(1) State agencies may, at their discretion, allow some or all of their employees covered by the FLSA to accrue and use nonexempt compensatory time in lieu of cash overtime compensation according to the provisions in 29 CFR Part 553. State agencies are not required to make the accrual and use of nonexempt compensatory time available for use by covered employees.

(2) Where a state agency chooses to allow some or all of its covered employees to accrue nonexempt compensatory time, the agency must follow all of the provisions of 29 CFR Part 553, Application of the Fair Labor Standards Act to Employees of State and Local Governments. 29 CFR Part 553 are the federal regulations which require advance agreements with employees as a condition for use of compensatory time in lieu of overtime compensation and cash payments for unused nonexempt compensatory time upon termination of employment. Specific provisions relating to the administration of these two requirements can be found at:

(a) 29 CFR Part 553.23 agreement or understanding prior to performance of work, and

(b) 29 CFR Part 553.27 payments for unused compensatory time.

(3) In addition to federal requirements found in 29 CFR Part 553, state agencies shall:

(a) Require approval from the appropriate authority, in advance whenever possible, for a covered employee to work hours which may result in the payment of overtime compensation or the accrual of nonexempt compensatory time; and

(b) Cash out unused nonexempt compensatory time when a covered employee transfers from one agency to another agency.

(4) In accordance with 29 CFR Part 553, state agencies may:

(a) Establish a lower maximum accrual than that provided in the federal regulations;

(b) At any time, pay cash for all or any portion of a covered employee's accrued compensatory time balance, and

(c) Adjust a covered employee's work schedule in a workweek or require the employee to take time off without pay so that the employee does not become eligible for the payment of overtime or accrual of nonexempt compensatory time.

(5) State agencies may require the cash out of unused nonexempt compensatory time when a covered employee changes from nonexempt to exempt status through a personnel action such as a promotion or reassignment. If the agency allows the exempt employee to maintain a nonexempt compensatory time balance, the agency must allow the employee to use the nonexempt compensatory time as time off or must pay cash for unused nonexempt compensatory time upon termination in accordance with 29 CFR Part 553.