Time in Lieu: What it Means for Australian Employers and Employees in 2024

Time in lieu (TIL), also known as time off in lieu (TOIL), is when an employer provides paid time off instead of paying overtime rates for additional hours worked. In simple terms, employees can take time off later to ‘balance out’ overtime they've already worked — often on an hour-for-hour basis, or sometimes at their applicable penalty rate.

In Australia, TOIL is only valid when it's agreed to in writing before the overtime is worked and structured according to the relevant Modern Award, enterprise agreement, or employment contract. Calculating TOIL correctly and applying it compliantly is essential — especially with Fair Work’s Model TOIL Term setting out specific conditions for approval, expiry, and payout.

In this guide, we’ll walk through:

• TOIL benefits for employers and employees

• What to include in a compliant TOIL agreement

• How to calculate TOIL under different scenarios

• Best practice tips and FAQs for managing TOIL correctly

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For Employers

• Don’t have to pay out overtime rates, avoiding the costs associated with additional hours.
• Give employees flexibility, improving job satisfaction, workplace morale and retention.
• Have employees “bank” extra hours for busy periods.

For Employees

• Get paid time off for working extra hours
• Flexibility to take time off when they want
• Help achieve work-life balance
• TOIL benefits those who work overtime by providing flexibility and helping achieve work-life balance.

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A written TIL agreement should have the following:

• How overtime hours will be tracked and recorded
• The rate of TIL accrual (e.g. 1 hour worked = 1 hour TIL), including the employee's overtime rate
• When and how the employee can take TIL
• Maximum TIL cap
• What happens to TIL if an employee leaves the company
• Employees can request to be paid overtime instead of TIL
• The importance of calculating the time for TOIL based on company policies and laws
• How days in lieu are calculated and the importance of agreements between employers and employees
• The need for documentation of overtime hours worked and the stipulations about payment versus time off
• The difference between overtime payments and TOIL and how various awards and agreements govern these entitlements.

The Fair Work Commission also notes:

• TOIL must be agreed to in writing by the employee and employer each time it is taken instead of overtime pay
• Employees can request to be paid for accrued but untaken TOIL at any time
• TOIL must be taken within six months of the overtime being worked or else paid out
• Any untaken TOIL must be paid out at overtime rates upon termination

Important: Not all modern awards have TOIL provisions. Check your award or agreement to see what you need to do as an employer.

When you introduce TOIL into your workplace, consider the following:

• Having a clear policy outlining the rules and process for TOIL
• Employee freely agrees to take TOIL instead of overtime pay
• Accurate records of overtime worked and TOIL taken
• Pay out unused TOIL at overtime rates
• Employees can take accrued TOIL within a reasonable timeframe

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It’s designed to ensure that TOIL arrangements are transparent, mutually agreed upon, and compliant with workplace laws.

Key points from the Model TOIL Term:

• The agreement to take TOIL must be in writing.

• It must be made before the overtime is worked.

• The time off must be taken within 6 months of the overtime being worked, or it must be paid out.

• If the employment ends before TOIL is taken, it must be paid out at the applicable overtime rate.

• TOIL is usually taken hour for hour, unless a different rate is specified in the relevant award or agreement.

📄 You can read the full Model TOIL Term on this Fair Work Ombudsman document.

The Fair Work Ombudsman website also has information on overtime pay and TOIL. 

Understanding how to calculate time in lieu (TOIL) is essential to ensure fairness and compliance—especially when dealing with overtime and penalty rates.

In most cases, TOIL is taken on a 1:1 basis, meaning one hour of overtime worked equals one hour of time off. However, this can vary depending on what’s outlined in the applicable award, enterprise agreement, or individual contract.

TOIL vs Overtime Pay

Employers and employees can agree to TOIL instead of overtime pay, but the value of that time must be considered. For example:

• If the applicable award says overtime is paid at 150% (time-and-a-half), the employee may be entitled to 1.5 hours of TOIL for every 1 hour of overtime worked.

• If the agreement allows for 1:1 TOIL, it must still be clear and in writing that the employee is knowingly accepting that arrangement instead of higher-paid overtime.

Example TOIL Calculation:

Scenario:
An employee works 2 hours overtime on a Saturday. The award says Saturday overtime is paid at 150%.

💡 In both cases, the agreement must be:

• Made before the overtime is worked

• In writing

• In line with the relevant award, agreement, or Fair Work's Model TOIL Term

Important Reminders:

• If TOIL isn’t used within the specified period (often 6 months), it may need to be paid out at the applicable overtime rate.

• Always check your relevant award or agreement, as some may require TOIL to be provided at overtime-equivalent rates.

• Employers must track TOIL balances like other types of leave, ensuring transparency and compliance.

Here are key tips to help you implement TOIL effectively in your workplace:

1. Get It in Writing

Always ensure TOIL arrangements are agreed to in writing, before the overtime is worked. This could be:

• A clause in the employee’s contract

• A signed form

• An email trail confirming the agreement

💡 Refer to the Model TOIL Term from Fair Work for a compliant baseline.

2. Pre-Approve Overtime

Don’t leave overtime to assumption. Make sure employees seek approval before working extra hours, so there’s clarity on whether they’ll be paid or take time off later.

