Time Off In Lieu (TOIL) Under the Fair Work Act: Employer Guide

If you run a small business, overtime can be a tricky balancing act. You want to recognise the extra effort your team puts in, but you also need to manage cash flow, rostering pressures, and client demands.

That’s where time off in lieu (often shortened to “TOIL”) comes in. When it’s set up properly, TOIL can be a practical option for rewarding extra hours without immediately paying overtime rates - while still keeping you compliant.

But there’s a catch: TOIL arrangements aren’t a “set and forget” approach. Whether TOIL is allowed (and how it must be handled) usually depends on the relevant modern award or enterprise agreement, and sometimes your employee’s contract (with the Fair Work Act providing the overarching framework).

Below, we’ll walk you through what TOIL is, when it can be used, and how to implement it in a way that protects your business and supports your team.

What Is Time Off In Lieu (TOIL) (And Is It The Same As Overtime)?

Time off in lieu (TOIL) is where an employee receives paid time off instead of being paid overtime for working additional hours.

In plain terms, it’s an arrangement like:

• your employee works extra hours when the business needs it; and
• you later give them equivalent (or an agreed) amount of paid time off.

However, TOIL is not automatically interchangeable with overtime. Under the Fair Work system, overtime entitlements usually come from:

• a modern award (for award-covered employees);
• an enterprise agreement (EA); and/or
• an employment contract (especially for award-free employees, or where the contract provides additional benefits).

So when people search for “fair work time in lieu”, what they’re really trying to understand is:

• is TOIL allowed for this employee?
• what are the conditions?
• what records do I need?
• what happens if the employee doesn’t take the time?

Why This Matters For Small Business Employers

TOIL can be great for flexibility, but it can also create risk if you:

• offer TOIL where it isn’t permitted;
• fail to document the arrangement;
• miscalculate the “equivalent” time (especially where overtime multipliers apply); or
• don’t manage accruals properly, leading to a dispute or a costly backpay claim.

That’s why it’s important to treat TOIL like a compliance issue, not just an informal workplace favour.

When Can You Offer TOIL Under Fair Work (And When Can’t You)?

The first step is confirming what legal instrument applies to the employee.

1. Award-Covered Employees: Check The Award Rules First

If your employee is covered by a modern award, the award may:

• allow TOIL in place of overtime, but only if certain conditions are met;
• require a written agreement each time TOIL is taken (or for each overtime occurrence);
• set timeframes for when the TOIL must be taken; and
• require unused TOIL to be paid out at overtime rates.

Many small business TOIL issues happen because employers assume a “one size fits all” approach, when the award is actually quite specific.

2. Enterprise Agreements: Follow The Agreement Terms

If your business has an enterprise agreement, it typically replaces award rules (to the extent of any inconsistency). The EA may contain its own TOIL provisions, including how TOIL accrues and when it must be taken or paid out.

If you’re not sure whether an employee is on an EA, it’s worth confirming early - TOIL compliance is much easier when you know which document you’re working from.

3. Award-Free Employees: The Contract Still Needs To Be Fair

If an employee is award-free (often the case for some senior or specialist roles), TOIL can still be used, but you should be careful about:

• clearly documenting how additional hours are handled;
• ensuring the employee is not being underpaid overall (for example, where “reasonable additional hours” are expected but become excessive); and
• setting boundaries so TOIL doesn’t become an uncontrolled liability.

If you’re hiring or updating terms, a clear Employment Contract is one of the simplest ways to reduce confusion about overtime, TOIL, and expectations around additional hours.

Can You “Force” TOIL Instead Of Paying Overtime?

In many cases, no - TOIL is often only lawful if the employee agrees (and sometimes the agreement must be in writing). Even where an award permits TOIL, it usually sets out when and how it can be agreed.

From a practical small business perspective: if TOIL is your preferred approach, build it into your policies and onboarding process so employees understand how it works before overtime happens.

How Do You Set Up A Compliant TOIL Arrangement?

A good TOIL process is one your business can consistently follow, even when you’re busy.

Here’s a practical framework to help you implement time off in lieu in a Fair Work-compliant way.

Step 1: Confirm Award/EA Coverage And Overtime Entitlements

Before TOIL is offered, confirm:

• what award (if any) covers the employee;
• when overtime is triggered (for example, hours outside an ordinary span, daily limits, weekly limits, weekends, etc.); and
• the overtime rate that would apply (because this can affect TOIL calculations).

Overtime doesn’t always mean “hours over 38” - it depends on the employee’s classification and the instrument that applies.

Step 2: Put The Agreement In Writing (Where Required Or Sensible)

Even where the award doesn’t strictly require it, getting TOIL arrangements in writing helps avoid misunderstandings later.

Your written record should usually cover:

• the overtime worked (date and hours);
• the TOIL to be provided (how many hours);
• when the TOIL will be taken (or how it will be scheduled); and
• what happens if it isn’t taken within the required timeframe (for example, it will be paid out).

Consistency is key. If your business “sometimes” documents TOIL and “sometimes” doesn’t, that’s when disputes tend to happen.

Step 3: Calculate TOIL Correctly (Including Any Overtime Multiplier)

This is one of the most common TOIL compliance pitfalls.

Depending on the applicable award/EA, TOIL may need to accrue at the same rate the overtime would have been paid. For example:

• If overtime would be paid at time-and-a-half (1.5x), the TOIL might need to accrue at 1.5 hours for each overtime hour worked.
• If overtime would be double time (2x), the TOIL might need to accrue at 2 hours for each overtime hour worked.

This is why TOIL isn’t just about giving someone an afternoon off - you need to make sure the exchange is equivalent to what the employee would have received as overtime.

