I don't do a ton of overtime with my job. That's one of the advantages/disadvantages (depending on how you look at it) of working for the government. However, OT hours do come up every now and then and I always struggle with how to use them. I can either take time off in lieu or get paid out. Both are given at 1.5 times what you worked.
What typically happens is that for small bits of overtime (an hour here or there), I get it paid out, as it seems silly to just leave work an hour early. And OT happens so rarely that it wouldn't add up quickly enough to a full day off. Last week we had a minor emergency, so I did an hour and a half of OT. I put this one down for a pay out and I figure I might see $50 from it (after taxes come off). Nothing to complain about!
But, with larger chunks of time (i.e. when I'm on a video shoot after hours or we do focus group testing, which always occur in the evenings), I take the time off in lieu. A few evenings of work in one week equals 2 or 3 days off! And I love me some vacation days!
But does that make financial sense? Wouldn't a big pay out be better? Yes and no. Sure the money would be nice - a big chunk added to my normal pay cheque. But unless we're absolutely strapped for cash, to me it doesn't make sense to pay all the taxes that would come off. When I take time off in lieu (versus a pay out), I'm essentially getting paid and the government doesn't get to steal time from me.
What is your preference?