Time in lieu, also called time off in lieu or TOIL, is paid time off that an employee takes instead of being paid overtime for extra hours they’ve already worked. In Australia, you can only offer it where the employee’s award, enterprise agreement or employment contract allows it, and you have to follow that instrument’s rules to the letter.
Here’s the uncomfortable bit. Most small businesses run TOIL on a handshake: “Stay late tonight, take Friday arvo off.” It feels fair. Legally, it’s one of the easiest ways to underpay someone without noticing, and since January 2025 intentional underpayment can be a crime. The good news? Doing it properly takes about five minutes per pay period.
Fast facts
- Time in lieu is hour-for-hour under the standard award clause. Two hours of overtime earns two hours off, not three. A minority of awards use a different “time for penalty” formula.
- You need a separate written agreement for each pay period’s overtime. An email exchange counts. A single line buried in the employment contract doesn’t satisfy the award clause.
- The six-month clock matters. Untaken TOIL must be paid out at the overtime rate after six months, on termination, or whenever the employee asks.
- An annual salary doesn’t switch off overtime rules. The 2025 Coles and Woolworths decision confirmed you still have to record overtime hours for award-covered salaried staff.
- Informal TOIL is now a bigger risk. Intentional underpayment became a criminal offence on 1 January 2025. Honest mistakes aren’t caught, but missing records make them hard to prove.
What does time in lieu mean?
“In lieu” is old legal French for “in place of”. So time in lieu means time off in place of overtime pay. You’ll also see it written as TOIL, TIL, lieu time, days in lieu or “time for time”. They all describe the same trade.
Here’s how it works. Your employee works beyond their ordinary hours. Instead of getting overtime rates on their next payslip, they bank those hours and take them later as paid leave, at their ordinary rate.
One wrinkle trips people up. “Days in lieu” is sometimes used for a different arrangement: a substitute day off when someone works a public holiday. Many awards allow that too, but it sits under a separate clause with its own rules. Don’t assume the TOIL clause covers it.
Is time in lieu the same as overtime?
No. Overtime is the extra hours. Time in lieu is one way of paying for them. The other way, the default one, is overtime pay.
| Term | What it means | What the employee gets |
|---|---|---|
| Ordinary hours | Standard hours set by the award, agreement or contract | Ordinary rate of pay |
| Overtime | Hours worked beyond ordinary hours or outside the span of hours | Overtime rates, commonly 150% then 200% under many awards |
| Time in lieu (TOIL) | Paid time off instead of overtime pay, by agreement | Paid leave at the ordinary rate, taken later |
| TOIL payout | Cashing out untaken TOIL | Payment at the overtime rate that applied when the hours were worked |
That last row is where the money is. More on that in the calculation section.
When can you offer time in lieu?
Start with one question: what covers this employee? The answer decides everything else. If you’re not sure, this guide on whether an award still applies after signing an employment contract is a good first stop.
| Your situation | Can you use TOIL? | Whose rules apply |
|---|---|---|
| Award with a TOIL clause | Yes | The award clause, word for word |
| Award without a TOIL clause | Not as a substitute for overtime pay | You pay overtime rates |
| Enterprise agreement | Only if the agreement allows it | The agreement’s TOIL terms |
| Award-free employee | Yes, if agreed | Their contract and your workplace policy |
Most employers assume TOIL is a general right they can offer anyone. It isn’t. If the award has no TOIL clause, swapping overtime pay for time off is an underpayment, even if the employee happily agreed.
What does the standard award TOIL clause actually require?
Most modern awards that allow TOIL use a version of the Fair Work Commission’s model TOIL term. It’s short, and it’s stricter than most employers realise. Here’s what it says, in plain English:
- You and the employee must agree in writing to swap a specific amount of overtime for time off.
- Each pay period’s overtime needs its own agreement. One blanket agreement doesn’t cover the year.
- The agreement relates to overtime that has already been worked, so you can sign it after the late night, not only before.
- Time off equals the overtime hours worked. Hour-for-hour.
- The time off has to be taken within six months, at times you both agree.
- The employee can ask to be paid out at any time. You then pay at the overtime rate in the very next pay period.
- You must keep a copy of every agreement as an employee record.
- You can’t use undue influence or pressure, in either direction.
A quick correction to a myth you’ll see on other sites: the standard clause doesn’t demand that the agreement be signed before the overtime happens. It talks about overtime “that has been worked”. Check your specific award, though, because a few use different wording.
How is time in lieu calculated?
Under the model term, it’s simple: one hour of overtime equals one hour of TOIL. The overtime rate only comes into play if the TOIL gets paid out instead of taken.
Plenty of guides say an employee on time-and-a-half “gets 1.5 hours of TOIL per hour”. That’s wrong for most awards. When the Commission drafted the model term, it noted that around 21 awards used a “time for penalty” formula, and those awards kept their own tailored wording. If yours is one of them, the multiplier applies. If not, it doesn’t.
