Time off in lieu: Meaning and how to calculate TOIL

Published Thursday 9 July 2026

Table of contents

• What is time off in lieu (TOIL)?
• How TOIL differs from paid overtime
• How to calculate time in lieu
• What to include in a TOIL policy
• How to track TOIL without the admin
• Do more with time in lieu in Xero
• FAQs on time off in lieu

Key takeaways

• Time off in lieu lets you give an employee paid time off instead of overtime pay, agreed in writing before the extra hours are worked.
• Calculate TOIL either hour for hour at the standard rate, or at the penalty rate such as time and a half or double time.
• Set clear policy terms covering eligibility, accrual rates, caps, approvals, time limits, and payout when someone leaves.
• Track overtime and TOIL with timesheet software so agreements, approvals, and leave balances stay accurate.

What is time off in lieu (TOIL)?

Time off in lieu (TOIL) is paid time off you give an employee instead of overtime pay for extra hours they've worked. TOIL is a simple (perhaps tongue-in-cheek) acronym for time off in lieu. Time in lieu is one way that an employer can reward an employee for working hours that exceed what they were contracted or initially expected to work. “In lieu” means instead of in French, so time off in lieu means an employer receives time off at a later date, instead of receiving payment for the extra time they work.

Not every workplace offers TOIL, opting rather to pay their employees overtime at varying rates depending on the regional standards, industry, or needs of the business. Time off in lieu usually happens on a 1:1 ratio, meaning that for every hour worked additional to the prescribed or expected hours, the employee receives that time as extra paid time off to take as leave. For example, if an employee is contracted to work five days a week, but works an extra day one week (six days in total), they may receive an extra day, or “time in lieu”, of paid leave added to their leave balance to take when agreed between the employer and employee.

Modern awards vs enterprise agreements

The term “modern award” refers to an employment rule book that works as a guideline within the Australian government’s NES, or National Employment Standards. Awards vary, and the conditions set out in them vary depending on the type of work or the industry. This includes those relating to time off in lieu.

Where modern awards establish minimum employee conditions nationally, enterprise agreements set out conditions unique to a business or group of businesses. These are implicated when an employer and employee agree to these terms as the active arrangement of their employment, and the Fair Work Commission reviews and approves each enterprise agreement to ensure that it’s consistent with employment standards.

Model TOIL term

The Fair Work Commission provides a model term which acts as an example TOIL policy for businesses in fairly providing time off in lieu. This includes the following conditions:

• Taking TOIL rather that overtime payment must be agreed upon in writing between employee and employer ahead of overtime being worked.
• TOIL must be taken within the period set by the applicable award or agreement, otherwise that time is to be paid out at the agreed-upon overtime rate, also called the “penalty rate”; this period varies by award, commonly six weeks or six months, so check the terms that apply to you.
• Employers and employees must agree on when they can take their time in lieu.
• At termination, if TOIL accrued leave remains untaken it must be paid out to the employee at overtime rates/penalty rates.
• If the employee requests it, the employer must pay accrued and unused TOIL out at the overtime rate/penalty rate.

How TOIL differs from paid overtime

The other way that employers typically reward employees for working overtime is to simply pay them for those hours at increased rates, such at “time and a half” (150%) or “double time” (200%) of wages earned, depending on the penalty rate in the agreement or award. A common arrangement is for employees to earn time and a half for the first two hours of overtime, then double time for every hour after that.

The conditions in which a business needs to pay an employee overtime vary across businesses and industries. In some instances, an employee contract may require staff to work overtime on occasion, which wouldn’t entitle the employee to overtime pay or time in lieu. It’s recommended that employers either offer TOIL or paid overtime, as keeping track of both types of remuneration can easily get messy.

Time off in lieu can be more advantageous to small business, for a handful of reasons:

• TOIL can be better for cashflow. Rather than paying out overtime at 150% or 200%, overtime can be rewarded at a 1:1 ratio with time off rather than a payout.
• Time in lieu helps avoid highs and lows with staffing or payroll. Shifting the reward system from payroll to the roster can make impact on the business more predictable and give managers time to plan.
• TOIL promotes a healthier work/life balance. Overtime pay simply incentivises working additional hours with a financial reward, where TOIL does this while valuing time away from work as suitable reward.

How to calculate time in lieu

You can calculate time in lieu one of two ways: at the standard or ordinary rate on a 1:1 basis, or at the penalty rate that applies to overtime, such as time and a half or double time.

Standard rate

This is the most straightforward way to calculate time off in lieu, by paying out overtime worked at a 1:1 ratio. At this rate, every hour of overtime worked is offered back as an hour of TOIL leave and added to accrued time in lieu.

Even if you accrue all employee TOIL on a one-to-one basis, it’s still important to record when the overtime was worked, and how many hours in a row were worked together rather than simply recording an overall tally of overtime hours worked. This is because you may need to pay out that TOIL at a penalty rate later on, so these factors are important for accurate calculations. You should also record the date in which each hour of overtime is worked, to track the “expiry date” (the period varies by award, commonly six weeks or six months, so check the award or agreement that applies). Look for timesheet tracker software that can include this information when you record shifts.

