Time In Lieu: What Does It Mean For Employers And How Is It Calculated?

Author: Ian Aldridge, Progressive Legaltime in lieu

time in lieu

As a business owner, having a robust understanding of the ins and outs of time in lieu or time off in lieu (TOIL) is essential for keeping your business compliant with labour laws while providing flexibility for your employees.

On this page, we’ll provide an overview of what time in lieu is, TOIL policies in Australia, and advice on how to implement a TOIL policy effectively.

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What is time in lieu?

Time off in lieu of overtime (TOIL), also known as time in lieu, is a workplace arrangement in which employees can take time off instead of being paid for additional hours worked.

‘In lieu’ simply means ‘in place of’; in this context, TOIL allows employees to take time off to replace hours of overtime. This arrangement is most used when an employee has worked more hours than allowed on their employment agreement, or as part of a collective bargaining agreement.

How does time in lieu affect working hours and overtime?

In Australia, full-time employees complete a work week of 38 hours, while part-time employees work 37.5 hours and below. Any work done in excess of this is considered paid overtime. This means it must be compensated by either overtime pay or TOIL.

Note that not all employees may be eligible for TOIL in their workplace and it’s important to check whether any employees are excluded.

Where applicable, the Fair Work Act 2009 and succeeding amendments provide that an employee receives either their full rate of pay or one and a half times their normal rate of pay for each hour worked, with the option to take paid time off instead.

Implementing your own time off in lieu policy

Your own TOIL policy will depend on several factors, such as:

  • Your industry and occupation;
  • Relevant modern awards or agreements;
  • The hours your staff work and when these hours are worked, such as on a holiday; and
  • Whether the extra time is regular or occasional.

In 2015, the Fair Work Commission updated the National Employment Standards (NES) and outlined a model TOIL term which employers can add to their workplace agreements. Let’s take a look at the details of this term.

What is the model TOIL term?

The model TOIL term provides employers with a structured framework for offering employees the choice to take paid time off instead of receiving overtime payments.

Depending on the applicable modern award for your business, the TOIL term can be implemented in its entirety or with some adjustments, covering essential aspects outlined below:

1. Written Agreement

Employees and employers must reach a written agreement on the amount of TOIL to be taken, ensuring clarity and consensus.

2. Payment Option

Upon request, employees have the flexibility to opt for payment for extra hours worked instead of taking paid time off. The rate of pay for overtime is either their full rate or one and a half times their normal rate, in accordance with relevant industrial instruments.

3. Minimum Pay Guarantee

The rate of pay for overtime exchanged for TOIL must not fall below the employee’s ordinary rate of pay, safeguarding fair compensation practices.

4. Timeframe for TOIL Utilisation

TOIL is typically expected to be taken within 12 weeks from the time it was earned, unless mutually agreed upon differently by the employee and employer.

5. Payment for Untaken TOIL

If an employee does not utilise their accrued TOIL within the specified timeframe, they are entitled to payment for the unused time off.

6. Termination Payouts

Upon termination, employees can be compensated for their accrued TOIL at overtime rates, ensuring fair remuneration for accumulated time.

In certain circumstances, requests for TOIL may pose challenges for employers. In such instances, employers are expected to have reasonable grounds for refusal, citing factors like operational requirements or safety concerns. Clear communication is essential, and any refusal should be formally communicated to the employee in writing, maintaining transparency in the decision-making process.

When can an employee ask for time in lieu?

Employees may request time in lieu when they have worked beyond the standard hours specified in their employment agreement or collective bargaining agreement. This often occurs when operational demands or project requirements necessitate additional work hours. The request for time in lieu should align with the provisions outlined in the Fair Work Act 2009 and relevant industrial instruments.

Employers should be prepared to consider time in lieu requests seriously. However, there may be situations where refusal is necessary based on reasonable grounds. These grounds are essential for maintaining operational efficiency and ensuring the safety and well-being of the workforce. Reasonable grounds may include:

Operational Needs

Refusal may be warranted if granting time in lieu would adversely affect the normal functioning of the business, especially during critical periods or when specific tasks require completion.

Safety Concerns

When there are legitimate safety concerns associated with allowing time in lieu, such as in industries where fatigue could compromise safety, employers may reasonably refuse such requests.

Workload Distribution

If granting time in lieu would disproportionately burden the remaining workforce or disrupt the overall workload distribution, employers may have grounds for refusal.

Unreasonable Frequency

Employers may refuse frequent or excessive time in lieu requests if they disrupt the regular flow of operations or if employees consistently work beyond their agreed-upon hours without due consideration for business needs.

Client or Project Commitments

In cases where client commitments or project deadlines are imminent, and additional work hours are crucial for meeting these obligations, employers may refuse time in lieu requests to fulfill external commitments.

