[Q&A] Can Employees Swap Overtime for Extra Leave?
2025. 9. 5
Question: Due to fluctuations in the business cycle, the company experiences several months of intense activity, while other months are relatively quiet. Some employees have submitted suggestions via the feedback box, proposing that the company allow them to accumulate overtime hours worked during busy periods and use them to take additional leave during quieter months. The company believes this approach could also help reduce overtime compensation costs. Is this practice feasible?
Answer: Chinese labor law categorizes overtime into three distinct scenarios: regular overtime, which requires payment at 150% of the employee’s standard wage and does not permit compensatory time off; rest day overtime, which should preferably be offset by time off or adjusted leave, and if such arrangements cannot be made, must be compensated at 200% of the wage; and statutory holiday overtime, which must be compensated at 300% of the wage and likewise does not allow for compensatory time off. As a result, the proposal to accumulate regular overtime hours and use them as leave during quieter months lacks legal support under current regulations.
Even if both parties mutually agree to such an arrangement, it remains legally risky, as the agreement itself contradicts statutory provisions. Labor law differs from general civil law in that the disparity in status, bargaining power, and negotiation capacity between employers and employees leaves very limited room for private agreements. Any such arrangement must not conflict with labor laws and regulations, unless the relevant provisions explicitly allow for mutual agreement, such as in the case of non-compete compensation, where the minimum is set at 30% of regular wages but the upper limit may be negotiated. Therefore, if an employee later withdraws consent or if the labor authorities conduct an inspection, the validity of such an agreement is unlikely to be upheld.
It should be noted, however, that in labor arbitration or litigation, some arbitrators or courts may, based on the principle of good faith, determine that the employee voluntarily accepted compensatory leave and later sought overtime pay, which may be deemed unfair to the employer and thus not supported. Nevertheless, such rulings are limited to dispute resolution contexts and, due to the lack of clear legal basis, remain uncertain. In the event of regulatory inspection, this consideration is unlikely to be factored in, thereby posing greater risk to the employer.
In light of the question, alternative approaches may be worth exploring. For instance, the company could consider applying for a comprehensive working hours system based on quarterly, semi-annual, or annual cycles, depending on business activity levels. Alternatively, if your company really wants to try this approach on the basis of bearing certain risks, we suggest retaining corresponding evidence of consensus. For example, for such employees, you can consider calculating the overtime hours on working days every month and letting them choose which time period to take compensatory leave in the future. If this compensatory leave is taken, it should be unpaid leave, that is, no additional wage will be paid on the day of compensatory leave.