Step 4: Manage TOIL Balances Like Any Other Leave Liability

TOIL accruals are effectively a liability for your business. You’ll want a simple system for tracking:

• accrued TOIL hours;
• TOIL taken;
• TOIL that is approaching an expiry date (if applicable); and
• any TOIL that must be paid out.

This is also connected to your rostering practices. If your team’s hours regularly fluctuate, it’s worth tightening your approach to employee rostering so overtime (and TOIL) doesn’t quietly build up.

Step 5: Align TOIL With Break And Fatigue Management

Long hours aren’t only a payroll issue - they’re also a safety and wellbeing issue.

As an employer, you should consider break entitlements and fatigue risk, especially where overtime is frequent. A useful starting point is ensuring your workplace practices are aligned with Fair Work breaks obligations and any award-specific requirements.

Common TOIL Mistakes That Create Risk For Employers

When TOIL is managed poorly, disputes often arise at the worst possible time - like when an employee resigns, when you’re under cash pressure, or when your business is already stretched operationally.

Here are some of the most common mistakes we see small businesses make with time off in lieu under Fair Work.

Offering TOIL Informally Without Checking The Award

You might have great intentions (“take Friday afternoon off next week”), but if the award requires TOIL to be agreed in writing or paid out after a certain period, an informal approach can leave you exposed.

Accruing TOIL “Hour For Hour” When Overtime Would Be Higher

This is one of the biggest technical errors employers make. If overtime would have been paid at a higher rate, the TOIL may also need to accrue at that higher rate.

When this isn’t done properly, an employee can later claim they were underpaid overtime.

Letting TOIL Balances Build Up Indefinitely

Uncontrolled TOIL balances can become:

• a payroll liability (especially if the employee must be paid out at overtime rates);
• a resourcing issue (if multiple people want to take TOIL at once); and
• a dispute risk (if expectations aren’t aligned).

A practical approach is to set internal rules (consistent with the award/EA) such as:

• when TOIL must be taken by;
• how much TOIL can be accrued before a manager review is required; and
• what approval process applies.

Not Dealing With TOIL Properly On Termination

If an employee leaves with a TOIL balance, you’ll need to handle it in line with the applicable award/EA and the employee’s overall entitlements.

This often ties into final pay and notice issues. If you’re already navigating termination timing, it’s helpful to understand related concepts like payment in lieu of notice, because final payments can become complicated when multiple entitlements apply at once.

Using TOIL As A Substitute For Fixing Under-Resourcing

TOIL is best used for genuine peaks and exceptional circumstances - not as a long-term solution to chronic understaffing.

If your business model requires constant overtime, it may be time to reassess staffing levels, shift patterns, or role design. This isn’t just a cost issue - it’s also about compliance and retention.

How TOIL Works In Practice For Different Small Business Setups

Because every workplace is different, it helps to think about TOIL in the context of the way your business actually operates.

Retail, Hospitality And Shift-Based Teams

If you run a business with rosters, variable demand, and penalty rates (like retail or hospitality), TOIL can be particularly tricky because overtime and penalties can be triggered in different ways.

In these environments, it’s important to have:

• a clear approval process for overtime before it’s worked;
• a consistent tracking method for TOIL; and
• written rules around when TOIL can be taken (so you can still staff your busiest periods).

If you also need flexibility in changing shifts, make sure your broader shift change practices are compliant (for example, with notice requirements), because TOIL should sit within a lawful rostering framework, not replace it.

Professional Services And “Reasonable Additional Hours” Roles

For some salaried roles, contracts may include a concept of “reasonable additional hours”. That doesn’t mean overtime never applies, and it doesn’t mean TOIL is automatically available.

What it does mean is that your expectations should be:

• reasonable and proportionate to the employee’s role and pay;
• clearly communicated; and
• reviewed if workloads change (for example, if a “busy month” becomes constant).

Even in professional services, TOIL can be a useful retention tool - but it needs to be structured so it doesn’t become vague or inconsistent across the team.

Small Teams Where The Owner Also Manages HR

If you’re wearing multiple hats (operations, sales, HR), you’ll benefit from a simple system that doesn’t rely on memory.

At minimum, aim for:

• a standard TOIL request/approval email template;
• a central spreadsheet or payroll note tracking accruals and usage; and
• a monthly check-in on outstanding balances.

If you want extra confidence your approach stacks up under the Fair Work framework, it can help to get advice from an employment lawyer, particularly if you have a mix of award-covered and award-free employees.

Key Takeaways

• Time off in lieu can be a practical alternative to paying overtime, but it must be permitted and managed correctly under the relevant award, enterprise agreement, or employment contract (within the broader Fair Work framework).
• For award-covered employees, the award often sets strict rules on how TOIL is agreed, how it accrues (including multipliers), and when it must be taken or paid out.
• Put TOIL arrangements in writing and keep good records of overtime worked, TOIL accrued, and TOIL taken - this is one of the best ways to prevent disputes.
• TOIL should be tracked and managed like any other leave liability, with clear internal rules to stop balances building up.
• Be especially careful with TOIL when employees leave, as unused TOIL may need to be paid out in line with the award/EA and other final pay obligations.
• If you’re not sure whether TOIL is compliant for a particular role or award, getting advice early can save time, cost, and stress later.

Disclaimer: This article is general information only and does not constitute legal advice. Awards, enterprise agreements and employment contracts can set different rules for overtime and TOIL, and your circumstances may require specific advice.

If you’d like help setting up a compliant TOIL process (including reviewing your contracts, award coverage, and workplace policies), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.