Day In Lieu (Time Off In Lieu): Employer’s Guide To Managing Alternative Leave In Australia

Running a business means juggling rosters, public holidays and the inevitable “can I take a day in lieu?” conversations.

Handled well, days in lieu (also called time off in lieu or TOIL) can support work–life balance and keep your team engaged. Handled poorly, they can create payroll risks and compliance issues under Modern Awards and the Fair Work Act 2009 (Cth).

In this guide, we’ll explain exactly what a day in lieu is, how TOIL differs from overtime, what awards and enterprise agreements typically require, and the practical steps to put a compliant, fair system in place.

Our goal is to help you manage alternative leave confidently, reduce disputes and stay compliant - so you can focus on running your business.

What Is A Day In Lieu?

A “day in lieu” is a substitute day off an employee takes later, to compensate for working at a time they would usually be off - most commonly on a public holiday or outside ordinary hours.

You might also hear “time off in lieu” (TOIL). In practice, TOIL often covers any arrangement where additional hours worked are “banked” and taken as paid time off later, rather than paid as overtime.

Key ideas in plain English:

• Day in lieu: a full paid day off granted at another time, usually because an employee worked a public holiday they would not ordinarily work.
• TOIL: paid time off later instead of an overtime payment, usually recorded as hours (not necessarily a full day).
• Not automatic: there’s no universal right to a day in lieu under the National Employment Standards (NES). Entitlements are created by Modern Awards, enterprise agreements or an Employment Contract.

When Can Employees Receive A Day In Lieu In Australia?

Whether an employee can take a day in lieu (or TOIL) depends on what covers them and what you agree in advance.

Common situations

• Public holidays: Many awards and enterprise agreements allow a substitute day off where an employee works on a public holiday. Others provide penalty rates for the hours worked, with TOIL available only if specific conditions are met.
• Excess hours/overtime: If an employee works beyond their ordinary hours, some instruments allow TOIL instead of overtime pay - but usually only by written agreement and subject to strict timeframes for taking it.
• Award-free or salaried roles: For truly award-free employees, TOIL can be a contractual benefit. However, you must still ensure hours are reasonable under the NES and that any TOIL arrangement is clear, documented and not used to avoid lawful overtime entitlements.

Public holiday substitution vs TOIL

It’s important to distinguish two different concepts that often get blurred:

• Substituting a public holiday: The Fair Work Act and many awards allow the employer and an individual employee (or a work group) to agree to “substitute” a public holiday for another day. If you validly substitute the day, the substituted day carries the public holiday entitlement. The original day becomes an ordinary day for that employee or group.
• TOIL for public holiday work: Separately, an award/EA might let an employee take TOIL instead of receiving public holiday penalty rates. This usually requires a written agreement each time and often has exchange rules (for example, TOIL accrued and taken at a value equivalent to the penalty that would have applied).

These mechanisms serve different purposes and have different rules. Make sure managers understand which one is being used.

Time Off In Lieu vs Overtime: How Calculation Works

This is the area where many businesses trip up. TOIL is not always “hour-for-hour”. Under many awards:

• TOIL must equal the value of the overtime that would have been paid. For example, one hour of overtime at time-and-a-half may bank 1.5 hours of TOIL, and two hours at double time may bank 2 hours.
• Some instruments specify TOIL is taken at the employee’s ordinary rate but require that the total entitlement equals the overtime value. Others set strict caps and timeframes to take it (for example, within 6 months) or it must be paid out as overtime.
• Written agreement is often required on each occasion overtime is worked, or via a compliant template clause, and you must keep accurate records.

If your award or enterprise agreement instead allows “hour-for-hour” TOIL, follow that rule - but don’t assume that’s the norm. Always check the specific instrument.

If you’re unsure how penalty rates apply in your situation, it’s worth reviewing your obligations around penalty rates and getting tailored advice before you implement a TOIL system.

Legal Requirements And Award Rules You Must Follow

The legal framework for days in lieu and TOIL in Australia sits across the Fair Work Act, Modern Awards, enterprise agreements and contracts.

National Employment Standards (NES)

• The NES set minimum standards for public holidays, maximum weekly hours and annual leave, but they do not create a general right to a day in lieu for all employees.
• Requests to work on a public holiday must be reasonable, and an employee may refuse if the request is not reasonable or the refusal is reasonable.
• Additional hours must be reasonable. Even with TOIL, avoid excessive hours and ensure safe workloads.

Modern Awards and Enterprise Agreements

Most day-in-lieu and TOIL rules are found in awards/EAs. Typical obligations include:

• Written TOIL agreement each time overtime is worked (or a compliant standing arrangement as permitted).
• Time limit to take TOIL (commonly within 6 months), after which unused TOIL is paid out as overtime.
• Record-keeping of overtime worked, TOIL accrued, and TOIL taken.
• Rules on public holiday substitution - who can agree, how it’s recorded, and what entitlements shift to the substituted day.

Because these requirements vary, award interpretation and award compliance training for managers is essential.

Company policy or contract terms

Outside an award/EA, the cleanest approach is to embed your TOIL and public holiday substitution rules in an Employment Contract and a clear Workplace Policy. Make sure any policy enhances, not reduces, award/EA entitlements, and that you obtain genuine written agreement where required.

