What Is the Meaning of Time In Lieu? (2023 Update)

by Angela Omari

January 25, 2022
Legal guides, Starting a Business

Does this sound familiar?

Are you ( a small business owner) asking your employee to work a few extra hours to manage busy working periods or work on that critical project? Or maybe you were asked by your management to stay back

Obviously when there’s extra “work hours” you are required to pay overtime for those extra hours. But a lot of companies exercise something called “Time Off in Lieu”.

In this post, we share everything that you need to know about this legal term—time in lieu, what are its benefits and what it means for both employees and employers. We have also gone a step further in answering your most pressing questions around alternate ways of paying an employee.

Read along…

What is the meaning of time in lieu [or lieu day]?

Commonly referred to as Time in Lieu (TIL), or otherwise known as Time Off In Lieu (‘TOIL’) or Lieu Day, are all terms used interchangeably with Time in Lieu.

In simple words, it is an agreement where you (an employer) agrees to give an employee paid time off in lieu of the additional hours they worked outside of their standard contract hours (overtime) instead of extra pay.

So, for every overtime hour, your employee can take the same amount of hours as TIL, TOIL or ‘time for time.’

Both you and your employees can benefit from time-in-lieu arrangements. For example, for positions that are not paid ‘on the hour’ or if you want your employees to take paid time off instead of being paid overtime, TOIL would be an excellent option for your business in NSW and across Australia.

What is the difference between time off in lieu and overtime payments?

If your employee comes up to you and asks if they could get TOIL or overtime payment, would you know the difference between them? No…. yes….maybe?

As a business owner, this could happen. Let me break down the differences between them for you.

Overtime is work performed outside the ordinary hours listed in your employee’s award or their employment contract or agreement.

While the overtime entitlements might vary slightly depending on the modern awards or enterprise agreements you use for your employees and business, they generally remain the same.

So essentially, you will need to pay overtime if:

Your employees work beyond their ordinary hours of work– For example, the ordinary hours of a full-time employee is typically 38 hours per week plus reasonable extra hours. So in instances where they need to stay back and work more than the 38 hours, this is where they will be entitled to overtime pay;
Your employee works outside the agreed number of hours – working longer hours or;
Your employee works outside the span of the ordinary hours of work – Ordinary hours of work will usually be specified in the relevant modern award or agreement covering your employees. For example, if you run a retail store, your employees prescribed award will be the Retail Industry Award. This award will state that the ordinary span hours of work are between 7:00 am-9:00 pm from Monday to Friday. If there are instances where your employee works outside these hours, for example, they begin at 6:00 am or finish work at 10:00 pm, this is where they will be entitled to overtime pay.

It’s important to note that the hours vary according to your business’s relevant industry and your employee’s award, so make sure you advise your employees based on the relevant instrument.

So we’ve covered what overtime is and what it means for your business and employees, but what’s the difference to TOIL, then you may ask?

Well, time in lieu is essentially an alternative to overtime pay which an employee working for you would typically be entitled to.

Why would you offer time in lieu instead? There are many benefits such as:

Keeping costs under control by reducing or eliminating overtime costs;
Prevents your employees from burning out;
Employees can be encouraged to work long hours during a busy period by giving them the option of taking leave at a later date;
Encourages a culture of trust among your employees;
Flexible working hours and arrangements; an
Developing a relationship of trust and being open with your employees by working together to find solutions.
Supports employees to keep a healthy work-life balance

So next time your employee comes to you and asks about the differences between TOIL and overtime, you will be an expert.

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What is model time off in lieu term?

Some modern awards include TOIL as a provision whereby your employee can agree to take time off instead of receiving overtime pay. When it comes to these TOIL provisions in modern awards, they can be separated into 3 distinct categories:

TIL calculated at employee’s ordinary rate
TOIL calculated at employee’s overtime rate
The award is silent on TOIL

Therefore, not all awards have TOIL provisions. However, TOIL provisions can also be added and outlined in a standard employment contract if you wish to go down this path for your employee.

The model time off in lieu term is something you should understand if you want a deeper understanding of TOIL.

The model TOIL term was part of the Fair Work Commission’s review of modern awards, and it forms the basis of what obligations, entitlements and safeguards should be inserted into modern awards. It requires:

You and your employee agree to time in lieu – Each time in lieu is taken instead of payment for overtime, a separate written agreement must be signed, and you must retain the agreement for your employee for 7 years.
Your employee at any time can request to be paid any time accrued but untaken time in lieu at the applicable overtime rate – If your employee requests this, you will need to pay the amount during their next pay cycle.
Your employee must take time in lieu within 6 months of the overtime being worked – If your employee doesn’t take time off by the end of the 6-month period, you must pay them at the applicable overtime rate during the next pay period.
An employee who has been terminated must also receive overtime pay for untaken time in lieu.

Let us explain this with an example below:

Just imagine if you need one of your employees— Samantha— to work more than the ordinary days of work listed in the Retail Award. You can ask Samantha to work overtime for time off; however, you can’t force Samantha to agree.

Samantha accepts after considering the offer, Samantha accepts, and you both sign a TOIL agreement that states when the overtime hours start and end. As your employee Samantha works under the Retail Award, and she is earning her normal base rate, she earns an hour of time off for every hour she worked overtime.

Samantha worked 3 hours of overtime, so she earned 3 hours of TOIL. Under the award, Samantha must use the TOIL she earned from that shift within 6 months.

