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
A written TIL agreement should have the following:
|
What To Include |
Details |
|
Overtime tracking |
Timesheet system to record extra hours worked |
|
Accrual rate |
E.g. 1 overtime hour = 1 hour TIL |
|
Taking TIL |
The employee must request TIL with reasonable notice |
|
TIL cap |
A maximum of 20 hours TIL can be banked |
|
Unused TIL |
Paid out at overtime rates if employment ends |
The Fair Work Commission also notes:
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:
The Model Time Off in Lieu (TOIL) Term is a standard clause provided by the Fair Work Commission. It outlines the minimum legal requirements for substituting overtime pay with time off, and serves as a template for compliant TOIL agreements in modern awards.
It’s designed to ensure that TOIL arrangements are transparent, mutually agreed upon, and compliant with workplace laws.
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.
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.
Scenario:
An employee works 2 hours overtime on a Saturday. The award says Saturday overtime is paid at 150%.
|
Option |
Explanation |
TOIL Accrued |
|
Standard TOIL (1:1) |
If the agreement allows straight time off for time worked |
2 hours TOIL |
|
TOIL at Penalty Rate (1.5:1) |
If TOIL is accrued at the |
3 hours TOIL |
💡 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
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.
A well-documented and compliant Time Off in Lieu (TOIL) policy helps protect your business, set clear expectations, and avoid confusion or disputes.
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.
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.
Maintain accurate records of:
Overtime hours worked
TOIL accrued
TOIL taken
This helps ensure entitlements are managed correctly and supports compliance during audits.
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.
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.
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.
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
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See how Pay Cat can simplify payroll for your business.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.