To navigate time in lieu requests effectively, employers should establish a transparent communication channel. This includes clearly communicating the criteria for time in lieu approval and refusal. A documented approval process for overtime hours helps ensure consistency and fairness in the decision-making process.

By maintaining open lines of communication and adhering to reasonable grounds, employers can strike a balance between accommodating employee needs and safeguarding the operational integrity of the business.

How do I calculate time in lieu?

Calculating time in lieu involves determining the number of extra hours worked and the corresponding compensation in the form of paid time off.

The rate of pay for the overtime work exchanged for time in lieu should not be less than the employee’s ordinary rate of pay. Employers must adhere to the guidelines set by the Fair Work Act 2009 and any applicable modern awards or agreements. Keeping accurate records of overtime hours and time in lieu ensures transparency and compliance with labor laws.

The calculation process may vary based on the specific terms outlined in the employer’s time in lieu policy, which can be influenced by factors such as industry standards and work schedules.

Let’s consider an example where a full-time employee employee worked 43 hours in a week instead of her standard 38 hours and her employer pays an overtime rate of one and a half times her normal rate of pay. The following table illustrates this example to help you understand the calculation:




1. Determine Overtime Hours

Identify the number of hours worked beyond the standard weekly hours

Regular hours = 38 hours/week Overtime hours = 5 hours
2. Determine Overtime Rate

Establish whether the overtime rate is the full rate of pay or one and a half times the normal rate

Full rate of pay = $20/hour Overtime rate = $30/hour (1.5 times the normal rate)
3. Calculate Overtime Compensation

Multiply the number of overtime hours by the overtime rate to determine the total compensation

Overtime compensation = 5 hours x $30/hour = $150
4. Determine Time in Lieu Rate Confirm the rate at which employees can take paid time off in lieu of overtime pay Time in lieu rate = Full rate of pay = $20/hour
5. Calculate Time in Lieu Entitlement Divide the total overtime compensation by the time in lieu rate to establish the equivalent time off Time in lieu entitlement = $150 / $20/hour = 7.5 hours.
6. Record and Communicate

Document the calculated time in lieu entitlement and communicate it to the employee

The employee has accrued 7.5 hours of time in lieu for future use.

How much time in lieu can an employee accrue?

The amount of time in lieu an employee can accrue is influenced by various factors, including the terms specified in the employer’s time in lieu policy, relevant modern awards or agreements, and the frequency of additional work.

The Fair Work Act 2009, along with subsequent amendments, provides a framework for determining the accrual and utilisation of time in lieu.

Typically, accrued time in lieu should be taken within a specified timeframe, often within 12 weeks, unless otherwise agreed upon by the employee and employer. Employers should also be aware that upon termination, employees may be entitled to payment for any accrued but unused time in lieu at the overtime rates specified in the relevant industrial instruments.

Effective tips for implementing your time in lieu policy

Ensure written notice for TOIL requests

Employees and employers should receive written advance notice of TOIL dates and durations to avoid misunderstandings.

Pre-approval for overtime hours

All overtime hours must be pre-approved in writing, specifying work details and overtime hours.

Maintain overtime and TOIL records

Employers must keep detailed records of overtime and TOIL to ensure accurate pay and compliance with labour laws.

Establish fair TOIL allocation

Implement a fair system to allocate TOIL hours to avoid resentment and disputes among employees.

Manage workload appropriately

Prevent employee burnout by managing workloads to allow for a full 38-hour workweek and TOIL opportunities.

Key takeaways

By implementing a well-structured TOIL policy, small businesses can encourage their employees to work efficiently and be compensated for any extra time they put in.

Need help creating a TOIL policy that abides by both labour laws and your business standards? Progressive Legal is here to assist.

We work closely with clients to develop tailored policies that are crafted to meet all the unique needs of their business. Request expert advice from our experienced workplace lawyers. 

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Time In Lieu FAQs

Can employers limit TOIL hours?

Employers have the authority to set limits on the number of TOIL hours an employee can take. These limits should be clearly defined in your organisation’s TOIL policy.

Are non-award employees eligible for TOIL?

Non-award employees can be eligible for TOIL. To determine their eligibility, refer to the terms and conditions outlined in their employment contracts and/or enterprise agreements.

What are the grounds for withholding TOIL payment?

Employers can withhold TOIL payment under certain circumstances. These circumstances may include instances where an employee has taken unauthorised leave or failed to utilise their accrued TOIL within a specified timeframe.

It’s crucial to consult relevant industrial instruments for specific rules in this regard. Failure to properly handle TOIL payment can lead to wage theft allegations and investigations. We advise you seek legal advice before deciding to withhold TOIL.

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