Payment for Accrued Comp Time

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The FLSA permits an employer to “cash out” an employee’s accrued comp time at any time by paying the employee cash for the unused comp time. These payments are to be made at the regular rate of pay the employee was receiving at the time the payment is made.[1]

Upon termination of employment, an employee with banked comp time must be paid for the banked comp time at the higher of:

  1. The average rate received by the employee during the last three (3) years of employment, or
  2. The final regular rate of pay.

The “last three (3) years of employment” means immediately prior to termination. If there is a break in service, the period of employment after the break is treated as a new period of service (so long as it was intended as permanent during the break, and accrued comp time was cashed out). Where the final period of service was less than three (3) years, the rate is calculated based on the rate in effect during the final period of service.[2]

[1]  29 C.F.R. § 553.27(a). 

[2]  29 C.F.R. § 553.27(b).