A worked example
Say Priya is a full-time office manager on an ordinary rate of $32 an hour. Her award pays the first two hours of weekday overtime at 150%. She stays back two hours to finish end-of-month reporting.
| Option | What happens | Cost to you |
|---|---|---|
| Pay overtime | 2 hours at $48 | $96 this pay period |
| TOIL, taken | 2 hours off later at $32 | $64, plus two hours of lost output |
| TOIL, not taken in six months | Paid out at the rate that applied when worked | $96, just later |
See the trade-off? TOIL only saves you money if the time actually gets taken. The employee is giving up the 50% loading in exchange for flexibility. That’s exactly why the rules insist the agreement is genuine and pressure-free.
Want to check the real overtime rates for your award before you agree to anything? Lawpath’s free award pay calculator covers the most common awards, including Clerks, Retail and Hospitality.
Does an employee have to agree to TOIL?
Yes. You can’t impose it. Under an award TOIL clause, the employee is free to say no and take the overtime pay instead.
Pressure counts even when it’s subtle. “Everyone here takes time in lieu, it’s just how we do things” is the kind of line that turns a lawful arrangement into a contravention. Telling an employee they have no right to overtime pay when they do can also breach the general protections in the Fair Work Act 2009 (Cth), which bans false or misleading statements about workplace rights.
It works the other way too. An employee can formally request TOIL as a flexible working arrangement. You can only refuse that kind of request on reasonable business grounds.
Does a TOIL agreement need to be in writing?
Under an award, yes. Every time. The good news is that “in writing” is a low bar. The model term confirms an email exchange or other electronic record is fine.
Each agreement must state:
- the number of overtime hours it covers and when they were worked
- that you both agree the employee can take time off instead of pay
- that the employee can ask to be paid out at any time, at the overtime rate that applied when the hours were worked
- that any payout happens in the pay period straight after the request
Here’s the mistake we’d flag most. Employers put a TOIL clause in the employment contract and assume they’re covered. For award-covered staff, the contract clause doesn’t replace the per-pay-period agreement. Keep the contract clause if you like, but still send the email each time.
A simple version: “Hi Sam, confirming you worked 3 hours overtime on Tuesday 14 October. We’ve agreed you’ll take 3 hours off instead of overtime pay, within six months, at a time we agree. You can ask to be paid out at the overtime rate at any time, and we’ll pay it in the next pay run.” Reply “Agreed”, file it with payroll, done.
When does time in lieu need to be taken?
Within six months of the overtime being worked, under the standard clause. The timing has to be agreed between you, so neither side can dictate the day.
Miss the six-month window and you must pay the overtime out, at the overtime rate, in the next pay period. No extensions by default. Some enterprise agreements and award-free policies set different periods, but six months is the benchmark.
Practical tip: set a payroll reminder at the four-month mark. That gives you two months to get the time booked before the balance turns into a cash payout.
What happens to unused TOIL?
It turns into money. There are three triggers:
- Six months pass. Pay out in the following pay period.
- The employee asks. Pay out in the next pay period, whenever they ask.
- Employment ends. Include it in final pay, whether they resign, are dismissed or are made redundant.
In all three cases, the rate is the overtime rate that applied when the hours were worked. Not their ordinary rate, and not today’s rate if their pay has changed. That’s why your records need the date and the rate, not just a running total of hours.
Can salaried employees get time in lieu?
Yes, and this is where the biggest risks sit. Being on a salary doesn’t take someone outside their award. Plenty of salaried managers, supervisors and admin staff are still award-covered.
In September 2025, the Federal Court handed down its decision in the Coles and Woolworths salaried manager cases. The Fair Work Ombudsman has summarised what the decision means for offsetting and record-keeping. Two findings matter for TOIL:
- An annual salary can only absorb award entitlements, like overtime, that arise in the same pay period. You can’t use a quiet fortnight to “balance out” a busy one.
- Paying a salary doesn’t remove your duty to record overtime hours actually worked.
So the classic arrangement, “you’re on a good salary, take the odd Friday off when it’s quiet”, can fail on both counts. If you use set-off clauses in employment contracts, now is the time to review them. The proceedings are still ongoing, so watch for updates.
For genuinely award-free salaried staff, the contract governs. The National Employment Standards still cap ordinary hours at 38 a week plus reasonable additional hours. If you want TOIL for these roles, write it into the contract, for example using an Employment Agreement (Professional Services), and set out how it accrues and when it expires.
Can casual employees get time in lieu?
Only if their award or agreement allows it. Casual overtime works differently from award to award, and casuals already receive a 25% loading instead of paid leave entitlements. That makes TOIL for casuals messy to administer.
Our view: unless the award clearly supports it and you have the payroll systems to track it, keep TOIL for full-time and part-time staff and state that in your policy. It’s simpler for everyone.
What records do you need to keep for TOIL?
TOIL is part of your standard time and wages records, which you must keep for seven years. At a minimum, keep:
- ordinary and overtime hours worked, with dates
- a copy of each signed or emailed TOIL agreement
- the overtime rate that would have applied to each block of hours
- TOIL taken, with dates, and the running balance
- any payout requests and when you paid them
Why be this thorough? If an underpayment claim lands and you haven’t kept the required records, the burden shifts to you to prove you paid correctly. Records are cheap. Rebuilding them from rosters and memory two years later is not.
