Is TOIL Paid Out on Termination in Australia?

Time off in lieu (TOIL) can be a helpful way to manage busy periods without blowing out your wages bill.

But when an employee leaves, what happens to their unused TOIL balance? Do you have to pay it out? If so, at what rate? And what should be in your policy and contracts to keep things compliant and fair?

In this guide, we’ll walk through how TOIL works under Australian workplace law, what to do at termination, and the simple steps to set up a compliant TOIL system in your business.

What Is TOIL And How Does It Work?

TOIL (time off in lieu) is an arrangement where an employee is given paid time off instead of being paid overtime for additional hours worked.

TOIL is not automatic. It must be permitted by an industrial instrument (such as a modern award or enterprise agreement) or expressly agreed in writing. Most awards that allow TOIL set strict conditions, including:

• Requiring a written TOIL agreement each time overtime is worked (or a standing written agreement that meets the award’s rules).
• Specifying how TOIL accrues (usually hour-for-hour for overtime worked) and when it must be taken.
• What happens if TOIL isn’t taken within a set period or at termination (commonly, payment at the relevant overtime rate).

If no award or enterprise agreement applies, you can still offer TOIL by agreement, but your Employment Contract and policy should set clear rules about accrual, record keeping, approval and payout at termination.

For a deeper look at the concept and compliance essentials, see our guides on Time Off In Lieu and Time In Lieu.

Is TOIL Paid Out On Termination In Australia?

The short answer: it depends on the instrument or agreement that governs the employee’s employment - and you should check it first.

1) Award Or Enterprise Agreement Covers The Employee

Many modern awards that allow TOIL also say what happens on termination. Commonly, if TOIL hasn’t been taken by the time employment ends, the employer must pay the employee for the overtime worked at the applicable Overtime Rates (not at ordinary rates).

Some awards also set time limits (for example, TOIL must be taken within six months or it has to be paid out as overtime). If the employee leaves before taking the TOIL, you pay out what’s owed under the award’s rule.

Action: Identify the correct award or enterprise agreement, find the TOIL clause, and follow it exactly.

2) No Award Or Enterprise Agreement Applies

If an employee is award and agreement free, TOIL is a matter of contract and policy. Your Employment Contract or policy should answer these questions upfront:

• Will you allow TOIL at all (or only overtime pay)?
• How is TOIL accrued and approved?
• Is unused TOIL paid out on termination and at what rate?

Best practice is to avoid ambiguity: state that unused TOIL will be paid out at the equivalent overtime value on termination, and explain how you’ll calculate it.

3) Your Contract Or Policy Is Silent

If your contracts and policies are silent and no award applies, you’ll need to take a reasonable approach that aligns with how the TOIL was earned. Where TOIL was accrued instead of overtime pay, many employers elect to pay out the outstanding balance at the overtime rate on termination to reflect the value of the work already done.

Whatever you do, be consistent and document your approach. The safest path is to update your documents so the position is clear for the future.

4) Can You Make Someone Take TOIL During Their Notice Period?

Generally, you can agree for an employee to take TOIL during their notice period if your policy or the award permits it and you both agree. If they don’t take the time off before the end date, you’ll usually need to pay out the balance according to the governing instrument.

5) Does Superannuation Apply To TOIL Payouts?

Superannuation is generally payable on ordinary time earnings (OTE), not overtime. If you pay out untaken TOIL by converting it back to overtime, the amount may fall outside OTE and not attract super. Always check your payroll system and the ATO’s OTE guidance - our overview of Ordinary Time Earnings can help you frame the right questions for your bookkeeper or accountant.

How To Handle TOIL In An Employee’s Final Pay

When an employee resigns or you end their employment, build TOIL into your final pay checklist. Here’s a simple process that keeps you compliant and consistent.

Step 1: Identify The Governing Instrument

Confirm whether a modern award, enterprise agreement, Employment Contract, and/or policy applies. Find the TOIL clause and any final pay requirements (for example, timing for payment after termination).

Step 2: Confirm The Accrued TOIL Balance

Pull reliable records of hours worked, approvals for TOIL and any TOIL already taken. TOIL should be tracked separately from annual leave and other entitlements - clear records will make this step faster and reduce disputes.

Step 3: Convert TOIL To A Dollar Value

Calculate the value of outstanding TOIL in accordance with the governing instrument. Under many awards, this means paying for the original overtime at the relevant penalty rate. If your instrument says pay hour-for-hour at ordinary time, follow that rule.

Be careful to apply the correct overtime multiplier and consider when the overtime was worked (e.g. weekend or late-night rates if relevant under the award).

Step 4: Add TOIL To Final Pay

Include the TOIL amount alongside other termination items such as untaken annual leave, any payable long service leave (if applicable), and deductions or offsets that are permitted and agreed. If you are also paying notice as cash instead of the employee working it, account for Payment In Lieu Of Notice separately from TOIL.

Our guide to Calculating Final Pay steps through the usual components and timing so you can process everything together.

Step 5: Communicate Clearly

Provide a simple breakdown with the final payslip that shows how you arrived at the TOIL figure (hours, rate applied, and any award clause relied on). Clear communication reduces back-and-forth and helps you close the file cleanly.

