By Mudassir Khan
"Take time off later instead of overtime pay" sounds fair, and in government jobs it often is legal. In private jobs it almost never is. Here is the line the FLSA draws, and the caps and payout rules on the public side.
Rules verified November 2026 · Sources: U.S. Department of Labor
Private employers generally cannot substitute comp time for cash overtime owed to nonexempt workers, no matter what the employee prefers. Public agencies can, under FLSA section 207(o), crediting 1.5 hours of leave per overtime hour, capped at 240 hours for most workers and 480 for public safety and seasonal work, with unused time paid out at termination.
The FLSA's comp time provision applies to public agencies, and there is no equivalent provision for private businesses. If you are a nonexempt worker at a private company and you work 10 overtime hours, your employer owes you 10 hours at time and a half in pay, not 15 hours of future time off. An employer cannot make the swap even with your signature on it: courts treat private sector comp time agreements as unenforceable because the statute does not permit them.
Two things people confuse with comp time are still fine in the private sector. First, an employer can adjust your schedule within the same workweek so your total stays at or under 40, because overtime is measured per workweek. Second, exempt employees are outside FLSA overtime entirely, so a company can offer salaried exempt staff comp days as a discretionary benefit. Neither of these is the prohibited practice of banking cash overtime as future leave.
Section 207(o) lets employees of a state, a political subdivision of a state, or an interstate governmental agency receive comp time instead of cash overtime. That covers city and county workers, public school district staff, transit agencies, and similar roles. Only nonexempt employees qualify for the statutory framework; exempt public employees sometimes get agency comp time as a benefit, but that sits outside the FLSA rules below.
Four conditions make the arrangement lawful:
A city employee earning $25 per hour works 48 hours in a week and banks comp time under a valid agreement.
Cash overtime for the same week would have been 8 × $37.50 = $300. The economics match, which is exactly what the law intends.
A state office worker has already banked the 240 hour cap. She works 4 overtime hours at a $20 regular rate.
Two years later she leaves with 300 banked hours. Her average regular rate over the last three years was $22 and her final rate was $24. Payout = 300 × $24 = $7,200, because the higher of the two rates applies. Banked comp time never expires under federal law.
Employees must generally be allowed to use accrued comp time within a reasonable period after requesting it, unless using it would unduly disrupt agency operations. On the other side, the Supreme Court held in Christensen v. Harris County that a public employer may require employees to draw down their balances, which agencies often do to manage budget exposure. An employer may also choose to pay cash overtime in any given week instead of granting comp time; the statute does not force the agency to bank it.
A note on federal employees: most federal workers are covered by a different statute, 5 U.S.C. 5543, which allows comp time for overtime approved in advance, under its own rules. The 207(o) framework described here is for state and local government employees.
Pay rules on this page follow DOL Fact Sheet 23: overtime pay requirements of the FLSA and FLSA section 207(o), with public sector regulations in 29 CFR part 553.
No. The FLSA gives private employers no authority to substitute time off for overtime cash owed to nonexempt workers. An employee who worked 10 overtime hours is owed 10 hours at time and a half in pay, and even a signed voluntary agreement cannot make the swap legal.
Nonexempt employees of a state, a political subdivision of a state, or an interstate governmental agency, under FLSA section 207(o). That covers city and county workers, public school staff, transit agencies, and similar roles, with caps of 240 hours for most and 480 for public safety, emergency response, and seasonal work.
At least 1.5 hours of paid time off for every overtime hour worked, the same premium as cash overtime. Four overtime hours earn six comp time hours, not four.
No federal expiration exists. Banked comp time carries forward, and when you leave the job your employer must cash out the balance at the higher of your average regular rate over the last three years or your final regular rate.
Yes. The Supreme Court held in Christensen v. Harris County that a public employer may require employees to use accrued comp time, while employees must be allowed to use it within a reasonable period after asking unless doing so would unduly disrupt operations.
Value any banked balance with the overtime pay calculator, and read our FLSA overtime rules guide for the workweek basics that sit underneath every comp time calculation.