6 months passed, and Samantha didn’t use the TOIL hours she earned. As a result, you will need to pay Samantha the overtime she would have earned if she did not agree to TOIL. Samantha will then need to get paid that amount in her next pay cycle.

It’s imperative for you to know that the model TOIL term is only applicable to some modern awards. So before you finalise any time in lieu agreements for your business’s workplace policies, make sure to consult the relevant award on the FWC site or hire a lawyer to make sure your employee’s agreement is legally valid.

What terms should a time off in lieu agreement include?

The TOIL Agreement doesn’t have to be overly complicated.

You can make sure you’re covering everything off legally for your employee if you include the following terms in your employee’s agreement, whether they are a full-time, part-time or casual employee:

Number of overtime hours your employee worked and when they were worked;
The method of how you wish to calculate the time off;
Your business’s method of time tracking or timesheet method to track the overtime;
Both you and your employee need to clearly state (evidence in writing) that you both agree that your employee may take time off instead of being paid overtime;
If your employee requests so at a later date, you must pay your employee for the overtime hours that have not yet been used as time off instead of the agreed TOIL;
You need to write the rate of the overtime pay. The rate of the overtime pay will be the same as when the shift was initially worked;
If your employee does request to be paid overtime instead, they must be paid the amount owed their next pay cycle;
You must not apply excessive influence or pressure on your employee when they decide whether to take TOIL instead of payment for overtime; and
Ensure there’s a method in place to deal with any unused TOIL on the termination of your employee’s employment.

How do employees request time off in lieu?

Time-in-lieu arrangements you implement in your business for your employees may be covered under certain modern award and enterprise agreements.

It is essential to discuss with your employees whether they will receive overtime pay or time in place of overtime pay when deciding on time in lieu of arrangements.

What this means is that if one of your employees works overtime and asks to take time instead of overtime pay, you have the right to refuse.

In the same way, you can’t force employees to use time in lieu of overtime to avoid paying them penalty rates.

Suppose no time-in-lieu award or registered agreement covers your employees. In that case, the employee’s entitlement to take time off depends on whether you have implemented a workplace policy, a lieu policy or if it’s in their employment contract.

How much time off in lieu can an employee accrue?

In general, employees may accrue as many hours of time in lieu as they wish as long as the time is taken within six months after accrual.

It may be a good idea to establish your own policies regarding time in lieu to avoid any unnecessary burden on your business.

Let me give you an idea. If you require employees to get approval for their overtime hours, you can avoid situations where they stay late to finish their regular work.

How do you calculate time off in lieu?

Calculating TOIL doesn’t need to be like an advanced mathematical question. No one wants that.

It’s actually a lot easier than you think.

But one important thing that you need to be aware of is that specific modern awards usually specify the method for calculating time in lieu. So make sure you know what awards apply to your business and industry.

In saying that, modern awards typically have two main methods that you can use to calculate time in lieu for your employees.

Time for time – The amount of time off is equal to the number of hours worked overtime. For example, your employee works 7 of overtime; they will be entitled to 7 hours of TOIL.
Overtime rate – The time off is calculated according to your employee’s overtime rate. For example, your employee works 2 overtime hours at the overtime rate of 150%, and then double-time (200%) for any work performed after that. Therefore, they are entitled to 9 hours of paid time off. If you want to learn how to calculate overtime for your employees, use the simple equation:
- 2 hours of overtime at 150%= 3 hours
- 3 hours at 200% = 6 hours
- This adds up to 9 hours in total.

When can you ask your employee to work extra hours?

Do you have a big project coming, or it’s a busy night at your Italian restaurant, and you need your staff to stay back?

As a general rule, you may ask employees to work reasonable additional hours.

Keep in mind if your request is unreasonably difficult in the given circumstances, your employee can refuse to work the additional hours.

Want to know the meaning of reasonable? Well, it depends on a few different things such as:

There may be a risk to your employee’s health or safety if they worked many extra hours recently;
It depends on your employee’s individual circumstances. Perhaps your employee has family responsibilities or cares for an elderly relative;
What is needed by your business? For instance, you might have a big deadline approaching;
If your employee is entitled to overtime pay or penalty rates;
In what ways do the additional hours comply with any applicable modern awards, agreements, or employment contracts;
It is important to understand the role and responsibility of your employee;
When you requested that the employee work more hours, how much notice you give them; and
If they refuse to work the additional hours, how much notice do they give you?

Termination of time off in lieu- what happens?

Are you asking yourself, ‘should I just pay out my employees as I would any accumulated annual leave my employee has or is TOIL different’? Good question. The short answer is that it is different.

Annual leave payment upon your employee’s termination has to be the same amount your employee would have received if they’d taken the annual leave during their employment with you.

On the other hand, for TOIL, when your employee is terminated (either at the direction of you or your employee), you need to pay out your employee for any time in lieu that had not been taken.

For example, if you had an employee who had worked 8 hours of overtime and then resigned, you need to compensate your employee for those 8 hours of overtime worked

Conclusion

If you’ve read this post till here, the chances are that you want to make sure that your business is legally compliant and your employees are happy.

Check your employee’s contract to see if TOIL provisions are included or should be included to ensure you and your team tackle this year without a hitch.

As TOIL provisions are included in many awards and an important aspect of employment agreements, it would be wise to consult an employment contract review lawyer to receive the best advice. As always, at Lawpath we are here to help you.