Kayleigh is a graduate in Arts and Law from the University of New South Wales. With an interest in human rights and intellectual property law, she has experience working in communications and marketing for small businesses and not-for-profits.
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If your team sometimes works beyond their ordinary hours, you might be wondering whether you need to pay overtime or whether you can offer “time in lieu” instead.
Time in lieu (often called “TOIL”) can be a fair, flexible way to compensate staff with paid time off for additional hours worked - but only if it’s set up correctly under Australian employment law.
In this guide, we’ll explain what time in lieu means in Australia, how it differs from overtime, when it’s legal to use, and how to implement a compliant TOIL system in your workplace.
We’ll also outline the documents and policies you should have in place so everyone knows how TOIL is earned, recorded and taken.
Time In Lieu Explained
Time in lieu is paid time off that an employee takes instead of receiving overtime pay for extra hours they’ve worked.
In practice, an employee “banks” additional hours and then later takes time off on full pay at a mutually agreed time. This is sometimes described as “time off instead of overtime.”
How TOIL Differs From Overtime
- Overtime pay: The employee is paid at an overtime rate (for example, time-and-a-half or double time) for approved extra hours, according to the applicable modern award or enterprise agreement.
- Time in lieu: The employee is given paid time off for those extra hours rather than receiving the overtime payment. Whether the time is hour-for-hour or a higher multiple depends on the award or agreement rules.
It’s important to understand that TOIL is not a casual “swap” you can make unilaterally. TOIL must be allowed by the relevant industrial instrument and usually requires a clear agreement with the employee.
If TOIL is not set up properly, you may still owe overtime under Australian law, plus penalties for underpayment.
Common Terms You’ll Hear
- TOIL: Short for “time off in lieu.”
- Ordinary hours: The rostered or contracted hours before overtime applies.
- Banked hours: Approved additional hours accrued to be taken later as paid time off.
- Award/EA: A modern award or Enterprise Agreement (EA) that sets minimum pay and conditions for certain roles or industries.
Is Time In Lieu Legal In Australia?
Yes - but only in the right circumstances. TOIL is permitted where:
- Your employee is covered by a modern award or EA that expressly allows time off instead of overtime, and you comply with those conditions; or
- Your employee is award/EA-free and you have a valid agreement that clearly sets out how TOIL will work (noting other minimum standards still apply).
Key Legal Requirements
- Check the award or EA: Many instruments allow TOIL but set strict rules about accrual, record-keeping, when TOIL must be taken, and what happens if it’s not taken in time.
- Genuine agreement: In most cases, TOIL must be by written agreement with the employee for each occasion of overtime (or via a compliant policy the employee agrees to follow).
- Rates and multipliers: Some awards require TOIL to be taken at the overtime rate equivalent (e.g. 1.5 hours of TOIL for each hour of overtime). Others allow hour-for-hour TOIL. Always follow the instrument.
- Time limits: It’s common for awards to require TOIL to be taken within a set period (for example, within 6 months). If not taken, it usually must be paid out at the appropriate overtime rate.
- Record-keeping: Keep accurate records of hours worked, TOIL accrued and TOIL taken. Poor records can lead to disputes and compliance risks.
For many employers, a clear workplace policy supported by consistent processes is the easiest way to stay compliant.
When TOIL May Not Be Appropriate
- Flat salary arrangements: If a salary is intended to compensate for reasonable additional hours, TOIL may not be necessary. However, you must ensure the salary still meets award or EA entitlements overall (and some awards require periodic reconciliation).
- Casual employees: Some awards do not allow TOIL for casuals. Others may allow it with conditions. Always check the specific instrument.
- High-income employees: Award coverage and overtime rules may not apply - but National Employment Standards and contract terms still matter.
How To Implement Time In Lieu In Your Business
Setting up TOIL properly is about clarity, consent and consistent administration. Here’s a practical roadmap you can follow.
1) Confirm Coverage And Rules
Identify whether each role is covered by a modern award or EA, and read the clause dealing with TOIL. Note the requirements for agreement, accrual, multipliers, timing and payout.
If you’re unsure about coverage or obligations, consider an award compliance review so you can apply the right rules confidently.
2) Decide Your Approach
Decide whether your business will offer TOIL broadly, only for certain roles, or only by exception.
Most businesses either adopt a standardised policy with clear limits and approvals, or require a short written agreement each time TOIL is used (if the award requires that).
3) Update Contracts And Policies
Set out how overtime is approved, how TOIL is earned, and how it is taken in your employment contracts and internal policies.
At minimum, ensure each relevant Employment Contract addresses ordinary hours, overtime approval and reference to your TOIL policy. Then implement a practical, easy-to-follow Workplace Policy that captures the TOIL process.
Many employers also consolidate key HR rules (including TOIL) into a staff manual. A tailored Staff Handbook helps ensure consistency and reduces the risk of misunderstandings.
4) Put Clear Approval And Recording Processes In Place
Make it easy for managers to approve overtime in advance and confirm afterwards how many hours were worked.
Use a timesheet or HR system to record TOIL accruals and balances. Confirm with the employee in writing (even via email) when TOIL is earned, the amount banked and the deadline for taking it.
5) Make It Simple To Request And Take TOIL
Employees should be able to request TOIL like any other leave. Set minimum notice requirements and allow reasonable flexibility for genuine personal commitments.
Approvals should consider operational needs. If you can’t approve a TOIL request in time for the award deadline, you’ll usually need to pay it out at the overtime rate.
6) Reconcile Regularly
Schedule periodic reviews (e.g. monthly) to ensure TOIL is taken within required timeframes and that no balances are overlooked.
If limits are reached or deadlines are approaching, proactively roster TOIL days or process a payout as required by the award or agreement.
