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Overtime Pay: Time Off In Lieu Payment

Published March 5, 2020 (last updated on February 28, 2024) | Adam Wyatt - Content Writer


Are you an Australian business owner? If so, you might be familiar with Time Off in Lieu (TOIL).

Some Modern Awards include provisions which allow employees to take time off instead of receiving overtime pay. This entitlement can be provided for at what is referred to as a “time for time” arrangement or a “penalty” arrangement, involving penalty rates.

A time for time arrangement allows an employee to take the same amount of TOIL hours for every hour of overtime worked. A penalty arrangement however requires that the time off be equivalent to the overtime that would have been paid..

This article will take a closer look at the TOIL provisions and how you can make sure you’re covering your bases.

Ready to learn more? Let’s get started.


Understanding Time in Lieu

Where Modern Awards contain TOIL provisions, there are conditions on how TOIL can be agreed and taken, and it can be difficult to understand these specifics. Here are some details to know about Time in Lieu.

How Does Time in Lieu Work in Australia?

The concept of TOIL requires an employee to work beyond their predetermined schedule, such that overtime is applicable. In certain circumstances, an employer may elect to allow the employee to take time off instead of an immediate monetary payment for the extra hours worked.

In most cases, Modern Awards designate TOIL arrangements in one of three ways:

  • Employers calculate TOIL at the employee’s standard work rate.

  • Employers calculate TOIL at the employee’s overtime work rate.

  • The Award does not include any specific provisions to regulate TOIL arrangements.

In the first scenario, employers simply exchange hour-for-hour, granting employees one hour of paid time off for every hour of overtime they work.

In the second scenario, employers calculate TOIL hours based on the employee’s overtime rate, for example granting time and a half for the first two hours, and then double-time for any hours beyond that.

In the third example TOIL may or may not be suitable and requires an assessment of the business and Award specific requirements. If your Award does not provide for TOIL it is recommended that you seek further advice.


Time Off in Lieu of Overtime

Subject to mutual agreement between employee and employer, your employees may be able to take TOIL in exchange for overtime payments, and in some cases, annual leave loading may also apply.

There is some consistency between Modern Award TOIL provisions, however each Award may have unique requirements. Common provisions include:

  • TOIL can only be taken when genuinely agreed

  • Each time overtime is worked a separate agreement to take TOIL must be made and it must be recorded in writing

  • How time off is calculated (e.g. time for time or penalty)

  • The time off must be taken within six months after the overtime is worked, or at a time agreeable to both the employer and employee

  • The employee may end the agreement and request to be paid overtime instead of taking time off, in which case the employer must pay the overtime in the next pay period

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What should each agreement include?

First, it must be in writing, though email is permissible. Additionally, there will need to be a new agreement for each time overtime is worked. The specific content to cover includes:

  • The employee’s total number of applicable overtime hours

  • The time period when those overtime hours were worked

  • A statement affirming that both parties have agreed to the employee taking time off instead of overtime payment

  • A statement affirming that if a request is made, the employer must pay the employee (in the next pay period) for overtime hours worked at the paid overtime rate

Time In Lieu On Termination

If an employee has Time Off in Lieu of Payment accrued at the time of their termination, how are those hours paid out? Should an employer treat it like annual leave or does TOIL get paid out differently?

When an employment relationship ends, the Fair Work Act and Modern Awards require that employees receive certain entitlements in their final pay. Included in these is the balance of any accrued but untaken TOIL that the employee has earned. How TOIL is paid on termination depends on the relevant industrial instrument and contract of employment.

Payment In Lieu Of Notice

Now that we’ve covered TOIL, what is Payment in Lieu of Notice?

Payment in lieu of notice is a payment made to employees by an employer for a notice period that they have been told by the employer that they do not have to work.

Payment in lieu of notice can be made in circumstances whereby an employer terminates an employee or, alternatively, when an employee resigns.

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Frequently Asked Questions

Does TOIL/Days in Lieu Get Paid Out?

TOIL which may also be referred to as days in Lieu are paid days off work for the employee, paid as ordinary hours but the hours of which are calculated either time for time or penalty basis.

Most Modern Awards which provide provisions for TOIL arrangements, stipulate that if an employee requests overtime pay for their hours worked (even after an initial agreement to TOIL), then the employer must pay those days out at the applicable overtime rate.

Most Modern Awards also stipulate that should an employees employment end before they have taken the agreed TOIL, it must be paid out at the applicable overtime rate.

Does TOIL/ Days in Lieu Expire?

Maybe – It depends on the relevant instrument and contract of employment.

Generally, a Modern Award will provide employees up to six months to take the time off after working overtime, and after this date the entitlement would need to be paid out at overtime rates within the next pay period. However, you should check the specifics of the Award and any business specific arrangements that might also exist.

How is TOIL Calculated?

If you follow the time for time method, TOIL would simply be 100% of the hours worked. That means an employee who worked eight hours of overtime would receive eight hours of paid Time Off in Lieu.

If you follow the penalty method, that would simply mean calculating it at the applicable overtime rates under the Award. For example, if an Award provided 150% (time and a half) for the first two hours and 200% (double time) thereafter, eight hours of overtime in one shift would result in 15 hours of Time Off in Lieu.

What Do I Do If I Want to Offer Time in Lieu?

Are you interested in offering a Time in Lieu option to your workforce? If so, you should first check if your employees are covered by a modern award to understand what conditions might apply.

If an arrangement is allowed you should then implement a template written agreement which can be used to reach agreement with your employees, which includes the details required by your Award.

Employees who are not award covered do not technically receive mandated overtime payments. If your employees are not award covered, you may be able to come to a mutual agreement with your employees anyway. It would be best to record this agreement in writing too.

Understand that even if the above conditions are met, you cannot force or require your employees to take this option. Some might prefer the monetary value of overtime pay. It’s important to check with each employee and move forward on an individual basis

How Much Time in Lieu Can Employees Have?

As TOIL is instead of overtime, TOIL applies to the hours that an employee works beyond their ordinary hours. For instance, if your employee is required to work 38 hours per week and ends up working 48 hours, they are entitled to at least ten hours in lieu and may be entitled to more if the Award accrues the rate at the overtime equivalent.

The majority of Modern Awards do not place a cap on the amount of TOIL that can be accrued however employers may wish to implement internal policies to ensure that the amount of TOIL accrued does not impose a burden on the business.

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