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

Time in lieu (TIL) or time off in lieu (TOIL) is where an employer agrees to give an employee paid time off instead of overtime pay for extra hours. In short, for every overtime hour worked, the employee can take the same amount of time off later with full pay.

How does time in lieu work in the context of Australian laws? TOIL can be allotted to employees who work beyond their scheduled hours. Different scenarios for calculating TOIL exist, including hour-for-hour compensation and calculations based on the employee's overtime rate. It is important to understand relevant Modern Awards for proper TOIL arrangements.

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

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.

Can an employee take TIL whenever they want?

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.

What if there is no TIL in the employment contract?

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.

Can award or agreement-free employees take TIL?

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.

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

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.

Can an employer change their mind on TIL?

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.

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