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 Arizona, as in other states, the use of compensatory time off in lieu of overtime pay is subject to the provisions of the Fair Labor Standards Act (FLSA). For federal, state, or local government employees who work overtime on an irregular or occasional basis, compensatory time off instead of cash overtime pay is permissible. This comp time must typically be used within 26 pay periods, or the employee may be entitled to receive payment for the overtime at the applicable overtime rate. However, for private sector employees who are nonexempt under the FLSA, receiving compensatory time off instead of overtime pay is generally not allowed; these employees must be paid in cash for overtime work. Exempt employees, who typically fall into executive, professional, or administrative categories, are not eligible for overtime pay, but government agencies may still grant them comp time. It's important to note that specific state laws and agency policies can further define how compensatory time is administered, so government employers in Arizona must ensure compliance with both federal and any applicable state regulations.