Is compensatory time allowed in the private sector?

No. The U.S. Department of Labor (DOL) describes compensatory time, or "comp time," as "paid time off the job that is earned and accrued by an employee instead of immediate cash payment for working overtime hours." Although compensatory time off for nonexempt employees is an acceptable practice in the public sector, the DOL does not permit its use for nonexempt employees in private-sector employment: "The use of comp time instead of overtime is limited by Section 7(o) of the FLSA [Fair Labor Standards Act] to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency." The DOL has published guidance to state and local government employees regarding compensatory time.

Relative to exempt employees, the FLSA's salary basis test states these employees are paid a set salary no matter how many or few hours they work. Salaries may not be reduced in the event the employee works less than 40 hours in a workweek (with very limited exceptions), and the employees do not receive overtime when they work more than 40 hours.

Nevertheless, some employers find it useful to provide exempt employees with extra time off for working additional hours. The FLSA does not prohibit an employer from giving exempt employees additional time off as a reward, though many experts caution against providing hour-for-hour time off. Employers should also be mindful that the term "compensatory time" is a legal term that refers to the public sector, nonexempt method of noncash payment for overtime under the Fair Labor Standards Act. Many experts recommend using a term other than compensatory time for extra days off, such as personal day or flexible time off.