Record-keeping

Keep accurate records of ordinary hours, overtime hours, TOIL agreements, accruals and redemptions. Inadequate records can lead to underpayment claims and penalties.

Policies, Contracts And Record-Keeping

To manage days in lieu well, document your approach clearly, keep consistent records and make approvals easy to track.

What to include in your policy

• Eligibility: who can accrue TOIL or take a day in lieu, and in what circumstances (e.g. public holiday work, agreed overtime).
• Rates and accrual: whether TOIL accrues at overtime value (for example 1.5x or 2x) or hour-for-hour if your instrument allows it.
• Approvals: how employees request TOIL, who can approve it and how it’s scheduled to avoid operational impacts.
• Expiry and payout: any award/EA timeframes and what happens if TOIL isn’t taken in time (often, payout at overtime rates).
• Public holiday substitution: how substitutions are agreed and recorded, and which day carries the public holiday entitlements.
• Record-keeping: how you’ll track accrual and usage in your payroll/HR system, including written agreements.

Put the policy in your Staff Handbook and align it with your contracts and any applicable award/EA.

Essential documents

• Employment Contract: sets ordinary hours, public holiday expectations, and (if applicable) TOIL arrangements that comply with the relevant instrument.
• Workplace Policy: a clear TOIL/day-in-lieu policy covering accrual, approval, expiry and record-keeping.
• Manager guidance: a short internal guide with example scenarios (e.g. how to substitute a public holiday vs approve TOIL) to ensure consistent decisions.

Practical record-keeping tips

• Use your payroll or HRIS to tag TOIL accruals and redemptions separately from annual or personal leave.
• Capture a written TOIL agreement each time overtime is worked if required by your award/EA.
• Run monthly exception reports so unused TOIL nearing expiry can be scheduled or paid out promptly.

Practical Tips For Managing Days In Lieu

Beyond compliance, a thoughtful approach to days in lieu can boost morale and reduce admin headaches.

1) Set expectations early

Discuss public holiday rostering and TOIL during onboarding. Point new hires to the relevant award/EA, their contract and your policy so nothing comes as a surprise.

2) Use a simple approval workflow

Keep requests and approvals in one place (HRIS, payroll or a shared form). Require manager sign-off before TOIL is accrued or taken, and make sure rosters reflect approved time off.

3) Balance rostering fairness and business needs

Rotate public holiday shifts where possible. Where a role must cover public holidays, be transparent about how you compensate that work - via penalty rates, TOIL, or a substituted day - consistent with the award/EA and your policy.

4) Watch annualised/salaried arrangements

If you rely on annualised salaries to cover expected overtime, check award-specific annualised salary clauses and keep the required records. A TOIL policy doesn’t “fix” an underpay if the salary isn’t sufficient to cover actual hours and penalties.

5) Plan for termination scenarios

Clarify in your policy how accrued TOIL is handled on exit. Many instruments require unused TOIL to be paid at overtime rates if not taken. Include this in your termination checklist alongside calculating final pay.

6) Train your leaders

Run short refreshers for managers on the difference between public holiday substitution and TOIL, when written agreements are required, and how to apply award rules consistently.

FAQs

Is a day in lieu the same as annual leave?

No. Annual leave accrues under the NES. A day in lieu/TOIL is a separate entitlement created by an award/EA or contract to compensate for working at unusual times (for example, public holidays or overtime).

Can TOIL be forced instead of overtime pay?

Generally, no. TOIL requires a genuine agreement and must comply with the TOIL clause in the applicable award or EA. You can’t unilaterally direct TOIL where an employee is entitled to overtime pay unless the instrument allows it and you have valid agreement.

Do TOIL balances expire?

Often yes. Many awards require TOIL to be taken within a set period (commonly within 6 months) or paid out at the overtime rate it represents. Your policy should reflect the specific rule that applies.

What if we substitute a public holiday?

If you validly substitute, the substituted day becomes the “public holiday” for entitlement purposes. The original day becomes an ordinary day for the affected employee(s). Follow your award/EA process and record the agreement.

Where should I start if I don’t have a TOIL system yet?

Start by confirming coverage (award/EA vs award-free), map out the rules that apply, then update contracts and implement a clear policy. If you want deeper guidance on structure and rules, read through time in lieu in more detail and check you’re meeting award compliance requirements.

Key Takeaways

• A day in lieu is a substitute day off; TOIL is paid time off taken later instead of an overtime payment - they are related but not identical concepts.
• There’s no universal right to a day in lieu under the NES. Entitlements come from Modern Awards, enterprise agreements or your Employment Contract.
• Under many awards, TOIL must equal the value of the overtime that would have been paid (for example, 1 hour at 150% = 1.5 hours of TOIL), and written agreement and expiry rules often apply.
• Public holiday substitution is different to TOIL. If you substitute, the substituted day carries public holiday entitlements; record the agreement and follow your instrument’s process.
• Put a clear TOIL/day-in-lieu clause in your contracts and a practical Workplace Policy, keep accurate records and train managers to apply the rules consistently.
• If TOIL isn’t taken within the required timeframe, many instruments require payout at the overtime rate. Include this in your termination and final pay process.
• When in doubt about penalty rates, TOIL calculations or award clauses, get tailored advice and ensure your approach aligns with award compliance obligations.

If you’d like a consultation on managing days in lieu and TOIL for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.