Compensatory Time Off: Entitlement, Rules & Practical Implementation
Overtime is work performed that employees are entitled to either as money or time off. Time off in lieu is often the more attractive option, as it secures additional days off. It is important to know what time off in lieu entails, when one is entitled to it, and how to proceed correctly when applying for time off in lieu.
December 4, 2025
Reading time: 7 Minutes
Content Manager at absentify
Contents
Compensatory Time Off: The Most Important Information at a Glance
What is time off in lieu?
How does one calculate the time compensation?
What laws apply to compensatory time off?
Who is entitled to compensatory time off?
How do you apply for time off in lieu?
Compensatory time off or payout: Which rule applies?
5 typical mistakes in time compensation
Easily manage time compensation with absentify
Time Compensation – Frequently Asked Questions and Answers
Compensatory Time Off: The Most Important Information at a Glance
- Compensatory time off means that hours worked overtime are converted into free time instead of being paid out, thus balancing the working hours.
- The Working Time Act stipulates that the average daily working time of eight hours must be adhered to within six months or 24 weeks.
- An application is necessary to actually utilize the work time compensation. Missing documentation or missed deadlines often lead to the loss of entitlement.
- Absentify automatically records overtime, converts it into time off, and enables a transparent and secure request directly in Outlook or Teams.
What is time off in lieu?
Compensatory time off converts overtime hours worked into time off instead of a payout, transforming the extra work into reduced working hours at another time. Thus, employees gain free hours or even whole days without any deduction in salary.
Example of time compensation:
An employee has a 32-hour work week. During a project phase, they work 40 hours. Instead of receiving a payout, they are compensated for the extra eight hours with paid time off in the following week without any work obligations.
How does one calculate the time compensation?
In order for employees to know exactly how many free hours they are entitled to, overtime must be correctly converted into compensatory time off. Generally, the 1:1 rule applies: One hour of overtime is equivalent to one hour of free time. Deviations occur when collective agreements or company agreements stipulate surcharges.
Basic formula for time compensation
Actual hours - Target hours = Overtime
Calculate time compensation with surcharges
Many collective agreements stipulate that overtime is converted into time off with a percentage surcharge. Typically, there is a 25% surcharge. One hour of overtime in this case results in 1.25 hours of compensatory time off. However, the compensation must occur within the legally prescribed period.
What laws apply to compensatory time off?
The German Working Hours Act (ArbZG) governs when working hours are considered overtime and how compensatory time off for overtime is handled. It does not specify the form of compensation: time off or money are equally possible.
What working hour limits does the Working Time Act prescribe?
- Normal working hours: 8 hours per workday.
- Maximum allowed: 10 hours daily, provided that compensation occurs within 6 calendar months or 24 weeks.
- Rest period: at least 11 hours between two working days.
What are the rules for night work and compensatory time off according to the law?
Night work can lead to an entitlement to additional time off or supplements in many collective agreements or company agreements. However, it is only legally required that night work must be compensated. The respective contracts regulate whether this is done in the form of time off or monetary compensation.
Who is entitled to compensatory time off?
The right to compensatory time off primarily arises from the Working Hours Act, collective agreements, or company agreements. Those who work overtime are generally entitled to have it compensated either by time off or by payment.
Compensatory time off in the Working Hours Act
The Working Hours Act stipulates that the daily working time must not exceed eight hours. An extension to ten hours is permitted if compensation is made within six calendar months or 24 weeks. This compensation can be granted in the form of working time compensation.
Key points of time compensation at a glance:
- Overtime must be compensated within the legally prescribed period.
- The statutory rest period of at least eleven hours remains unaffected.
- Night work may entitle you to additional claims for time compensation or supplements.
Collective agreement and works agreement on time compensation
Collective agreements and works agreements specify the legal regulations. They can dictate whether overtime should be preferably compensated with pay or time off and often contain clear deadlines.
Examples:
- Collective bargaining agreement in the metal and electrical industry: Choice between payout with a 25% premium and time off.
- Works agreement in service companies: Obligation to compensate hours within three months.
How do you apply for time off in lieu?
A request is mandatory if employees want to take overtime as compensatory time off. Even if your entitlement is legally secured, you will not get time off without a request.
Important: Your application documents the overtime worked and prevents misunderstandings with the employer or HR department.
Step-by-step guide for applying for time compensation
- Record overtime: Document date, duration, and reason
- Check entitlement: Review contract, collective agreement or company agreement
- Select period: specify exact days for compensatory time off
- Submit application: in writing or digitally
- Awaiting confirmation: without approval, the application is not valid
Important: Overtime must not be taken as time off without authorization, but must be requested and approved.
Sample wording for a time-off request
"I hereby request compensatory time off for [xx.xx.xxxx] amounting to [x] hours. The overtime was worked on [xx.xx.xxxx] and is documented in my time account."
[Signature]
Deadlines for applying for time compensation
- Legally: Compensation must be provided on average within six months.
