Quick Summary
Quick Summary
- Untaken time in lieu (TOIL) must be paid out on termination in most cases — not optional
- Payment is at the overtime rate the employee would have earned, not ordinary time
- Award-specific terms can affect calculation; always check the relevant modern award or agreement
- Final pay must include TOIL payout unless the employee has used all accrued time
- Failure to pay TOIL can trigger unfair dismissal or general protections claims
Is time in lieu paid out on termination? Yes, in almost all cases, untaken TOIL must be paid out when an employee leaves. It’s not optional — it’s a legal obligation under the Fair Work Act 2009.
WHO: Australian employers with staff who have accrued time in lieu. WHAT: Untaken TOIL must be included in final pay. WHEN: On termination, regardless of how the employee leaves. WHERE: Australia — this applies to all Fair Work Act-covered employees. WHY: TOIL is an accrued entitlement that represents money already earned. HOW: Pay at the overtime rate the hours were worked at, not ordinary time rate.
The harder question isn’t whether you must pay time in lieu, but how much you owe and at what rate. That depends on your modern award, enterprise agreement, or the terms agreed between you and the employee. Get this wrong, and you risk unfair dismissal claims or Fair Work Ombudsman enforcement action.
This guide walks you through the rules, the calculation methods, and the compliance traps that catch employers off guard.
What is Time in Lieu (TOIL)? The Basics
Time in lieu (also called TOIL or “time off in lieu”) is an arrangement where an employee works extra hours and, instead of being paid overtime rates in cash, takes paid time off at a later date.
Example: Sarah works an extra 5 hours on Friday evening. Under your TOIL policy, she banks those 5 hours as “time to take off” instead of being paid $150 in overtime. Three weeks later, she uses 3 of those hours for an appointment; 2 hours remain banked when she hands in her resignation.
On termination, you owe her payment for those 2 remaining hours — at the overtime rate she earned them at, not her ordinary time rate.
The Legal Position: Is TOIL Payout Mandatory on Termination?
Yes. The Fair Work Ombudsman is clear: untaken TOIL is a type of entitlement that must be included in final pay when employment ends.
Here’s the legal reasoning:
- It’s accrued: Once an employee works those overtime hours and you agree to defer payment as TOIL, the entitlement is earned. It doesn’t disappear on termination.
- It’s a financial benefit: TOIL represents money the employee has already worked for. Withholding it is technically withholding wages.
- Award and agreement protection: Most modern awards explicitly state that untaken TOIL must be paid out on termination. Enterprise agreements almost always include this clause.
Rare exceptions: The only scenario where you might not owe TOIL payout is if the employee explicitly agreed in writing (before termination) that banked TOIL would be forfeited on termination. This is extremely rare and must be clearly documented. Even then, some awards override this, so always check.
How is TOIL Paid Out on Termination?
Step 1: Calculate total hours accrued
Go through your time records and add up all hours the employee worked beyond their ordinary hours that were flagged as TOIL. Subtract all hours they took as time off.
Step 2: Identify the overtime rate paid
This is critical. TOIL is usually paid at the overtime rate the hours were earned at. Check your modern award or agreement for the specific multiple:
- Time-and-a-half (1.5x): Most common for ordinary overtime
- Double time: Often applies to weekend or public holiday work
- Shift penalties: Some awards apply different rates for different shift types
Step 3: Apply the right calculation
Multiply remaining TOIL hours by the overtime rate (not ordinary time rate). Example:
- Employee’s ordinary rate: $30/hour
- Overtime rate (1.5x): $45/hour
- Remaining TOIL: 8 hours
- TOIL payout: 8 × $45 = $360
Step 4: Include in final pay
Add the TOIL payout to final pay (wages, accrued leave, redundancy if applicable). Provide a detailed payslip or statement showing the breakdown so the employee can see exactly what they’re owed.
⚠️ ⚠️ Missing TOIL Payout on Termination = Legal Risk
Failing to pay out accrued time in lieu on termination can expose you to unfair dismissal claims, general protections claims, or Fair Work Ombudsman investigations. This is particularly risky when an employee is dismissed and disputes the amount owed. Always calculate and pay TOIL in final pay unless the employee has used every hour.
