What Is Time Off in Lieu (TOIL): Explanation and Comprehensive Guide

More companies are seeking alternatives to ensure their employees get beneficial work arrangements. Time off in lieu is a great alternative to traditional overtime pay. 

But what is time off in lieu? In this guide, we’ll break down the time in lieu meaning, so whether you’re an employer looking to implement it or an employee wondering how to use it, this guide will offer you valuable insights and essential information. 

What is time off in lieu? 

Time off in lieu is a workplace arrangement where employees who have worked overtime can take time off instead of being paid for it. The phrase “in lieu” means “in place of”. In this context, this means taking time off instead of being paid extra for working overtime.

In Australia, full-time employees generally work 38 hours per week, while part-time employees work less. Overtime applies beyond these hours, and some Modern Awards allow employees to choose between overtime pay and TOIL. Modern Awards are legal documents that set out minimum employment terms and conditions in relation to pay, hours, leave, and entitlements in specific industries or roles.

TOIL leave vs. paid overtime

In TOIL (Time Off in Lieu) arrangements, employees receive paid time off instead of extra pay for overtime. On the other hand, paid overtime involves compensating employees with additional pay, often at higher rates.

The best option depends on individual preferences, company policies and industry-specific regulations.

Requirements and considerations: 

• TOIL arrangements need to be agreed by both the employer and employee in writing; 
• Employers cannot force employees to take TOIL instead of receiving overtime pay; and
• Deadlines can apply for the use or payout of TOIL if unused or upon leaving employment.

Who is eligible?

Time in lieu is generally available to full-time and part-time employees covered by a Modern Award or where it is included in an employment contract. Casual employees are typically not eligible unless specified by a workplace agreement.

How to calculate and track time off in lieu

There are two common methods for calculating TOIL:

1. Time-for-time: each overtime hour worked equals one hour of time off.
2. Penalty rate conversion: TOIL is calculated based on the overtime pay rate.

Main steps:

1. Determine overtime hours worked beyond standard weekly hours; 
2. Establish the overtime rate (e.g., 1:1, 1.5x, or 2x regular pay);
3. Calculate total overtime compensation; and
4. Convert overtime compensation to equivalent time off.

Example:

“Emma works full-time, clocking 38 hours a week at $20 per hour. One week, she works an extra 5 hours, which qualifies as overtime at a higher rate of $30 per hour. Instead of receiving $150 in overtime pay (5 hours × $30), she opts for TOIL. 

Since her regular pay rate is $20 per hour, she accrues 7.5 hours of TOIL ($150 ÷ $20), which she can take as paid time off later.”

The government has created a pay calculator online to help you estimate your TOIL.

When can an employee ask for time in lieu?

Employees can use TOIL in various work situations; the most common ones include:

• attending conferences or work-related events on weekends;
• additional shifts during busy retail seasons; 
• working outside of regular hours to resolve urgent issues; 
• extended hours worked for company events; or
• choosing TOIL instead of penalty rates for working a public holiday.

Advantages and disadvantages of offering TOIL

Benefits for employees: 

✓ Improved work-life balance – employees can take time off when it suits them.
✓ More control over schedules – can help reduce burnout and stress.
✓ Increased job satisfaction – employees are more likely to feel recognised for their extra efforts.

Benefits for employers:

✓ Lower labour costs – can help to reduce the need to pay high overtime rates.
✓ More engaged workforce  – employees often appreciate the flexibility.
✓ Reduced absenteeism  – employees have the option of scheduling time off instead of calling in sick.

Challenges: 

✘ Tracking and administration – employers must accurately record and manage balances.
✘ Employee preferences – some may prefer immediate overtime pay instead.
✘ Staff shortages – the risk of multiple employees taking TOIL at the same time.
✘ Potential overuse – employees might work unnecessary overtime to accumulate TOIL.
✘ Legal risks – mismanagement could lead to disputes or non-compliance.

Legal considerations and regulations

TOIL in Australia is regulated by the Fair Work Ombudsman and Modern Awards. Key legal points include:

• the arrangements must be documented and agreed upon by both parties;
• TOIL should generally be taken within six months unless otherwise stated in an award or agreement;
• employees usually cannot be forced to take TOIL instead of overtime pay; and
• the balances must be properly recorded and paid out if unused.

Creating a TOIL policy and best practices for HR

From an HR perspective, it is important to follow certain practices to ensure the successful application of this policy; we recommend keeping in mind: 

1. TOIL policy documentation: Clearly outline how TOIL works, including eligibility, guidelines, timeframes, limits, expiration terms and interactions with other leave types;
2. Record-keeping:  Ensure each employee signs a different TOIL agreement and has access to their balance; 
3. Education and communication: Explain the policy to employees, encourage feedback from staff and managers and address any concerns;  
4. Compliance: Regularly review and update the policy to ensure it aligns with relevant modern awards and legal requirements; and
5. Seek legal assistance: Consult a commercial lawyer to draft and review agreements, ensuring compliance and minimising legal risks.

More questions about TOIL

TOIL (Time Off In Lieu) can raise questions for both employers and employees. Here are more questions on the topic:

-> Can employees choose overtime pay instead of TOIL? 

Employees may choose between overtime pay and TOIL, depending on the policy. Requests are typically submitted to HR or a manager, detailing overtime hours worked and the desired time off.

-> Does TOIL include travel time? 

Travel time may be included if it falls outside normal working hours or exceeds regular commuting time. Check your policy or consult HR for specific details.

-> How can employees ensure their TOIL rights are protected?

Employees should understand the policy, track overtime hours, and regularly check their TOIL balance. Communication with managers and HR is key to ensuring fair handling of TOIL requests.

Conclusion

Time Off in Lieu is a valuable option for both employees and businesses when managed correctly. However, clear policies, accurate tracking and legal compliance are essential to ensure TOIL remains fair and beneficial for everyone.

If you’re considering implementing TOIL in your business, make sure your policies align with Modern Awards and Fair Work regulations. Need employment dispute guidance? H+A Legal can advise you on how to protect both your business and your employees in advance of and in the event of disputes down the line. Get in touch today!