Why informal TOIL is riskier than it used to be
From 1 January 2025, intentionally underpaying an employee became a criminal offence under the Fair Work Act. For individuals, the maximum penalty includes up to 10 years in prison. For companies, fines can reach three times the underpayment or $8.25 million, whichever is greater.
Take a breath. The offence targets intentional conduct, and the Fair Work Ombudsman has said honest mistakes aren’t included. Small businesses that follow the Voluntary Small Business Wage Compliance Code also have a safe harbour from referral for prosecution.
Where informal TOIL goes wrong is the pattern. A business that knows the award requires overtime pay, keeps “doing time in lieu” without agreements, and never pays out balances is building exactly the paper trail it doesn’t want. Civil penalties also rose on the same date, so even unintentional underpayments cost more than they used to.
What should a time in lieu policy include?
A short policy stops managers making it up on the spot. It should cover:
- which roles and employment types can accrue TOIL
- who approves overtime before it’s worked
- how TOIL is calculated, and which award or agreement applies
- how agreements are recorded, for example the email template above
- how to request TOIL and how much notice to give
- the six-month expiry and the four-month reminder
- payout on request, on expiry and on termination
- any cap on how many hours can be banked
You don’t need a standalone document. Most businesses add a TOIL section to their broader leave rules. Lawpath’s Leave Policy template is a quick base to build it into, and you can add clauses to match your award.
Common time in lieu mistakes to avoid
- Offering TOIL under an award that doesn’t allow it. The overtime pay is still owed.
- Relying on a contract clause alone. Award clauses need a written agreement for each pay period’s overtime.
- Crediting time-and-a-half TOIL by default. Generous, but it muddies your records and isn’t what most awards require.
- Paying out at the ordinary rate. Payouts are at the overtime rate that applied when the hours were worked.
- Letting balances roll past six months. Expired TOIL is a payout you owe now.
- Forgetting TOIL in final pay. This one shows up in disputes more than any other.
- Treating salaried staff as exempt. See the Coles and Woolworths decision above.
When should you get legal advice on time in lieu?
Get advice if any of these apply: you’re not sure which award covers a role, your award uses a “time for penalty” TOIL formula, you pay award-covered staff an annual salary, or you’ve discovered old TOIL balances that were never paid out. That last one is fixable, and fixing it early is far better than waiting for an employee to raise it.
If you’ve read this far and realised your current setup is a handshake, you’re not behind. Most small businesses start that way. The fix is a short policy, a one-line email each pay period and a reminder in your payroll calendar. None of it takes long once it’s set up.
Want someone to check your award and set it up properly the first time? Speak to a Lawpath employment lawyer and get your time in lieu arrangements sorted in one call.
FAQs
What does time in lieu mean?
Time in lieu means paid time off given instead of overtime pay for extra hours already worked. It’s also called time off in lieu, TOIL or lieu time. In Australia it’s only allowed where the employee’s award, enterprise agreement or contract permits it.
Is time in lieu legal in Australia?
Yes, as long as the relevant award, enterprise agreement or employment contract allows it and you follow its rules. If an award has no TOIL clause, you have to pay overtime rates instead, even if the employee would prefer time off.
Is time in lieu hour-for-hour?
Under the standard award TOIL clause, yes. One hour of overtime equals one hour off. Around 21 awards use a “time for penalty” formula instead, so check your award. The overtime rate matters mainly when untaken TOIL is paid out.
Can my employer force me to take time in lieu?
No. Under an award TOIL clause, you must genuinely agree, in writing, each time. Your employer can’t pressure you, and you can ask to be paid out at the overtime rate at any time. Payment must be made in the next pay period.
How long do you have to take time in lieu?
Six months from when the overtime was worked, under the standard award clause. If it isn’t taken in that time, the employer must pay it out at the overtime rate in the following pay period. Some agreements and contracts set different timeframes.
Is unused TOIL paid out when you leave a job?
Yes. Under the standard award clause, any untaken TOIL must be paid out on termination at the overtime rate that applied when the hours were worked. This applies whether the employee resigns, is dismissed or is made redundant.
Can salaried employees get time in lieu in Australia?
Yes. Many salaried employees are still covered by an award, so the award’s TOIL rules apply. The 2025 Coles and Woolworths decision confirmed employers must still record overtime hours for award-covered salaried staff and can only offset salary within the same pay period.
Do TOIL agreements have to be signed before the overtime?
Not under the standard award clause, which refers to overtime that has already been worked. You can agree afterwards, as long as it’s in writing and covers each pay period’s overtime separately. Some awards and agreements word this differently, so check yours.
Can casual employees get time in lieu?
Only if their award or agreement allows it. Because casuals receive a loading and casual overtime rules vary by award, many employers limit TOIL to full-time and part-time staff in their workplace policy.
What is the difference between time in lieu and days in lieu?
People often use them interchangeably. “Days in lieu” can also mean a substitute day off for working a public holiday, which falls under a separate award clause with its own rules. Check which arrangement you’re actually using.
