Comp time vs. cash OT
How compensatory time works in 2026
Compensatory time off (comp time) is paid time off given in place of cash overtime. Under the FLSA, it accrues at 1.5 hours for every 1 hour of overtime worked — the same premium rate as cash overtime. Ten overtime hours earn you 15 hours of comp time that can be used as paid days off later.
Who can receive comp time?
This is the most important distinction: only public-sector employers (state and local government agencies) can legally offer comp time to non-exempt employees in place of cash overtime under FLSA Section 7(o). Private-sector employers must pay cash overtime. Exempt (salaried) employees in any sector have no FLSA overtime entitlement, so informal "take a day off after a big project" arrangements are not governed by the comp time rules.
| Overtime worked | Comp time (1.5x) | Cash equiv. @ $25/hr |
|---|---|---|
| 5 hrs | 7.5 hrs | $187.50 |
| 10 hrs | 15 hrs | $375 |
| 20 hrs | 30 hrs | $750 |
| 40 hrs | 60 hrs | $1,500 |
Cash equivalent = overtime hours x hourly rate x 1.5 (what you would have received as cash overtime).
Using and cashing out comp time
Employees can request to use accrued comp time, and the employer must allow it within a reasonable period unless it would "unduly disrupt" operations. When an employee separates from service, all unused comp time must be paid out in cash at the higher of the final regular rate or the average rate over the last three years. This payout is taxed as regular wages.
Comp time vs. overtime: which is better?
The answer depends on your priorities. Cash overtime puts money in your pocket now, taxed in the current year. Comp time gives you future paid time off at the 1.5x rate. Financially, they are equivalent in gross value — but comp time defers income to whenever you use or cash out the hours, which could shift tax liability between years. Use our overtime pay calculator to compare the cash value directly.
Questions
Comp time calculator FAQ
How is comp time calculated?
Comp time is earned at 1.5 hours for every 1 hour of overtime worked, the same rate as cash overtime under the FLSA. If you work 10 overtime hours, you earn 15 hours of compensatory time off. The 1.5x multiplier applies to all hours worked beyond 40 in a workweek for non-exempt employees.
Who can legally receive comp time instead of overtime pay?
Under the FLSA, only public-sector employers — state and local government agencies — can offer comp time to non-exempt employees in place of cash overtime. Private-sector employers generally cannot substitute comp time for overtime pay for non-exempt workers. Exempt (salaried) employees in any sector are not entitled to overtime, so informal comp time arrangements for them have no FLSA restriction.
Is there a cap on comp time?
Yes. The FLSA caps comp time accrual at 240 hours (160 overtime hours times 1.5) for most public employees, and 480 hours (320 overtime hours) for employees in public safety, emergency response, or seasonal roles. Once the cap is reached, the employer must pay cash overtime.
Can comp time expire or be forfeited?
The FLSA requires that unused comp time be paid out in cash when an employee separates from employment, at the higher of the employee's final regular rate or the average rate over the last 3 years. It generally cannot be forfeited. Employees can also request to use comp time and the employer must honor the request within a reasonable period unless it would unduly disrupt operations.
Is comp time taxed when paid out?
Yes. A comp-time cash-out is taxed as regular wages — federal income tax, Social Security (6.2% up to $184,500 in 2026), and Medicare (1.45%) all apply. If the payout is issued as supplemental wages, the employer may withhold at the 22% flat rate.
- Sources: FLSA Section 7(o) (comp time for public sector, 1.5x rate) · OPM comp time fact sheet (240/480-hr caps) · IRS Rev. Proc. 2025-32 · SSA 2026 wage base $184,500.
- 🔄 Last updated July 25, 2026 · Tax year 2026
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