Paying, Banking And Using TOIL: Practical Rules
Once your TOIL system is in place, day-to-day decisions come down to a few practical rules. These will vary by award or EA, but common themes include:
Accrual And Multipliers
Check whether TOIL accrues hour-for-hour or at the equivalent overtime rate. For example, if an award says overtime is paid at 150% on weekdays, it may require 1.5 hours of TOIL to be banked for each hour of overtime instead of paying the overtime.
Time Limits
Many instruments require TOIL to be taken within a set period (often 6 months). If it’s not taken, you usually must pay it out at the overtime rate applicable when the overtime was worked.
Notice And Approval
It’s reasonable to require a minimum notice period to take TOIL, but the award may require you to consider the employee’s preferences and operational needs. A balanced policy helps avoid disputes.
Public Holidays And Weekends
If overtime is worked on a public holiday or Sunday, the applicable multipliers may be higher. That usually carries through to TOIL accrual if your award requires TOIL to match the overtime rate.
During Notice Periods
Be careful using TOIL to shorten an employee’s notice period. In many cases, you cannot force TOIL to be taken during notice unless the employee agrees. If you plan to pay out entitlements instead, ensure your approach aligns with rules about leave during notice periods and any award requirements.
Interaction With Salaries And “All-In” Arrangements
Even if an employee is on a salary that’s intended to absorb reasonable additional hours, you may still need to track hours and ensure the salary is high enough to compensate for overtime entitlements overall. Regular reconciliation is good practice and often required by certain awards.
If your arrangement relies heavily on TOIL, ensure it genuinely benefits the employee and strictly follows the instrument to avoid underpayment risk. Remember, failing to pay overtime when TOIL isn’t valid can lead to significant liabilities.
Common Pitfalls And How To Avoid Them
TOIL works well when it’s simple, transparent and lawful. The most common issues we see are avoidable with the right setup.
1) Assuming Hour-For-Hour Is Always Allowed
In some awards, TOIL must be at the overtime equivalent (e.g. 1.5x or 2x). If you accrue hour-for-hour when the award requires a higher multiple, you’ll under-credit the employee and risk underpayment claims.
2) Not Getting Clear Agreement
Many instruments require TOIL to be agreed for each instance of overtime, or via a compliant written agreement. Relying on casual or verbal arrangements is risky. Confirm in writing and keep records.
3) Poor Record-Keeping
Not recording approval, hours worked, TOIL accrued or deadlines makes disputes more likely. Build simple, consistent processes into your HR system from day one.
4) Letting Balances Accumulate
Allowing large TOIL balances to build up can create rostering challenges and cashflow surprises if you need to pay them out. Set reasonable caps, encourage timely use, and reconcile regularly.
5) Ignoring Award Coverage
Applying a blanket TOIL rule across all staff without checking each role’s award or EA can cause non-compliance. Run an award coverage and compliance check and apply rules accordingly.
6) Mixing Up TOIL And Other Leave
TOIL is separate from annual leave, personal/carer’s leave and other entitlements. Keep TOIL balances distinct and make sure payslips and records clearly reflect each category.
What Documents Should You Have For Time In Lieu?
Good documentation makes TOIL easy to manage and easy to audit. Consider putting the following in place.
- Employment Contract: Sets ordinary hours, how overtime is approved, and how TOIL operates alongside the applicable award or EA.
- Workplace Policy: Explains approval, recording, accrual, time limits, caps and payout rules in plain English for managers and staff.
- Staff Handbook: Centralises your TOIL policy with other day-to-day HR procedures so expectations are consistent across the business.
- Time Off In Lieu guide: A helpful reference to ensure your internal approach aligns with general principles for TOIL in Australia.
- Award Compliance review: Confirms the right instrument applies and that your TOIL setup meets its specific requirements.
- Time In Lieu for employers: Additional practical tips for implementing TOIL safely and avoiding overtime underpayment risks.
You may also want to refresh related documents, such as rostering practices and, where relevant, arrangements for employee meal breaks, so your broader timekeeping processes are consistent.
FAQs About TOIL (Quick Answers)
Can I Force An Employee To Take TOIL?
Usually, no. TOIL generally requires mutual agreement and must follow the award or EA. If you can’t agree on a time for the employee to take TOIL within the required period, you’ll typically need to pay it out at the overtime rate.
Does TOIL Apply To Casuals?
Sometimes. It depends on the applicable instrument. Some awards allow TOIL for casuals; others don’t. Always check the award coverage before offering TOIL to casual employees.
Is TOIL The Same As “Flexible Hours”?
Not exactly. TOIL compensates specific additional hours with paid time off. Flexible hours arrangements (e.g. changing start/finish times) are different and should be managed under your standard rostering and flexibility processes.
What Happens To Unused TOIL When Someone Leaves?
Many awards require any unused TOIL to be paid out at the overtime rate applicable when it was earned. Check the applicable instrument and your contract terms, and process the payment in the employee’s final pay.
Key Takeaways
- Time in lieu (TOIL) is paid time off instead of overtime pay - and it’s lawful in Australia when it’s permitted by the relevant award or agreement and done properly.
- Always check the applicable instrument for TOIL rules, including multipliers, time limits, agreement requirements and payout obligations.
- Implement TOIL with clear contracts, a practical policy, solid approval workflows and accurate records to reduce underpayment risks.
- Reconcile TOIL balances regularly, encourage timely use, and pay out any unused TOIL when required by the award or at termination.
- Keep TOIL distinct from other entitlements and make sure your approach aligns with your overtime obligations and staffing needs.
- Getting tailored advice on award coverage, contracts and policies will help you implement TOIL smoothly and stay compliant.
If you’d like a consultation on setting up time in lieu in your workplace, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
