Under certain conditions, employees of federal, state, or local government agencies who irregularly or occasionally work overtime may receive compensatory time off—which is time off that is compensated—instead of receiving cash overtime pay. It is usually illegal for private sector businesses to compensate employees who are eligible for overtime pay (are nonexempt under the Fair Labor Standards Act) with compensatory time—often referred to as comp time.

Policies on compensatory time off in lieu of overtime pay vary between employees who are covered by the Fair Labor Standards Act (FLSA) and those who are exempt from it (usually executive, professional, and administrative employees). Exempt employees are generally not eligible to receive overtime pay. But whether an employee is exempt or nonexempt under the FLSA, the government employer (agency) may be able to approve comp time for an employee.

Compensatory time off in lieu of overtime pay generally must be used within 26 pay periods. If an FLSA nonexempt employee doesn’t take comp time within 26 pay periods, the employer may have to pay the employee for that overtime work at the overtime rate in effect during the pay period in which the overtime work was performed.

In Hawaii, as in other states, federal, state, or local government employees who work overtime may be eligible to receive compensatory time off (comp time) instead of cash overtime pay under certain conditions. This is in accordance with the Fair Labor Standards Act (FLSA), which allows public sector employers to provide comp time to employees who work overtime. However, this practice is typically not permitted for private sector employers, who must pay nonexempt employees cash for overtime hours worked. Exempt employees, who generally fall into executive, professional, or administrative categories, are not entitled to overtime pay, but government agencies may still grant them comp time. For nonexempt employees under the FLSA, any accrued comp time must be used within 26 pay periods, or the employer may be required to pay the employee in cash at the overtime rate that was in effect when the overtime work was performed.