Set Up A Compliant TOIL System In Your Business

Getting TOIL right starts long before termination. A clear framework ensures day-to-day compliance and makes final pay straightforward.

1) Choose Whether You’ll Offer TOIL

Review your operational needs and the awards that apply to your workforce. If your award allows TOIL, decide if you’ll adopt it across the business or only for certain roles. If the award doesn’t allow TOIL, you’ll generally need to pay overtime in accordance with Australian Overtime Laws or rework rostering so overtime is minimised.

2) Embed Rules In Your Contracts And Policies

Include a clear TOIL clause in your Employment Contract and a dedicated TOIL section in your Workplace Policy or staff handbook. Cover:

• Approval process before overtime is worked.
• How TOIL accrues (hour-for-hour or other method permitted by the award/EA).
• When TOIL must be taken and how to request it.
• Record-keeping - who logs hours and who approves.
• What happens if TOIL isn’t taken in time.
• Whether and how TOIL is paid out on termination, including the rate.

3) Train Managers And Keep Records

Teach managers to approve overtime in advance and to agree TOIL in writing where required by the award. Use your HR system to track TOIL balances and expiry dates. The more accurate your records, the lower your risk of disputes or underpayments.

4) Pay The Right Rate When Needed

If TOIL can’t practically be taken, many awards require you to pay the overtime instead - often at the applicable penalty rate. Make sure payroll understands the correct Overtime Rates under each award that applies in your business.

5) Sense-Check Super, Tax And Payroll Settings

Double check how your payroll software treats TOIL payouts, overtime and super. As a rule of thumb, overtime is not OTE (so super isn’t payable), whereas ordinary hours typically are. Use our OTE overview above as a guide and consult your bookkeeper for final confirmation.

Common Pitfalls And How To Avoid Them

Relying On Informal TOIL “Customs”

Informal practices like “just take a few hours next week” can drift away from the award’s rules and create underpayment risk. Avoid this by always using the written agreement method your award requires and by updating your policies.

Applying The Wrong Rate On Payout

When paying out unused TOIL at termination, many awards require you to pay for the original overtime at the correct penalty rate - not at base rate, and not hour-for-hour unless the instrument says so. If you’re unsure, compare the TOIL clause with the award’s overtime table and document your calculation.

Inadequate Records

TOIL depends on accurate time and attendance data. Without it, you can’t evidence that TOIL was lawfully agreed or correctly accrued. Ensure your system captures overtime worked, approval, TOIL taken and balances remaining.

Mixing Up TOIL With Annual Leave

TOIL is different to annual leave. Don’t merge the balances. Keep each entitlement separate so you can clearly show an employee what they’ve accrued and what you paid out at termination.

Withholding TOIL Payouts Improperly

If your instrument requires payout, you generally can’t refuse to pay TOIL at termination. If you believe there’s a genuine overpayment or other lawful deduction, ensure any deduction is clearly permitted by law and documented - our overview on Withholding Pay From Employees outlines the boundaries.

Not Updating Contracts After Award Changes

Awards evolve. Review your contracts and policies periodically to align with current award clauses on TOIL, overtime and penalties so your written terms don’t conflict with your legal obligations.

FAQs Employers Ask About TOIL And Termination

Do Casuals Accrue TOIL?

Some awards allow TOIL for casuals, others don’t. If permitted, it must be expressly agreed and tracked. If the award is silent or prohibits TOIL for casuals, pay overtime (and casual loading) as required by the award.

Can We Cap TOIL Balances?

Yes, if your award/EA allows it and your contract/policy sets a clear cap and expiry rules (for example, TOIL must be taken within six months). Be careful not to forfeit accrued entitlements contrary to the instrument.

What If An Employee Refuses To Take TOIL?

If an award says TOIL must be by agreement, you generally can’t force an employee to take TOIL instead of overtime pay. You can manage rosters to reduce overtime exposure, but if overtime is worked, comply with the award or pay the applicable rate.

What If We Already Paid Overtime But Also Logged TOIL?

Don’t double up. If overtime has been paid, there’s no TOIL to take or pay out for those hours. Reconcile your records so each overtime hour either becomes TOIL or is paid - not both.

Can We Replace TOIL With A Flat Salary?

For some award-covered roles, an annualised salary arrangement can offset overtime and penalties - but only if strict award conditions are met (including record-keeping and reconciliation). If you use TOIL now and want to shift to salaries, seek advice and update your contracts.

Key Takeaways

• Whether TOIL is paid out on termination depends on the applicable award, enterprise agreement, and your contract/policy - check the instrument first.
• Under many awards, untaken TOIL must be paid out at the value of the original overtime at the correct penalty rate when employment ends.
• If award-free, avoid ambiguity by stating in your Employment Contract and policy how TOIL accrues, when it’s taken, and how it’s paid out.
• Build TOIL into your final pay checklist: verify balances, apply the right rate, sense-check super treatment and provide a clear payslip breakdown.
• Good systems matter: written agreements, accurate records, manager training and payroll settings reduce underpayment risk and disputes.
• Review your TOIL approach regularly to stay aligned with award rules on overtime, penalties and annualised salary options where relevant.

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