Section 7 of the FLSA requires that covered, nonexempt employees
receive not less than one and one-half times their regular rates of pay
for hours worked in excess of the applicable maximum hours standards.
However, section 7(o) of the Act provides an element of flexibility to
State and local government employers and an element of choice to their
employees or the representatives of their employees regarding
compensation for statutory overtime hours. The exemption provided by
this subsection authorizes a public agency which is a State, a political
subdivision of a State, or an interstate governmental agency, to provide
compensatory time off (with certain limitations, as provided in
Sec. 553.21) in lieu of monetary overtime compensation that would
otherwise be required under section 7. Compensatory time received by an
employee in lieu of cash must be at the rate of not less than one and
one-half hours of compensatory time for each hour of overtime work, just
as the monetary rate for overtime is calculated at the rate of not less
than one and one-half times the regular rate of pay.