Time Off in Lieu (TOIL) in Australia: How It Works and When It's Taxed

General information only. This is not tax or financial advice, nor workplace-relations advice. Check your specific award or enterprise agreement, or contact the Fair Work Ombudsman, before relying on this for a real decision.

Time off in lieu — usually shortened to TOIL — is paid time off you take instead of being paid for overtime you worked. It sounds simple, but the rules around when TOIL applies, how much time off you actually accrue, and what happens if you never take it are set by your specific award or enterprise agreement, not by a single national formula.

What TOIL actually is

Ordinarily, overtime is paid in cash, usually at a penalty rate such as time-and-a-half or double time. Some awards and registered enterprise agreements allow the employer and employee to agree that, instead of being paid for the overtime, the employee banks it as time off to take later.

The Fair Work Ombudsman’s guidance on overtime pay confirms that whether TOIL is available at all depends on the terms of the applicable award or agreement — it is not a universal entitlement that every employee can invoke. Where it is available, it typically also requires a written agreement between the employer and employee before it applies, and the award’s specific TOIL clause governs the detail: how the time is accrued, how far in advance it must be taken, and whether there’s a time limit before it must be used or paid out.

If your employment isn’t covered by an award or agreement that includes a TOIL clause, your employer generally can’t substitute time off for overtime pay without a separate arrangement that still needs to meet minimum-entitlement rules.

Two different accrual models

This is the part that trips people up, because awards don’t all calculate TOIL the same way. Broadly, two models turn up:

• Hour-for-hour: one hour of overtime worked accrues one hour of time off. Simple, but it doesn’t reflect the penalty rate you would otherwise have been paid.
• Time equivalent to the overtime rate: the accrued time off reflects the rate the overtime would have been paid at. For example, if the overtime was payable at time-and-a-half, one hour worked accrues 1.5 hours of time off; at double time, one hour worked accrues 2 hours off.

Which model applies to you depends entirely on your award or agreement’s TOIL clause — there is no single default across the workforce. Before agreeing to take TOIL instead of cash, check the actual wording of your award or agreement (or ask your employer or the Fair Work Ombudsman) rather than assuming hour-for-hour.

What happens to unused TOIL when employment ends

If you have TOIL accrued and untaken when your employment ends — through resignation, redundancy, or otherwise — it doesn’t just disappear. The Fair Work Ombudsman’s guidance is clear that unused TOIL must generally be paid out at the overtime rate that would have applied had the time been paid as overtime in the first place, not at your ordinary hourly rate.

That matters for your final pay calculation: the payout isn’t valued at hour-for-hour ordinary pay, it’s valued at the overtime rate the TOIL was accrued against (time-and-a-half, double time, or whatever your award specifies).

Super and ordinary time earnings — a quick note

Overtime pay is generally not ordinary time earnings (OTE) for super guarantee purposes. This is a general position only — if TOIL is paid out as a lump sum at termination, how that payout is characterised for super purposes can depend on the specifics, so don’t assume either way without checking.

When TOIL makes sense — and when the cash does

There’s no universally correct answer here; it depends on your circumstances and what your award actually offers. A few things worth weighing conceptually:

• Overtime pay is assessable income and taxed at your marginal rate in that pay period (see our explainer on why overtime withholding looks higher than it is — the extra withholding usually evens out at tax time, but the tax itself is real). Time off, by contrast, isn’t income — you’re not creating a tax event by taking the hours instead of the cash.
• If you need the cash now — for a bill, a deposit, everyday costs — taking the overtime pay is usually more useful than banking hours you can’t spend.
• If your accrual model pays TOIL at the overtime-equivalent rate (e.g. 1.5 hours off per hour worked at time-and-a-half), and you have genuine flexibility to use the time, TOIL can be worth more in hours than the cash would have been in dollars per hour of your ordinary pay — though that’s a workplace-relations trade-off, not a tax one.
• If your award only offers hour-for-hour TOIL, you’re giving up the overtime premium in exchange for flexibility. Whether that trade is worth it depends on how much you value the time versus the extra pay.
• Check whether your award or agreement puts a cap on how much TOIL you can accrue, or a deadline for using it — unused TOIL sitting on the books can quietly turn into a termination payout question later, at a rate you may not have expected.

Where to check the specifics

Your award or enterprise agreement is the authority on whether TOIL applies to you, which accrual model is used, and any conditions around taking or cashing it out. The Fair Work Ombudsman’s overtime pay page is the starting point, and the Fair Work Infoline can help you find your specific award.

Use the Income Tax Calculator to see how overtime pay taxed at your marginal rate compares to your ordinary pay, or the PAYG Calculator to check the withholding on a pay period that includes overtime.