Time Off in Lieu: Everything You Need To Know

Working overtime can be a drag, especially when paying employees for extra hours is out of the question. But as Pitbull likes to say, time is money. There are indeed options for keeping your staff happy and compensating them for the extra hours they’ve worked – even if your budget can’t punch above its weight. 

Time off in lieu, or TOIL, is essentially a way to give back the time you’re taking away from them. It is one of the best ways to ensure that your employees who work overtime get compensated fairly. And on the brighter side, it’s not that difficult to implement. The right TOIL policy in place can effectively benefit both your employees and your company. Curious to see what we mean? Keep reading to learn what time off in lieu means for your company, and why you should implement it!

What is Time Off in Lieu (TOIL)?

Flexibility is a hot topic among jobseekers today — and with good reason. 

Most employees in the market see flexibility as one of, if not the most important aspect of their jobs. Time is an increasingly valuable commodity in today’s hectic, demanding, and often high-stress work environment. So it comes as no surprise that so many people see greater value in time off than additional pay. We all know happy workers are productive workers, and happy workers are your best asset. How do you keep this momentum going? 

Time off in lieu (TOIL) is a great way of ensuring your team earns their deserved overtime pay — without putting your business under too much strain. It’s like a “present” your employees get because they’ve earned it. 

How Time Off in Lieu works

In layman’s terms, all that ‘in lieu’ means is instead of. 

Hence, time off in lieu (TOIL) is when an employee works extra hours but takes time off from work rather than being paid for those extra hours. Essentially, it serves as an alternative to paying your employees. This means that any overtime hours worked by an employee can be taken as part of their annual leave. 

To put it simply, TOIL is an underused, no strings attached way to get some extra time off from work. It means that an employee who works more than 40 hours per week can take paid leave instead of getting paid 1.5 times their regular rate of pay for each hour they work beyond 40 hours per week. For example: if an employee is scheduled to work 40 hours per week and then works 8 extra overtime hours during that same period, they could request 8 hours or a day’s worth of vacation or sick leave as compensation for those additional hours worked.

The purpose of this policy is to help compensate employees who work beyond their normal working hours. An employee could be granted TOIL for extra work they’ve done in the past or even as a bonus on top of their hourly wage. Ultimately, it helps increase productivity and reduce stress in your employees. What’s not to love about that?

What administrating TOIL looks like

Implementing a time off in lieu policy at your company is a win-win situation for all parties involved.

From a legal perspective

According to the law, employers are not required to pay their employees overtime. 

However, unless you’re practicing a form of workplace bullying, it is considered good practice to reward your employees for their overtime hours — even though your company has no legal obligation to do so.

Therefore if your employee works extra hours, they are entitled to time off in lieu. This means that if your employer asks or allows you to work an extra hour or two in a day and the total amount of extra hours worked is more than 40, then you will receive time off equal to the number of overtime hours you have worked. 

It’s important to remember to keep track of how many extra hours your employees have worked. This way when it’s time for your payroll department to process their paychecks, they know exactly how much additional time off everyone’s entitled to. Your employees don’t get paid for the extra work they do (which usually involves a pay cut), but rather, exchange the overtime they worked for paid time off. 

From a company’s perspective

How you design your TOIL policy to fit the needs of your company is totally up to you. 

Taking time off in lieu is especially common for higher-paid employees who prefer to take time off instead of receiving extra compensation. But it can also be helpful when you need your staff to work extra hours during particularly busy times or when large orders need to be fulfilled.

The idea seems pretty straightforward, doesn’t it? An employee works 3 hours extra and gets 3 hours additional leave. However, aside from the obvious logic of compensating your staff for extra work with extra time away from work, there are some interesting ground rules that you should also consider before implementing this policy.

A few ground rules surrounding TOIL

Specify an expiry date

Just like all other forms of PTO, it’s important that you set an expiry date for all time off that’s earned while working overtime.

Once TOIL has been successfully calculated, it is then up to the employer to decide with the employee when to take time off in lieu. At this stage, it is extremely important to clarify the rules that will be enforced with employees in order to avoid assumptions being made and subsequent confusion. 

The deadline for taking extra time off should be outlined in your lieu policy. Using a system like this makes it easier to prevent employees from banking too many hours. When employees take all their banked hours at once, the team is put under extra strain. Why? Because covering all those lost hours can be challenging. Hence, a suggestion for an ideal cut-off date could be the end of a tax, financial, or fiscal year. 

Set limits on TOIL

If you’re looking for an effective way of rewarding your employees, it doesn’t get much simpler than this. Although it is tempting to push your luck and take more time off in lieu during a company’s busiest seasons, it is more efficient for the business if you are there when they need you most.

To prevent any potential understaffing during hectic periods, consider setting a cap on the number of TOIL days available to your employees. This is especially important during periods in which work demands are at their peak. Thus, limiting time off in lieu during your company’s peak seasons will help to prevent any potential understaffing in these hectic periods. 

If you choose to set a policy where you distribute TOIL among employees at different times throughout the year, make sure everyone knows about it. Clearly state all rules in your employee handbook. This will help avoid any confusion in the long run — trust us!

Clearly dictate your TOIL policy

Instead of making assumptions about your employees’ preferences, ask them if they would prefer extra pay or time off in lieu of additional hours. You can also offer a combination of both if your HR team agrees to it. Make sure to be clear with your employees on their expectations regarding overtime and how they will be compensated.

Both parties should work out the details of how TOIL should be handled. To do so, draft a written agreement regarding TOIL along with a detailed discussion regarding how it will work. You can include details such as:

• the amount of TOIL your employees can earn in a month
• till when this time off is valid
• a time frame during which this time off can be used

Either way, both parties need to agree on all aspects of TOIL beforehand so there are no surprises later!

The bottom line

Instituting TOIL is a win-win solution — but only if it’s considered and implemented in the right way.

Whether or not you adopt such a policy should ultimately be determined by your company culture and priorities. For employees, most will welcome the opportunity to share in the benefits of increased revenue. For employers, it’s an opportunity to build a culture in which everyone feels valued, respected, and rewarded for their contribution. TOIL can be an effective solution for companies facing staffing shortages, and the potential benefit to employees is obvious. The key is sensible implementation; the policy’s effectiveness will depend on how it is managed by employers.

Snigdha Gupta

An avid writer and aspiring marketer, Snigdha is a student at Concordia University’s John Molson School of Business.