Time Off In Lieu (TOIL) Explained
- 3 days ago
- 5 min read
Time Off In Lieu (TOIL) is often seen as a simple, practical solution when employees work extra hours. In reality, it is an area where many small and medium businesses unintentionally expose themselves to compliance risk.
The issue isn't that TOIL is inherently problematic. When used correctly, it can support flexibility and recognise additional effort. The risk arises when it is applied informally, inconsistently, or without a clear understanding of award obligations.
If your team works overtime, understanding how TOIL operates, and how it must be managed, is essential.
What Time Off In Lieu (TOIL) actually is
TOIL, or Time Off In Lieu, is paid time off that an employee takes instead of receiving overtime pay.
Importantly, TOIL is not something that can be imposed as a default by the employer. In most cases, it requires a genuine agreement between the employer and employee to take time off instead of being paid overtime.
TOIL is only lawful where it is permitted under the relevant modern award or enterprise agreement, or for award-free employees where a written agreement ensures the employee is not worse off overall.
This is where many businesses get caught out. Applying a blanket TOIL approach across the business without checking award coverage or documenting agreements creates risk.
When TOIL Can Be Used
TOIL is not universally available and can't be applied the same way across all roles.
Most modern awards include provisions allowing TOIL, but the details vary. These provisions typically set out when TOIL can be agreed, how it must be documented, when it must be taken, and when it must be paid out.
Before offering TOIL, you need to confirm:
that the employee’s applicable award or agreement allows it; and
that you understand the specific conditions attached
A general policy or assumption is not enough, as the rules sit within the award, and different employees may sit under different awards, depending upon their specific roles within your business.
How TOIL is Calculated
TOIL is often misunderstood when it comes to how it is calculated.
In most modern awards, TOIL is taken on a time-for-time basis. This means that for each hour of overtime worked, the employee accrues one hour of TOIL to be taken later.
However, the value of that time changes if it is not taken.
If an employee requests that their TOIL be paid out, or if it is not taken within the required timeframe, it must be paid at the overtime rate that applied when the overtime was worked.
For example, if an employee worked two hours of overtime at time-and-a-half, they would accrue two hours of TOIL. If that TOIL is later paid out instead of taken, the employee must be paid the equivalent of three hours’ ordinary pay.
This distinction is critical. TOIL does not reduce the value of overtime. It simply provides an alternative way for that value to be received.
Written Agreements Are Essential
A compliant TOIL arrangement requires a written agreement.
In most modern awards, this agreement must be made for each instance of overtime worked. It is not enough to rely on a general clause in a contract or policy.
The agreement should clearly confirm:
the overtime worked
that the employee agrees to take TOIL instead of payment
the amount of TOIL accrued
Without this, it becomes difficult to demonstrate that the arrangement was lawful, particularly if it is later challenged.
You can use this example of a 'TOIL Agreement Template' as a starting point. (There may also be a template annexed in the schedules section at the end of your specific award.)
Timeframes, Expiry and Payouts
TOIL can't sit indefinitely.
Many awards require TOIL to be taken within a defined period, commonly within six months of the overtime being worked. If it is not taken within that timeframe, it must be paid out.
In many awards, employees can also request that their accrued TOIL be paid out. Where this occurs, the employer must pay the amount at the overtime rate that applied when the overtime was worked.
Some awards also allow employers to direct employees to take TOIL within a certain timeframe, provided reasonable notice is given and the award requirements are met.
This is where active management of TOIL is critical. If it isn't carefully monitored and actioned, it can quickly turn into a financial liability.
Record-Keeping Is Critical
TOIL can't be managed properly without accurate records.
At a minimum, businesses should be able to demonstrate:
when overtime was worked
how much TOIL was accrued
the applicable overtime rate
when TOIL was taken or paid out
Employers are required under the Fair Work Regulations to keep accurate records of hours worked and employee entitlements, including overtime and TOIL arrangements.
If this information isn't easily accessible, it is likely not being managed correctly, and that creates risk if reviewed by Fair Work or disputed by an employee.
Why TOIL Shouldn't Be Used as a Default Cost Strategy
While TOIL can assist with managing costs, it should not be used as a default mechanism to avoid paying overtime.
It must be a genuine agreement, not a direction. If employees are consistently expected to take TOIL instead of being paid overtime, this can create both legal and cultural issues.
From a legal perspective, it may result in underpayment if the arrangement does not meet award requirements.
From a workplace perspective, it can lead to disengagement if employees feel their additional effort is not being fairly recognised.
There is also a practical consideration. When employees take TOIL during busy periods, it can impact productivity and require additional coverage, reducing any perceived cost benefit.
TOIL is designed to deal with occasional overtime, not ongoing workload issues.
If employees are regularly working additional hours, TOIL may be masking a deeper problem such as under-resourcing, poor planning, or unrealistic expectations.
In these cases, the better approach is to address the root cause, whether that is adjusting workloads, improving scheduling, or increasing staffing.
Allowing TOIL to build up in these situations often leads to increased liability and fatigue, without solving the underlying issue.
A Simple TOIL Compliance Check
If you are currently using TOIL, or considering introducing it, it is worth sense-checking your approach:
Is TOIL allowed under the employee’s award or agreement?
Are written agreements in place for each instance of overtime?
Is TOIL being tracked accurately, including overtime rates?
Are employees taking TOIL, or is it building up?
Are payouts being made correctly when required?
Is the arrangement fair, consistent, and sustainable?
If any of these are unclear, your process likely needs tightening.
Final Thoughts
TOIL can be a valuable and flexible tool when it is structured, documented, and actively managed.
Without that structure, it can quickly lead to underpayments, inconsistent practices, and employee dissatisfaction.
For small and medium business owners, the focus should be on clarity and consistency. A simple, well-managed system will reduce risk, support fairness, and give both you and your team confidence in how overtime is handled.
If you need support reviewing your TOIL practices, checking award requirements, or putting a simple system in place, this is exactly where we can help.
See what we can do for you, and the HR Support Options available to your business. Let’s make managing HR the least of your worries.
Need help? Contact us today - sandra@hrconsultingtas.com.au or 0408 408 225
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