What is Compensatory Leave?

Compensatory leave is designed to reward employees with time off after they put in extra effort, such as overtime hours or working during a holiday. Read on to learn the ins, outs, and best practices of compensatory leave.

Having competitive employee benefits packages is one of the best ways to attract and retain talent. Chances are you've at least heard about the importance of different types of leave within such benefits packages: annual leave, maternity leave, sick leave, parental leave, and more.

But companies that value team members who go the extra mile for them, whether it's working overtime, unusual hours, or during holidays, should consider compensatory leave benefits too. This allows employees to put in extra time and, in return, save up more paid leave hours for the future.

In this article, we'll go over compensatory leave rules, FAQs, and everything else you should know about this leave policy. Keep in mind that compensatory leave and overtime payment laws differ around the world based on jurisdiction as well as individual company policy, so remaining compliant is a top priority!

Compensatory Leave Meaning

So, what is compensatory leave exactly? Compensatory leave (also called compensatory off, comp off, or comp time) allows team members to take time off with pay in lieu of overtime pay if they've worked under irregular circumstances, such as:

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

But compensatory leave works differently from other types of leave since compensatory time off is accrued, in most cases, hour by hour, meaning for every hour of overtime worked, one hour of comp time is accrued. The idea is that businesses compensate employees with paid leave rather than overtime pay.

Types of Compensatory Leave

While the different types of compensatory leave are similar in how they function, the circumstances in which hours may be accrued vary.

Overtime Compensatory Leave

Overtime compensatory leave is awarded when an eligible employee opts for paid leave in lieu of overtime pay. For instance, if an employee works eight hours of overtime, they are allowed to take eight hours of paid time off at a later date, rather than eight hours of overtime payment on their next paycheck.

Holiday or Weekend Compensatory Leave

If an employee works during a holiday or on a weekend for any reason (as requested by their employer), they will be allowed to take time off at a later date.

Other Compensatory Time Off Types

The types of compensatory time off policies are specific to each organization and are typically outlined within internal policies.

Who Is Eligible for Compensatory Leave?

Eligibility for compensatory leave varies based on federal and local regulations as well as company-specific policies.

In the UK, compensatory leave is called "time off in lieu," or TOIL, and you may be surprised to learn there are no statutory regulations surrounding it. It’s up to the business and employees to define what is or isn't included in a TOIL agreement. It's often implemented in a more casual manner, meaning through verbal agreement, especially when it comes to smaller businesses. However, for the sake of consistency and avoiding future headaches, it always helps to have a written, formal TOIL policy in place if you choose to offer it to employees.

Meanwhile, the U.S. has fairly stringent laws surrounding compensatory time off and who qualifies for it. According to the Fair Labor Standards Act (FLSA), there are four main categories of employees that are able to receive compensatory leave for both FLSA exempt and non-exempt employees, as long as they are covered by the definition of "employee." Keep in mind that "exempt" means the employee is exempt from being paid overtime:

Employees of public agencies (e.g., government workers, law enforcement, emergency response personnel)
Employees of certain states
Salaried (exempt) employees
Non-exempt employees who work fewer than 40 hours per week

How Long Is Compensatory Leave?

The length of compensatory leave for classified employees is subject to much variability depending on the type of employee, company policies, and local regulations. Private companies are typically able to determine how many hours of comp off employees can accrue.

Public Agency Employees

In the U.S., federal law requires all compensatory leave to accrue at 90 minutes of leave per 60 minutes of overtime worked, not exceeding 240 hours per year, though there are few exceptions. Keep in mind that state laws will also play a factor in this equation.

Private Companies

Private companies must follow local laws regarding compensatory leave, but if none exist, it’s up to the company to decide whether they want to implement such a policy and how long it would last.

In Spain, for instance, labor laws dictate that employees are only expected to work 40 hours per week on average and that overtime work is permitted if it doesn't exceed 80 hours per year. Employers can choose to offer comp off leave as an alternative to overtime payment that is equal to the number of overtime hours worked, to be used within four months of completion unless otherwise stipulated in a written agreement.

Compensatory Leave FAQs

Here are some of the most frequently asked questions and answers about compensatory leave:

Why Was Comp Off Leave Created?

Overtime leave was created, in part, to offer a different form of compensation for overtime workers in order to avoid the complexities of overtime pay. At the same time, it was found to increase workplace satisfaction because it gives team members more decision-making when it comes to their employment contract. Comp off gives an employee the freedom to choose if they want overtime pay or if they'd like to take some extra time off instead. This makes employees feel appreciated and more motivated to put in the extra hours if they know a reward is on the other side of it.

What's the Difference Between Exempt and Non-Exempt Employees?

Eligibility for comp off leave varies greatly between countries, so be sure to check your local labor laws for clarification.

In the U.S., however, the FLSA deems an employee as either exempt or non-exempt. If they are exempt, this means they are a salaried employee and their employer is not obligated to pay them overtime. Meanwhile, non-exempt workers are paid hourly and it’s mandatory for employers to offer some form of overtime compensation.

However, there is one caveat: exempt (salaried) employees are entitled to overtime pay if it’s mandatory that they work more than 40 hours per week.

Can Compensatory Leave Expire?

In most cases, yes, but it depends on the country. For instance, in Spain, employees must use their compensatory leave within four months of completing overtime work. In the U.S., they must use it within the next 26 pay periods or they will be paid at the overtime rate. This rule is subject to some change, depending on company leave policy as well as local laws.

In the UK, however, there are virtually no TOIL laws and it’s solely at the discretion of the employer regarding whether they wish to offer it, how many days can be saved up, and when they should be used. The only law regarding TOIL is that it must adhere to Working Time Regulations 1998, which states employees cannot work more than 48 hours per week without a written agreement, including overtime.