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As an employer, you may expect situations when your employees will need to work additional hours to complete projects. You are generally required to pay overtime to your employees in these circumstances, where they are entitled to it (for example, under the terms of an industrial instrument or contract). This is unless the additional hours are reasonable and accounted for in the wages paid to an employee. Time in lieu, also known as ‘time off in lieu’ or ‘TOIL’, allows your employees to take paid time off instead of being paid for overtime. This article explains:

  • when you need to pay overtime to your employees;
  • common provisions for TOIL arrangements;
  • how to calculate the time off for your staff;
  • the usual terms in an agreement for TOIL;
  • how to deal with unused TOIL on termination of employment; and
  • the advantages of having a TOIL policy.

What Is Overtime?

A modern award, enterprise agreement or other registered agreement will set out when you need to pay your employees overtime.

Generally, you need to pay overtime when your employee performs work:

  • beyond their ordinary hours of work. For example, the ordinary hours of a full-time employee are typically 38 hours per week plus reasonable extra hours;
  • outside the agreed number of hours (working longer hours); or
  • outside the span of ordinary hours. For example, the span of ordinary hours could be from 7 am to 7 pm.

However, this will vary based on the terms of any relevant industrial instrument.

What Is Time Off in Lieu? (or Lieu Time)

TOIL is an alternative to overtime payments that you may be able to offer to your employees. Implementing a TOIL arrangement has several advantages, including that it:

  • helps keeps costs under control by reducing or removing overtime costs;
  • helps to prevent your employees from burning out;
  • can be an incentive for your employees to work longer days during a busy period; and
  • fosters a culture of trust between you and your employees.

You should consider your employees’ demographics and preferences, and your business needs, to determine if offering TOIL would be beneficial.

Some modern awards and registered agreements expressly implement TOIL arrangements. Each award or agreement may have unique requirements. However, common provisions for TOIL arrangements cover:

  • that a separate written agreement must be made and kept as an employee record for each pay period that your employee takes TOIL instead of being paid overtime;
  • that the time off must be at a mutually agreed time and taken by your employee within six months after the overtime is worked. Otherwise, your employee must be paid overtime at overtime rates;
  • how to calculate the time off;
  • that you must pay the overtime at overtime rates in the next pay period if your employee makes a request (after agreeing to a TOIL arrangement) to be paid overtime instead of taking time off; 
  • that you must not apply excessive influence or pressure on your employee when they decide whether to take TOIL instead of payment for overtime; and
  • how to deal with any unused TOIL on the termination of your employee’s employment. 

Calculating the Time Off

Modern awards typically prescribe that you should calculate the time off in one of two ways.

Calculation Method

Explanation

Example

Time for time

Your employee is entitled to take time off that is equal to the number of hours worked.

Your employee works two overtime hours. Therefore, they are entitled to two hours of paid time off.

Overtime rate

Your employee is entitled to take time off that is equivalent to the overtime payment that they would have made.

Your employee works two overtime hours at the overtime rate of 150%. Therefore, they are entitled to three hours of paid time off. 

Agreement for Time Off in Lieu

Agreements for TOIL arrangements should be in writing, and you can make them by an exchange of emails.

Some modern awards set out the terms that you must include in an agreement for TOIL, such as:

  • the total number of applicable overtime hours;
  • the period when those overtime hours were worked;
  • if the parties agree for your employee to take time off instead of being paid for the overtime; and
  • you will pay your employee in the next pay period if they make a request for overtime covered by the agreement but not taken as time off.

The schedule of some modern awards includes a template agreement for time off instead of payment of overtime.

Time Off in Lieu on Termination

When an employment relationship ends, you must pay your employee for any untaken TOIL at the overtime rate that was applicable to the overtime when worked.

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Time Off in Lieu Policy

A TOIL policy can help provide clarity to your employees about the terms and procedure for taking time off in exchange for overtime payments or to establish the terms of a TOIL arrangement with employees who are not covered by a modern award or registered agreement.

A TOIL policy can cover issues such as:

  • background and reasons for the TOIL arrangement;
  • TOIL eligibility;
  • TOIL entitlements;
  • responsibilities of your employees concerning TOIL; and
  • procedure for TOIL.

Key Takeaways

Overtime usually needs to be paid when your employees work beyond their ordinary hours or outside the span of ordinary hours. A written agreement can be made for your employees to take time off instead of receiving an immediate monetary payment for the additional hours worked. You should check if a modern award (see Fair Work Commission), employee’s contract or registered agreement covers your employees and regulates TOIL arrangements. Preparing a TOIL policy can help your employees understand the benefits and rules for taking time off. If you have any questions about TOIL arrangements or need assistance with drafting a TOIL policy, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is overtime?

You may need to pay overtime when your employee performs work beyond their ordinary hours of work, outside the number of hours that were agreed or outside of the span of ordinary hours. 

What is time off in lieu? 

Time in lieu is when employees take paid time off instead of being paid for overtime. It is s an alternative to overtime payments that you may be able to offer to your employees. 

What is a time off in lieu policy?

This policy can help clarify for your employees the terms and procedure for taking time off in exchange for overtime payments. It can also establish the terms of a TOIL arrangement with employees that a modern award or registered agreement do not cover.

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