Short answer: no, not in the way most people think. For award-covered employees, time in lieu doesn't quietly disappear after a deadline. If it isn't taken within 6 months, it turns into a debt, you must pay it out, at the overtime rate.
That catches plenty of small businesses out. A "use it or lose it" TOIL policy can leave you underpaying staff without realising it. This guide covers how the rules actually work and where the traps are for employers who assume TOIL just quietly expires.
What is time in lieu?
Time off in lieu (TOIL) is paid time off given instead of overtime pay. An employee works extra hours now and takes that time off later, rather than being paid for it.
TOIL isn't a National Employment Standard, so it isn't mandated under the Fair Work Act, which means you're straight into the soup that is Australian industrial relations. If your industry is covered by an award, you always follow that award's provisions. You can never contract for conditions below what the award says. If your award has no provision for TOIL at all, you probably need help setting up a proper policy, because the Fair Work Act requires you to treat all employees the same. I can't give Bob TOIL without offering it to Greg.
Award-covered employees: the 6-month rule
Most modern awards that allow TOIL use a standard clause. I used the Clerks Private Sector Award 2020 (clause 23) as an example. Here's how it works:
| Rule | What it means for you |
|---|---|
| Written agreement | Each TOIL arrangement must be agreed in writing, stating the overtime hours and when they were worked. You can't force an employee into TOIL. |
| Hour for hour | 1 hour of overtime = 1 hour off, even if the overtime rate is time-and-a-half or double time. |
| 6-month window | The time off must be taken within 6 months of the overtime being worked, at a time you both agree. |
| Not taken in 6 months | You must pay the overtime, at the overtime rate, in the next pay period. |
| Employee asks for payment | At any time, the employee can ask to be paid instead. You must pay at the overtime rate in the next pay period. |
| Records | Keep a copy of every TOIL agreement as an employee record, along with when it accrued and when it was taken. Sounds like a payroll system to me. |
So under an award, hitting the TOIL deadline doesn't wipe the entitlement, it just changes form: time off becomes a cash payout.
Example: Sam works 4 hours of overtime at time-and-a-half and agrees to TOIL. Sam gets 4 hours off, not 6. If Sam hasn't taken it after 6 months, you must pay 4 hours at 150%, which is 6 hours' pay.
Award wording varies, and some awards don't allow TOIL at all. Always check the specific award with the Fair Work Ombudsman's award finder.
Enterprise agreements and award-free employees
Enterprise agreements. The agreement's TOIL clause applies. It may set a different window, accrual rate or cap, but it still can't leave employees worse off overall than the award, that's the better off overall test. Enterprise agreements are also ratified by Fair Work Australia, not just written up by someone in the business.
Award-free employees (often senior or highly paid staff). TOIL depends on the employment contract and your written policy. An expiry rule may be possible here, but only if it's clearly agreed up front. Even then:
- The NES still limits hours to 38 a week plus reasonable additional hours.
- A contract that's absorbed overtime into salary may not need TOIL at all.
- Unclear or unwritten policies are hard to rely on if a dispute arises.
If you're not sure whether someone's award-covered, assume they are until you've checked. Job titles and salary alone don't decide award coverage. So back in the intro, I wasn't joking about needing help here.
What happens to untaken TOIL when someone leaves?
Under awards with the standard clause, any TOIL balance must be paid out when employment ends, at the overtime rate that applied when the overtime was worked. That applies whether the employee resigns, is dismissed or is made redundant.
Include TOIL balances in every final pay calculation, and pay it with the final pay. Paying it at the ordinary rate is a common, and costly, mistake.
Common mistakes (and why they matter)
- "Use it or lose it" policies. For award-covered staff, a policy that wipes TOIL after a set time conflicts with the award. The award wins, and the unpaid amount is an underpayment.
- Paying out at the ordinary rate. Payouts on request, after 6 months, or on termination are all at the overtime rate.
- No written agreement. A verbal "just take it later" doesn't meet award requirements. Without paperwork, you may owe the overtime as cash anyway.
- Making TOIL compulsory. Under the standard clause, TOIL must be agreed. It can't be a condition of employment.
- Poor tracking. If you can't show when the overtime was worked, you can't show when the 6 months started. And as the business owner, you're the one who wants control over TOIL. Not tracking it means relying on your employee's own records instead.
The stakes are higher than they used to be. Since 1 January 2025, intentionally underpaying employees can be a criminal offence under the Fair Work Act. Civil penalties and back-pay orders still apply to honest mistakes too. Small businesses that follow the Voluntary Small Business Wage Compliance Code are protected from referral for prosecution, but still have to fix the underpayment.
A practical TOIL checklist for SMEs
- Confirm which award or agreement covers each employee, and whether it allows TOIL.
- Use a simple written TOIL agreement for every overtime occasion: date, hours, signatures.
- Track TOIL in your payroll system, with the date each hour was earned.
- Set a reminder at 4 to 5 months so staff can book time off before the 6-month deadline.
- Pay any balance at the overtime rate once 6 months pass, or whenever an employee asks.
- Include TOIL in every final pay.
- Review your TOIL policy and strip out any "use it or lose it" wording for award staff.
- Audit balances every quarter, and fix errors as soon as you find them.
Quick FAQs
Can I make TOIL expire?
Not for award-covered employees under the standard clause. After 6 months, it has to be paid out. For award-free staff, it depends on the contract.
Can I direct an employee to take their TOIL?
Under the standard clause, timing is agreed between you and the employee. You can encourage it, but you can't simply impose it.
Is TOIL calculated at the overtime rate?
Time off is hour for hour. Cash payouts are at the overtime rate.
Do casuals get TOIL?
Only if their award or agreement allows it. Most casual arrangements don't.
Where can I get help?
The Fair Work Ombudsman has free tools and an SME advice line. For anything more complex, speak with a workplace relations adviser.
Put it in writing and you're covered
For award-covered staff, hitting the deadline just changes the form TOIL takes, from time off to a cash payout at overtime rates. Write every agreement down, track it properly, and pay out what's owed on time. The entitlement doesn't go away quietly, it just turns into a bill if nobody's watching it.
This article is general information only, not legal advice. Check the award or agreement that applies to your employees, or get professional advice for your situation.
Sources
Clerks Private Sector Award 2020, clause 23 (Fair Work Ombudsman)
Breaks, leave and time off in lieu (Fair Work Ombudsman)
Fair Work Ombudsman: Awards
