Banked hours are overtime or extra hours that an employee saves as paid time off to use later, instead of receiving overtime pay in cash. You may also see the practice called banked time, time off in lieu, or compensatory time (“comp time”). A typical example: an employee works 5 overtime hours and, instead of overtime pay, gets 7.5 hours of paid time off at the agreed 1.5 rate.
Whether you can bank hours depends on where you work and for whom. In the United States, private employers generally must pay overtime in cash to nonexempt employees, and only public agencies can offer comp time under the Fair Labor Standards Act (FLSA). In Canada, Ontario and Alberta allow banked overtime under a written agreement, with different rates and deadlines. Below are the rules for each case and how to calculate a bank.
- What are banked hours?
- Banked hours vs overtime pay: the difference
- Is banking overtime hours legal in the US?
- Banked overtime in Canada
- How to calculate banked hours
- Using, capping and paying out banked hours
- Banked hours or overtime pay: which is better?
- Tracking overtime and time off balances
- FAQ
What are banked hours?
Most of the time, banked hours means banked overtime: overtime hours converted into paid time off instead of overtime pay. This is the meaning labor laws regulate. In the US public sector it is called compensatory time, and in Ontario it is time off in lieu of overtime pay.
Some employers also use the term for hours worked above a normal day on a flexible schedule, saved to cover a shorter day later. No overtime is involved, and whether it is allowed depends on the overtime rules that apply to the employee. A third use is banked days or banked holiday time: a holiday or day off the employee could not take and keeps for later.
For employees, the banked hours meaning comes down to this: you trade overtime cash now for paid hours off later. The rest of this article is about banked overtime, because that is where the legal limits apply.
Banked hours vs overtime pay: the difference
Under the FLSA, overtime is time worked over 40 hours in a workweek, a fixed and regularly recurring period of 7 consecutive days (29 CFR 778.105). Overtime is paid at no less than 1.5 times the regular rate (29 U.S.C. 207(a)). Some states add daily overtime rules; see the guide to overtime laws by state.
An employee who earns $15 an hour and works 44 hours in a week receives this in overtime pay (before taxes):
With banked hours, the same 4 overtime hours become paid time off instead of $90. At a 1.5 rate, that is 6 hours off; at a 1 to 1 rate, as in Alberta, it is 4 hours off.
| Overtime pay | Banked hours | |
|---|---|---|
| What the employee gets | Cash on the next regular payday | Paid time off taken later |
| Usual rate | 1.5x the regular rate | 1.5 hours off per overtime hour (US public sector, Ontario); 1 hour (Alberta) |
| US private employers, nonexempt staff | Required | Not allowed in place of overtime pay |
| Needs an agreement | No | Yes, where it is allowed |
| If employment ends | Already paid | Unused balance is paid out |
Is banking overtime hours legal in the US?
Private employers
For nonexempt employees of private companies, generally no. The FLSA requires overtime to be paid at 1.5 times the regular rate, and the DOL’s rule on timing says overtime earned in a workweek “must be paid on the regular pay day for the period in which such workweek ends” (29 CFR 778.106). The comp time option in the FLSA is written only for public agencies. So a private employer cannot let a nonexempt employee bank this week’s overtime and take it as time off next month instead of being paid, even if the employee asks for it.
A private employer can still reduce overtime by scheduling: if the workweek has not ended, giving someone shorter days later in the same workweek keeps the total at 40 hours or less, and no overtime arises. This is not banking, because no overtime was ever earned.
Public employers and comp time
Employees of a state, a political subdivision of a state, or an interstate governmental agency can receive compensatory time instead of overtime pay under 29 U.S.C. 207(o). The main rules:
- Comp time accrues at no less than 1.5 hours for each overtime hour worked.
- There must be an agreement: a collective bargaining agreement or similar agreement with employee representatives, or, for employees not covered by one, an agreement with the employee made before the work is performed.
- The cap is 480 hours for public safety, emergency response and seasonal work, and 240 hours for other work. Overtime above the cap must be paid in cash.
- An employee who asks to use comp time must be allowed to within a reasonable period, unless it would unduly disrupt the agency’s operations.
- When employment ends, unused comp time is paid out at no less than the higher of the employee’s average regular rate over the last 3 years or the final regular rate.
The 240 hour figure that often appears in articles about banked hours comes from this public sector rule. It is not a general limit for private companies, which cannot bank overtime at all for nonexempt staff.
Exempt employees
The FLSA does not require overtime pay for exempt employees, so giving them extra time off after a heavy week is a policy choice rather than a legal substitute for overtime. Many companies call it flex time to avoid confusion with public sector comp time. To check whether someone is exempt, see who is exempt from overtime and overtime for salaried employees.
State law can be stricter than the FLSA but cannot allow what federal law forbids for employees it covers. If a state rule looks like it permits comp time for private employers, check it against the FLSA before you rely on it.
