important work that needs to be performed.

For many private sector employers in Canada, compensatory leave is a non-mandatory, but attractive, benefit useful in retaining top staff (read more in our guide to Canadian employment benefits).

What are the three types of compensatory time off?

Many employers offer three types of compensatory time off:

  • Overtime compensatory time off
  • Regular compensatory time off
  • Special compensatory time off

Employers may also have a policy about how many hours of accrual leave are allowed.

1. Overtime compensatory time off

This type of leave is awarded for overtime work, when agreed by employer and employee, instead of being paid in cash.

2. Regular compensatory time off

Some employers offer regular compensatory leave on an hour-by-hour basis. There is often a limit to how much regular compensatory leave an employee can accrue.

3. Special compensatory time off

Employees can earn this type of leave in conjunction with holidays or certain types of administrative leave. Each employer may specify for which holidays an employee can earn this type of leave if they have worked the extra time..

Video: Compensatory time off in lieu of overtime pay

Horizons manages leave internationally 

If your company needs help managing its employees’ compensatory time off or other employee benefits, you should contact Horizons, which handles employee benefits for businesses worldwide. 

Giving employees the correct entitlements that they are owed, such as compensatory time off, is very important, not only to ensure that you comply with the law and employment contracts, but also to retain staff.

Frequently Asked Questions (FAQ)

Compensatory time off allows team members to take time off with pay, instead of receiving specific overtime pay, if they've worked under irregular circumstances. Some companies allow compensatory time off for the following reasons:

  • When the business is closed
  • Holidays
  • Overtime hours
  • On a scheduled day off

Overtime pay means extra payment to recognize work outside scheduled/normally expected hours. Sometimes this is at a regular hourly rate; at other times it is at a special rate (such as 150 percent of the usual rate). 

Compensatory time off is a replacement for overtime pay available in some circumstances (such as where an employee works for a public agency in the US). Where the employee is eligible, they are compensated with paid time off, rather than extra wages. 

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