3. Track TOIL Accrual and Usage

Maintain accurate records of:

• Overtime hours worked

• TOIL accrued

• TOIL taken
  This helps ensure entitlements are managed correctly and supports compliance during audits.

4. Set a Reasonable Use Period

Include a timeframe for when TOIL must be used—for example, within 6 months. This avoids excessive accrual and aligns with the Fair Work model term, which requires unused TOIL to be paid out.

5. Be Clear on Payouts

If TOIL isn’t used within the agreed period or before employment ends, it must be paid out at the applicable overtime rate. Outline this clearly in your policy or contracts to avoid surprises later.

6. Align With the Relevant Award or Agreement

Some awards or enterprise agreements have specific rules about:

• Whether TOIL is allowed

• How it must be calculated (e.g. at penalty rates or 1:1)

• Record keeping requirements
  Always check your applicable award via the Fair Work Ombudsman Award Finder.

7. Communicate the Policy

Once your TOIL policy is in place, make sure it’s:

• Easily accessible (e.g. in your employee handbook or intranet)

• Explained during onboarding

• Consistently applied across teams

Pay Cat are payroll specialists dedicated to helping Australian businesses simplify payroll and ensure 100% compliance with modern awards. As Employment Hero Payroll experts, we provide tailored solutions that streamline payroll processes, reduce errors, and save time. 

See how Pay Cat can simplify payroll for your business.

Q: When can employees ask for TOIL?

A: Employees can request TOIL when they are required to work additional hours and a time off in lieu arrangement is available under their award, agreement, or contract.

However, TOIL must be mutually agreed upon in writing before the overtime is worked, and employers are not obligated to approve TOIL unless it’s supported by a relevant industrial instrument.

Operational needs, workload balance, and business hours may influence whether a TOIL request is approved. Employers should handle requests fairly and consistently.

Q: Can an employer make an employee take TIL instead of overtime pay?

A: No, an employer cannot force an employee to take time in lieu instead of receiving overtime pay. The Fair Work Act 2009 says an employee must freely agree to receive TIL instead of overtime pay. This agreement must be in writing and cannot be part of the employment contract. 

The agreement should also cover specific details such as the total overtime hours, the time period in which those hours were worked, and stipulations about overtime payment options and requests for payment. The employer must not influence or pressure the employee to agree to TIL. Employees who do not agree to TIL must be paid the overtime rate for the extra hours worked.

Q: Can an employee take TIL whenever they want?

A: No, employees are not entitled to take their accrued TIL whenever they want. When an employee can take TIL, or lieu time off, is at the employer’s discretion based on operational requirements and business needs. 

Employees must request to use their TIL with reasonable notice, and the employer cannot unreasonably refuse. However, the employer can require the employee to take TIL at a specific time to suit business needs, e.g., during a quiet period. Lieu time off is a valuable negotiation tool in discussions around overtime compensation, emphasising its importance in modern, flexible work environments.

Q: What if there is no TIL in the employment contract?

A: If TIL is not in the employment contract, the employer and employee can still agree to a TIL arrangement. However, this agreement must be separate from the employment contract and in writing. It’s best practice for an employer to have a clear written policy outlining the rules and process for TIL, including the distinction between ordinary hours and overtime. TIL disputes are more likely to arise without a written agreement or policy.

Q: Can award or agreement-free employees take TIL?

A: Yes, time in lieu is available to award or agreement-free employees. These employees' TIL entitlement is determined by their employment contract, a workplace policy, or an individual TIL agreement with their employer. 

The TIL is calculated based on hours worked beyond the normal hours. However, the employer and employee must still comply with the National Employment Standards (NES) and Fair Work Act provisions for overtime and TIL agreements.

Q: What happens to accrued TIL when an employee leaves? Is time in lieu paid out?

A: When an employee’s employment ends, any accrued but not taken TIL must be paid to the employee at the overtime rate when the overtime was worked. This must happen regardless of whether the employee resigns, is dismissed, or is made redundant. 

The employee’s final pay should include the value of the accrued TIL plus other entitlements like annual leave and long service leave. The payment for the accrued TIL must occur in the next pay period. Employers must keep records of TIL accruals and payouts.

Q: Can an employer change their mind on TIL?

A: An employer can change their mind on TIL but must give reasonable notice to employees and consult with them on the change. If an employer decides to stop TIL, they must pay the accrued TIL at the overtime rate in the next pay period if a payment request is made. 

An employer cannot retrospectively cancel or revoke TIL that an employee has already accrued. Any changes to TIL policy or arrangement must be communicated to all affected employees, emphasising the importance of adhering to specific timelines.

Q: Can employers limit how much TOIL is accrued?

A: Yes. Employers can set reasonable limits on TOIL accrual as part of their workplace policy or contract terms. Many businesses adopt a 6-month expiry window, consistent with the Model TOIL Term from Fair Work.

Q: What happens if TOIL isn’t managed correctly?

A: Failing to manage TOIL compliantly—such as not recording agreements in writing, not tracking accruals, or not paying it out on termination—can lead to underpayment claims, Fair Work investigations, and penalties. A clear TOIL policy and record keeping process is essential.

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Who is Pay Cat?

Pay Cat are payroll specialists dedicated to helping Australian businesses simplify payroll and ensure 100% compliance with modern awards. As Employment Hero Payroll experts, we provide tailored solutions that streamline payroll processes, reduce errors, and save time.