- Collective agreement or works agreement: often three months.
- Employment contract: may contain specific deadlines.
Common mistakes when applying for time off in lieu
- Missing or inaccurate documentation of overtime
- Application submitted too late → Overtime expires or is paid out
- No clear coordination with superiors
- Authorization or directive for overtime by the employer → independently performed additional work generally does not lead to a claim for time compensation
Document overtime automatically and submit your request for time compensation directly in the system. Supervisors receive an immediate notification and your days off appear directly in the Outlook calendar.
Compensatory time off or payout: Which rule applies?
Employment contracts, collective agreements, or works agreements stipulate to what extent overtime should be compensated by time off or paid out as a monetary compensation. Although the Working Time Act prescribes a compensation, it does not specify to what extent this should be in the form of time off or money.
Time compensation as a standard regulation
- In many companies, compensatory time off is primarily utilized.
- The salary remains unchanged, overtime is compensated with free hours or days.
- Example: Eight hours of overtime in one week lead to an additional day off in the following week.
Payout of overtime
- If an exemption for operational reasons is not possible, a payout will be granted.
- Collective agreements may stipulate that untaken compensatory days off are automatically paid out after a certain period has elapsed.
- Employers and employees may also agree on a payout.
Tax treatment of the payout
- Paid overtime increases gross income.
- You are subject to income tax and social security contributions.
- As a result, there is often less net remaining than with hourly compensation.
Note: If you value free time and want to avoid tax disadvantages, compensatory time off for overtime is usually the better choice. Cashing out can make sense if money is needed short-term or if time off is not possible due to work reasons.
5 typical mistakes in time compensation
Compensating for overtime with time off seems straightforward, but in practice, errors frequently occur that jeopardize the entitlement or lead to conflicts. The most common pitfalls can be avoided if certain points are taken into consideration.
Error 1: Missing documentation of overtime
Without proof of the overtime worked, a claim for compensatory time off is hardly enforceable. Working hours should therefore be recorded without gaps and confirmed by the supervisor.
Error 2: Missed Deadlines
Collective agreements or works agreements often contain fixed periods within which overtime must be reduced. If these deadlines are exceeded, the entitlement to compensatory time off may lapse or automatically convert into a payout.
Error 3: Unclear arrangements with superiors
Compensatory time off usually requires approval. Taking time off without coordination can lead to employment law consequences. A written confirmation of the request ensures security.
Error 4: Confusion between time compensation and flextime
Flextime can be variably arranged within a framework. Compensatory time off for overtime, on the other hand, refers to actual additional work performed. Those who are not aware of these differences risk submitting incorrect applications or making unjustified demands.
Error 5: No overview of open hours
Many employees lose track of accumulated hours. As a result, compensatory time off is often requested too late. absentify helps to make remaining hours visible in real-time and to plan them in a timely manner.
Easily manage time compensation with absentify
The Working Hours Act requires that overtime be compensated within six months or 24 weeks. Collective agreements and company agreements may establish additional rules such as premiums or shorter deadlines.
In practice, problems usually arise from unclear documentation, forgotten deadlines, or cumbersome coordination with superiors.
Your benefits with absentify:
- Overtime is automatically recorded and converted into time off.
- Requests can be made directly in Outlook or Teams.
- Supervisors receive immediate notifications and can respond quickly.
- Remaining hours remain transparent and manageable at all times.
Never forget overtime again – calculate and schedule your time compensation automatically with absentify.
Time Compensation – Frequently Asked Questions and Answers
How does compensatory time off affect holiday entitlement?
Compensatory time off and vacation entitlement are separate matters. Overtime is compensated by time off or payment. Vacation remains a legally guaranteed entitlement. Proper documentation prevents overlaps and ensures that days off are not counted towards vacation.
Can compensatory time be agreed upon with part-time work?
Yes, part-time employees can also work overtime and are entitled to compensatory time off. It is important that the agreed weekly working hours are exceeded. The compensation is made in the same ratio as for full-time employees, but taking into account the shorter target working hours.
What are the tax differences between payout and time compensation?
When taking time off in lieu, no additional tax burden arises because the salary remains the same and only the working hours are adjusted. However, if the overtime is paid out, the gross income increases and income tax as well as social security contributions are due. As a result, the net amount is often lower than many employees expect.
What are the benefits of using software for time compensation?
A time tracking software prevents overtime from being overlooked or deadlines from being missed. It displays remaining hours in real-time, takes into account rules from contracts or collective agreements, and allows for direct coordination between employees and employers. With the quota settings in absentify, clear rules for compensating hours can be set, such as how many hours are available or when they must be taken.
How does absentify help with time compensation?
Absentify automatically documents overtime and converts it into time off. Requests for time compensation can be made directly through Outlook or Teams, ensuring no hours are lost and time off remains transparent at all times. This saves a lot of coordination effort for both employees and supervisors.
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