Banked overtime in Canada
Searches for banked hours often come from Canada, where provincial employment standards allow banked overtime under conditions. The rules differ by province; here are the two most searched.
| Ontario | Alberta | |
|---|---|---|
| Overtime starts after | 44 hours in a work week (most employees) | 8 hours a day or 44 hours a week, whichever is greater |
| Agreement | Written or electronic agreement | Written overtime agreement, with a copy to employees |
| Time off per overtime hour | 1.5 hours | At least 1 hour |
| Deadline to take it | Within 3 months of the week it was earned, or 12 months if agreed | Within 6 months of the end of the pay period it was earned (longer under a collective agreement) |
| If not taken or employment ends | Paid out when employment ends | Paid at 1.5 times the wage rate |
Sources: Ontario, Your guide to the Employment Standards Act: overtime pay; Alberta, Overtime hours and overtime pay. Other provinces and federally regulated employers have their own rules.
How to calculate banked hours
The formula is the number of overtime hours multiplied by the banking rate that applies to you:
Notice that the overtime threshold changes the starting number: 45 hours gives 5 overtime hours under the FLSA’s 40 hour week, while Ontario and Alberta start counting after 44 hours. When banked time is later paid out, the value depends on the rule: for US public employees, at least the higher of the 3 year average or final regular rate; in Alberta, 1.5 times the wage rate for the overtime hours worked.
Using, capping and paying out banked hours
Where banking is allowed, banked hours work much like paid time off: the employee requests the time and the employer approves it. A clear policy prevents most disputes. Write down:
-
Who can bank hours.
In the US, limit it to public sector staff or to exempt staff under a flex time policy. In Canada, list the employees covered by the agreement.
-
The rate and the cap.
State the hours off per overtime hour and the maximum balance, for example the 240 or 480 hour FLSA caps for public agencies.
-
The deadline.
Say when banked time must be used, such as Ontario’s 3 or 12 months or Alberta’s 6 months, and what happens if it is not.
-
How to request it.
Use the same approval flow as for other leave so managers can plan coverage.
-
Payout on departure.
State the payout rate and timing for unused hours when employment ends.
Banked hours or overtime pay: which is better?
Where the law gives a choice, it depends on what the employee values and what the business can afford.
For employees, banked hours add paid time off without using vacation days, and at a 1.5 rate they give more hours off than were worked. Overtime pay arrives sooner, though, and a bank is worth less if it has to be used by a deadline that does not suit you.
For employers, banking spreads labor cost over time and can ease cash flow in busy seasons. The catch is a liability that grows with every banked hour and has to be paid out when people leave.
Tracking overtime and time off balances
Banking only works when the employee and the manager see the same balance. In actiTIME, overtime is calculated per user, automatically or by manual entry, and the Time Balance and Overtime Report shows overtime across the team. Leave types can be tied to a balance, managers can correct a balance manually, and the Leave Time and Balances Report shows who took time off, when, and what remains.
For US private employers, the same records answer the more common question: how much overtime has to be paid this pay period. You can also check rates with the overtime calculator.
FAQ
What does banked hours mean?
Banked hours are overtime or extra hours an employee saves as paid time off for later instead of receiving overtime pay. The same idea is called banked time, time off in lieu, or comp time.
Are banked hours legal?
In the US, banking overtime is legal for public agencies under 29 U.S.C. 207(o), but private employers must pay nonexempt employees overtime in cash. In Canada, Ontario and Alberta allow it with a written agreement. That is why banking hours is often described as illegal: for most US private sector workers, it is.
Can my employer make me bank overtime instead of paying it?
A US private employer cannot replace overtime pay with banked time for nonexempt employees. A US public agency needs an agreement made before the work is performed. In Ontario and Alberta, banking requires a written agreement.
What happens to banked hours when you quit?
They are paid out. US public employees receive at least the higher of their average regular rate over the last 3 years or their final rate. In Ontario, unused banked overtime is paid when employment ends; in Alberta, it is paid at 1.5 times the regular rate at the time it was earned.
How many hours can you bank?
US public employees can bank up to 480 hours in public safety, emergency response or seasonal work, and up to 240 hours in other jobs. Ontario and Alberta limit banked hours by deadline (3 to 12 months in Ontario, 6 months in Alberta) rather than by an hour cap.
Is banked overtime the same as comp time?
In everyday use, yes. In US law, “compensatory time” is the term for banked overtime in the public sector under the FLSA, with the 1.5 rate and the hour caps described above.
How many hours off do I get for each overtime hour?
1.5 hours under the US public sector rule and in Ontario. In Alberta, at least 1 hour.
Choose with the rules in mind
Banked hours give employees time instead of money, but in the US they are a public sector tool, and in Canada they depend on a written agreement and a deadline. Whichever applies, accurate overtime records are what make the bank, or the overtime payment, correct. Start a free 30-day trial of actiTIME, or book a demo if you want a walkthrough.
