What is the Difference Between Overtime and Time Off In Lieu?

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Table of Contents

• What is Overtime? 
• Time Off in Lieu Instead of Payment of Overtime Rates 
• Key Takeaways 

If you are an Australian employer, it is essential that you understand the concepts of overtime and time off in lieu as they apply to your employees. If you are unaware of your responsibilities in relation to these entitlements, you may face significant penalties and need to back-pay your staff. This article will outline the key differences between overtime and time off in lieu, as well as the relevant obligations you owe to your employees.  

What is Overtime? 

If an employee works additional time outside of their ordinary hours, you should consider their extra time as overtime. Overtime may be outside their: 

• ordinary hours of work; 
• agreed number of hours; or 
• spread of ordinary hours; 

The spread of ordinary hours refers to the times of day an employee’s ordinary hours can be worked, such as between 7 am-7 pm. 

Do I Need to Pay Overtime?

Each employee’s entitlements to overtime should be set out in their employment contract, enterprise agreement or applicable modern award. However, you may request an employee to work reasonable additional hours if this is stated in their employment contract. Any extra hours you request should be accounted for in your employee’s remuneration. 

Whether or not additional hours are reasonable will depend on: 

• any risks to the employee’s health and safety; 
• their personal circumstances, such as carer responsibilities; 
• your business’ demands;
• whether the employee’s current package accounts for additional hours;
• whether the employee was given enough notice of working  overtime;
• if the employee had already stated that they cannot  work overtime;
• the usual patterns of work in your industry;
• the employee’s role and level of responsibility; and
• whether the overtime hours are in accordance with an applicable award or agreement. 

Notably, an employee can refuse your request to work overtime if it is unreasonable. 

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Time Off in Lieu Instead of Payment of Overtime Rates 

Some awards and registered agreements allow an employee to take paid time off instead of overtime pay. This is also known as time off in lieu (TOIL). Modern awards will include specifications for TOIL, such as that: 

• you and an employee may agree in writing to them taking TOIL instead of overtime pay; 
• you must document in a separate agreement any amount of TOIL an employee wishes to take; and 
• the employee’s TOIL must correspond to their amount of overtime hours. 

An agreement for TOIL must state each of the following:

• the number and timing of the employee’s overtime hours;
• that you and the employee agree to them taking TOIL; and
• that you must pay the employee for any overtime that they do not choose to take as TOIL, at the overtime rate. 

How Do I Calculate TOIL? 

You should refer to the applicable industrial instrument, such as the relevant modern award, to determine the available methods for calculating TOIL. The most common approaches are:

• time for time, where TOIL is equivalent to the overtime hours worked; 
• overtime rate, where TOIL is calculated in reference to the applicable overtime rate. 

For example, suppose your employee has worked three hours of overtime. Using the time for time method, you should provide them with three hours of TOIL. However, if their overtime rate is 150%, they should receive 4.5 hours of TOIL using the overtime rate method. 

Key Takeaways 

Overtime is payable when an employee works outside of the span of their ordinary hours and beyond reasonable additional hours. If you determine that overtime is payable, you may want to offer TOIL instead. If your employee agrees to receive TOIL, you should document this in a separate agreement. You also need to consider your obligations to legally calculate TOIL under the applicable industrial instrument. 

If you require assistance drafting TOIL agreements or calculating TOIL, 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.