Time Off in Lieu (TOIL): Definition and Calculation Methods

Time off in lieu (TOIL) – also known as ‘time in lieu’ – is a popular alternative to overtime pay. It allows employees to take paid time off in the future, instead of receiving extra wages for working additional hours.

Here, we’ll break down the meaning of time in lieu, how to calculate it, and why it’s so common in Australian workplaces.

What is Time Off in Lieu (TOIL)?

Time off in lieu (TOIL) is an arrangement where employees accrue paid leave instead of receiving financial compensation for working overtime hours. 

If you’ve agreed to work for time in lieu, this means that any hours you work beyond your regular schedule can be claimed later on as leave. 

The Difference Between TOIL and Standard Overtime Pay

Usually, you’d receive money for any additional hours you work outside of your regular schedule – often at a higher rate than your standard wage. This is called ‘overtime pay’. 

Time off in lieu (TOIL) lets employees take paid time off instead of getting extra overtime pay. Overtime pay is immediate, but you can bank TOIL to be used later, when it best suits you.

Want to understand more about standard overtime pay? Check out QuickBooks' guide on overtime.

How Does Time Off in Lieu Work?

To understand the ins and outs of time in lieu, let's look at how it works in practice. Here are some key things to know about TOIL: 

• Agreement between employer and employee: First things first – both you and your employer need to be on the same page. TOIL should be officially agreed upon in writing.
• Earning TOIL: You'll build up TOIL when you work extra hours. How quickly it adds up (hour-for-hour or at penalty rates) depends on your industry award or agreement with your employer.
• Using TOIL: When you want to use your banked hours, you'll need to put in a request. While your employer can't unreasonably say no, approval is usually subject to business needs. For example, you might not be able to use your TOIL during a busy period at work.
• Tracking TOIL: Good record-keeping is crucial – your employer needs to track the TOIL you’ve banked and taken, usually through timesheets or HR systems.
• Expiration dates: Many TOIL arrangements come with an expiration date, requiring you to take your accrued time within a specific period.
• Cash-out options: Some policies allow for TOIL to be paid out in certain situations, like when you leave the company.

Legal Framework Surrounding TOIL

In a legal context, time off in lieu policies are governed by the Fair Work Act 2009. According to Fair Work Australia guidelines, TOIL needs to be a reasonable deal – you shouldn't be worse off than if you'd received standard pay. 

Here are some important legal points to remember:

• How much TOIL you earn should typically reflect your overtime rates. For example, if you work on a Sunday you might earn 2 x your hourly pay rate. In this case, you should accrue 2 hours of TOIL for every hour you work that day.
• All TOIL arrangements must be properly documented and agreed on by you and your employer.
• You can't be forced into taking TOIL if you'd prefer overtime pay.

How to Calculate Time Off in Lieu

Calculating time in lieu is pretty straightforward, but it depends on your specific award or agreement. Generally, you would calculate it based on your overtime hours and any penalty rates that would normally apply.

For example, if you work 2 hours of overtime that would usually be paid at 1.5 times your normal rate, you'd bank 3 hours of TOIL (2 hours worked × 1.5 = 3 hours TOIL).

In some cases, your agreement with your employer may only offer you an hour-for-hour credit. For example, if you worked 2 hours of overtime, you’d bank 2 hours of TOIL.

For more detailed guidance, check out the Fair Work Centre's guide on calculating TOIL.

Examples in Practice

Example 1: Hour-For-Hour TOIL Calculation 

Let's say Michael works as an admin assistant and stays back an extra 4 hours on a regular weekday. Under his TOIL agreement, he gets hour-for-hour credit, so he banks 4 hours of paid leave.

Example 2: TOIL with Penalty Rates 

Louise works in retail. She puts in 6 hours on a Sunday and her industry award specifies she should receive double her standard pay rate. Because her contract defines time off in lieu rates as equivalent to her pay rate, Louise banks 12 hours of TOIL (6 hours × 2) for her Sunday work.

Benefits of Time Off in Lieu

Benefits For Employees

• More Flexibility: You can build up time off in lieu to use when it suits you best – perfect for attending appointments or creating long weekends.
• Work-Life Balance: After a hectic period at work, TOIL lets you reclaim some personal time and prevent burnout.
• Extended Breaks: By saving up your TOIL, you could add extra days to your annual leave for a longer holiday.
• Tax Smart: Unlike overtime pay which gets taxed immediately, TOIL gives you time off with no additional tax implications.
• Planning for Big Events: Got a wedding coming up or a house move? You can strategically save your TOIL for when you really need it.

Benefits For Employers

• Managing Costs: By offering time in lieu instead of paid overtime, businesses can keep labour costs in check, especially during peak times.
• Happier Team: Providing TOIL shows that you value work-life balance, which can boost team morale.
• Flexible Staffing: TOIL allows for extra coverage during busy periods and lets staff take time off when things are quieter.
• Handling Peak Periods: When there's a sudden rush of work, offering TOIL can incentivise employees to work extra hours.
• Productivity Boost: Employees tend to be more engaged and productive at work when they know they can take time off when they need it.

Challenges of Time Off in Lieu

Challenges for Employees

• Taking your time: Some people find it tough to actually use their banked time in lieu, especially during busy periods when their employer needs all hands on deck.
• The pile-up problem: If you don’t schedule regular time off, you might end up with lots of TOIL that becomes harder and harder to take.
• Expiry dates: Some agreements require you to use your TOIL within a certain amount of time. If your TOIL comes with a "use by" date, you could lose what you've earned.
• Delayed benefit: Unlike overtime pay that hits your bank account right away, time in lieu involves waiting for your reward.
• Scheduling headaches: Because you have to negotiate with your employer about scheduling, you might not be able to use your TOIL if you want time off during popular holiday times or busy periods.

Challenges for Employers

• Paperwork overload: Keeping accurate records of all TOIL can be an administrative challenge unless you have good systems in place.
• The holiday rush: Staffing nightmares can occur when multiple team members want to use their TOIL at the same time (think school holidays).
• Financial considerations: All that accumulated TOIL represents a financial liability that businesses need to account for.
• Keeping it fair: It’s important to stay up-to-date with any changes to the time in lieu policy of Fair Work Australia and always comply with your employee contracts. 
• Coverage challenges: Finding someone to cover tasks when employees take TOIL can be difficult, especially for specialised roles.

Industries That Often Give TOIL

Any workplace can implement a time off in lieu policy. It’s common in industries where employees and employers value flexibility and need to be careful about burnout, such as:

• Healthcare
• Hospitality (restaurants, cafes, and hotels)
• Retail
• Professional services
• Education and training
• Search for your award on the Fair Work website for more information about how time in lieu works in your industry.

Common FAQs About Time In Lieu

Here, we’ll tackle some of the questions that often come up about TOIL arrangements in Australia.