The term compensatory time is used to describe the process of giving an employee time off from work in lieu of overtime pay. A company's guidelines for administering compensatory time can be quite complex, with rules that can vary by exempt, non-exempt employees, as well as full or part-time status.
Also known as comp time and time off in lieu of overtime, compensatory time is sometimes awarded to FLSA-exempt employees that work in excess of 40 hours in a single week. Companies may decide that rather than paying an employee for this overtime, they will provide them with time off from work.
Guidelines established by companies must be in compliance with the rules set forth in the Fair Labor Standards Act (FLSA). Compensatory time can also be offered to a FLSA-employee in lieu of paid overtime; however, the decision to take advantage of this benefit remains with the FSLA-employee. Typically, comp time may apply if the employee works irregular or occasional overtime. Comp time may also be offered to FLSA-exempt employees assigned to flexible work schedules that require overtime hours.
Companies will sometimes classify FLSA-exempt employees as "salaried," and these employees would not be eligible for overtime pay or compensatory time. Employees subject to FLSA guidelines (non-exempt employees) are entitled to pay at the applicable overtime rate; however, they can elect to receive comp time in lieu of pay.
Comp time normally accrues at the same rate as the overtime worked. For example, if an employee works one hour of overtime, they would be entitled to one hour of comp time.