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If your employees work overtime, you may have obligations to pay them overtime. Alternatively, your employee might be able to take paid time off work for their overtime working hours instead. This is referred to as time off in lieu or ‘TOIL’. TOIL is an alternative to overtime payments since it allows your employees to take paid time off work in exchange for the hours they worked overtime. Although the rules regarding TOIL will vary depending on the relevant award or enterprise agreement that covers your employees, this article outlines some points you should consider when paying your employees TOIL.

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Benefits of Time Off In Lieu

You might be thinking, why don’t I just pay my employees overtime instead of giving them paid leave?

Although making outright overtime payments could be more beneficial in some workplaces, TOIL provides you and your employees with greater flexibility. This is because TOIL allows you to substitute an additional payment for additional hours worked with a form of paid leave.

Take, for example, an employee in the social welfare sector. In some roles, employees can take short periods of work off without disrupting their usual workflow. In this instance, TOIL might be more beneficial to your employees who can take paid time off work.

TOIL can ultimately promote a healthy work-life balance for your employees. Since your employees can accrue TOIL and take their lieu days within a set period, your employees can take some time off from work and return to work with a fresh outlook.

Rules Regarding Time Off In Lieu

You can only pay your employees TOIL if it is covered by:

  • a modern award;
  • an enterprise agreement; or
  • in some instances, your employee’s contract.

As mentioned above, the rules regarding TOIL in modern awards and enterprise agreements will widely differ. However, these documents will generally include the following terms:

  • you and your employee must agree to them taking TOIL, usually in writing;
  • each time your employee chooses to take TOIL, it must be noted in a separate agreement;
  • how you will calculate their time off;
  • your employee must take TOIL within a set period of time, i.e. six months after your employee worked overtime hours;
  • if your employee fails to take TOIL within the set period, you are obligated to pay your employee for their overtime hours; and
  • if their employment terminates, you must pay out your employee’s TOIL.

Some of these rules have been further clarified below.

Agreement Between You and Your Employee

You should note that TOIL is by agreement. Indeed, it is generally not the default compensation for overtime hours worked. Under some awards and enterprise agreements, both you and your employee may have obligations to agree to TOIL in writing. Likewise, each time you agree to your employee taking TOIL, you may need to draft a separate agreement.

In each written agreement, you might consider including:

  • the overtime hours that your employee worked;
  • a statement confirming that both you and your employee agreed to take paid leave instead of overtime payments; and
  • a statement that you agree to pay your employee for their overtime hours worked if they change their mind.

In any event, the specifics of your written agreement should align with the rules in your relevant award or enterprise agreement.

Calculating Time Off In Lieu

Depending on the relevant award or enterprise agreement, your employee can take time off in lieu in different ways. Consider the following examples in the table below.

Rate Example
Standard In this instance, you would give your employee one hour of TOIL for every one hour they worked overtime. For example, if your employee worked five hours overtime, they would accrue five hours TOIL. 
Overtime  In this instance, you would give your employees TOIL based on their overtime rate. For example, if you pay them time and a half for their overtime work, they will receive the equivalent hours in TOIL.

In the instance where the rate of TOIL is not specified in your award, TOIL may not be a suitable form of compensation in your industry. If this is the case, you should seek legal advice before paying TOIL. 

Key Takeaways

When your employees work overtime, they may be entitled to time off in lieu or TOIL. TOIL is an alternative to overtime payments since it allows your employees to take paid time off work in exchange for the additional hours they have worked. Although the rules regarding TOIL will vary depending on the award or enterprise agreement that covers your employees, you should note that your employee can only take TOIL by agreement. That is to say, both you and your employee must agree to give and receive TOIL. 

If you need help making time off in lieu payments, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is time off in lieu of overtime? 

Time off in lieu allows your employees to take paid time off work in exchange for the overtime hours they have worked. 

Can I give any employee time off in lieu? 

Not exactly. Firstly, time off in lieu must be allowable under the modern award or enterprise agreement that covers your employee. Secondly, your employee must agree to take time off in lieu for overtime hours they have worked.

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