Penalty rate

This process requires more up-front number-crunching, as it requires you to multiply the number of hours by the penalty rate, usually either 150% or 200% of the number of hours worked.

If the employee agreement or award specifies time off in lieu to be accrued at time and a half for the first two hours, then double time after that, then the calculations may look like this for an 11-hour shift:

• eight hours worked in a normal shift: no additional TOIL accrued
• first two hours worked overtime at time-and-a-half: three hours of overtime accrued
• one additional hour of overtime at double-time: two hours of overtime accrued

Total time off in lieu accrued from 11-hour shift: five hours.

The Fair Work Ombudsman features an online overtime pay calculator that can be useful for identifying what the model awards are for a range of industries, jobs, and employee conditions.

What to include in a TOIL policy

If you’re creating your own TOIL terms in your employee agreement or contract, there are several important factors to specify for transparency, and for the security of both you and your staff. Not only does addressing all the important conditions help to keep TOIL management consistent, but it can help avoid surprises or confusion down the line. Here are some essential inclusions for an effective TOIL policy:

• TOIL rate at different times, for example, evenings, weekends, or public holidays
• specific circumstances for TOIL accrual (in other words, what is reasonably considered outside of the normal scope of work?)
• what happens to TOIL if/when the contract is terminated
• minimum overtime hours worked to accrue TOIL (rather than accruing an hour here and there, you may stipulate that an amount such as four hours can earn a half-day of TOIL)
• how long the TOIL accrued is valid for, with six weeks or six months being common model term periods (although you could stipulate a year, or by EOFY)
• what happens if leave isn’t used in time, does it expire, or do you pay it out at a standard or penalty rate?
• limits to how much TOIL an employee can accrue
• periods of the year when TOIL may not be available, for example during busy holiday periods when overtime is expected
• times you can’t accrue TOIL, for example, during lunch breaks

How to track TOIL without the admin

Tracking time off in lieu has the potential to be admin-heavy if you rely on basic or outdated methods like using spreadsheets or manual timesheet log books. Using intelligent timesheet software can help to automate the processes of agreeing to, approving, recording, consolidating, and using TOIL. Ideally, software that integrates with accounting software can make managing payroll and time in lieu a seamless process.

Using timesheet software can also help by automatically categorising overtime hours as accrued time in lieu. Some software can even help to ensure that overtime hours are correctly agreed upon by both the manager and the employee by requiring a manager to approve requests, thereby creating a paper trail of the agreement. Award interpretation is a feature of some timesheet software, allowing these programs to handle more complicated TOIL terms (for example, those with specific penalty rates) as required by different industries.

Do more with time in lieu in Xero

Still feel like time off in lieu seems like a lot of tricky number-crunching and record-keeping? Xero is a modern solution, built for small businesses to help them agree time off up front, record it transparently, calculate TOIL to agreed rates, and manage accrued leave balances. With malleable TOIL controls, you can manage who’s eligible, what rates to apply, apply leave caps, and take the admin out of tracking time off in lieu.

Still unsure how software can take the toiling out of managing TOIL? Get one month free.

FAQs on time off in lieu

Here are some common questions small business employers often have around managing time off in lieu:

Is TOIL mandatory for employers in Australia?

No, time in lieu isn’t mandatory for employers in Australia to offer. TOIL is an option that employers have as an alternative to paying staff overtime at often higher rates. It’s also never mandatory for employees to accept time off in lieu, and they can opt to receive overtime pay instead.

What happens to unused TOIL on termination?

The Fair Work Commission states that untaken time off in lieu must be paid out to the employee when you terminate their employment. This is to be paid out at overtime rates, so recording the date, day of the week (some awards specify that weekends or public holidays are entitled to different overtime rates) and amount of hours for each instance of overtime hours worked is important if you need to pay those hours out rather than issue time off in lieu.

Can salaried employees receive TOIL?

Yes, in fact accruing time off in lieu can be an efficient way of rewarding overtime work for staff where they don’t typically receive shift-calculated payments in their payroll cycle. Some salaried workers are still covered by the relevant award, but others may not fall within any industry-specific award scheme regarding TOIL. In these cases, time off in lieu entitlement should be clearly specified in the contract or employee agreement for any work done outside the reasonable scope of expected work.

Is a day in lieu the same as time in lieu?

Time off in lieu and a day in lieu are two related yet separate concepts. TOIL is what you get for working more time than normal, whereas a day in lieu means you might work a normal week but over a day you'd normally be entitled to have off, such as a public holiday. Where time off in lieu might be tracked on an hourly basis, a day in lieu is typically a whole day. Regarding awards, a day in lieu falls under public holiday clauses, where TOIL relates to the overtime award clauses.

Can TOIL be cashed out instead of taken as leave?

Yes, employees under most awards (including the Fair Work Commission’s model award) have the right to request their employer to pay their accrued TOIL out, even if they originally agreed to receive time off in lieu of overtime pay. Employers are required to cash out the TOIL at the correct overtime rate for that industry, job, or contract.