Key Takeaways
Key Takeaways for Employers
- ✓TOIL payout is mandatory on termination (with rare exceptions) — not discretionary
- ✓Pay TOIL at the overtime rate the hours were worked at, not ordinary time rate
- ✓Check your modern award or enterprise agreement for specific TOIL provisions
- ✓Include TOIL calculation in final pay documentation and provide a clear breakdown to the employee
- ✓Keep TOIL records throughout employment to avoid disputes at termination
Fair Work Centre
Need help with payroll compliance for employers?
Our employment lawyers advise employers only — no call centres, no generalists. Get straight answers from people who know the Fair Work Act inside out.
Award-Specific TOIL Rules
Different modern awards have different TOIL provisions. A few examples:
- Retail: Many retail awards allow TOIL by mutual agreement but specify that untaken TOIL must be paid out within 4 weeks of termination.
- Hospitality: Some hospitality awards automatically convert TOIL to cash at the ordinary rate unless the employee specifically requests time off. Check your award.
- Professional Services & Construction: Typically allow TOIL and require payout on termination at the overtime rate earned.
Your action: Find your relevant modern award on the Fair Work Commission website and search for “time in lieu” or “TOIL” clauses. Enterprise agreements override awards, so check your EA first if you have one.
Common Mistakes Employers Make with TOIL Payout
Mistake 1 (for employers): Paying TOIL at ordinary time rate instead of overtime rate
This is the #1 error. If the employee earned TOIL at 1.5x, you must pay it out at 1.5x — not at their standard rate. Underpaying exposes you to Fair Work claims.
Mistake 2: “Forgiving” TOIL if the employee leaves without notice
Irrelevant. Regardless of how the employee leaves, accrued TOIL is owed and must be paid. Even if they breach their notice period, you still owe the time in lieu.
Mistake 3: Not keeping TOIL records
You need contemporaneous records showing when TOIL was earned and when it was taken. Vague or missing records make it easy for an employee to claim you owe more. Use payroll software or a dedicated TOIL register.
Mistake 4: Mixing TOIL with annual leave or long service leave
These are separate entitlements. Annual leave accrues at a fixed rate (usually 4 weeks/year). TOIL accrues based on overtime worked. Don’t conflate them in your final pay calculation.
How to Create a Compliant TOIL Policy
To avoid disputes, implement a clear TOIL policy that covers:
- When TOIL is offered: Is it voluntary, or do you require it instead of cash overtime?
- How it accrues: What overtime rates apply (1.5x, 2x, etc.)?
- How it’s tracked: What system do you use (payroll software, spreadsheet, register)?
- Time off approval: Can employees take TOIL whenever, or do they need manager approval?
- Termination payout: State clearly that untaken TOIL is paid out in final pay at the overtime rate earned.
- Expiry (if any): Some policies state that TOIL must be taken within a certain period (e.g., 12 months) or it’s forfeited, but check your award — many prohibit forfeiture.
Document this policy, provide it to all employees, and get signed acknowledgement. When an employee earns TOIL, add it to their payslip or send a note confirming the amount banked.
What Happens If You Don’t Pay Out TOIL on Termination?
If you withhold or miscalculate TOIL payout:
- Underpayment claim: The employee can lodge a claim with the Fair Work Ombudsman. You may be ordered to backpay plus interest and penalties.
- Unfair dismissal: If the employee claims your failure to pay TOIL contributed to an otherwise unfair dismissal, it strengthens their case.
- General protections: Withholding wages (including TOIL) for improper reasons can be a breach of general protections, triggering a claim for compensation.
- Reputational risk: Word gets around. Staff will be less willing to bank TOIL if they see colleagues not paid out on termination.
TOIL on Termination: Practical Checklist for Employers
Before finalising an employee’s exit:
- ☐ Pull TOIL balance from payroll system or TOIL register
- ☐ Confirm the overtime rate(s) TOIL was earned at
- ☐ Check your modern award and/or enterprise agreement for TOIL clauses
- ☐ Calculate payout: remaining TOIL hours × overtime rate
- ☐ Add to final pay
- ☐ Provide employee with itemised payslip showing TOIL breakdown
- ☐ Pay on or before the day employment ends (or by agreed date)
- ☐ Keep all TOIL records and payslips for 7 years
Frequently Asked Questions
Yes, in almost all cases. Untaken time in lieu is an accrued entitlement and must be included in final pay when employment ends. The only rare exception is if the employee signed an explicit written agreement (before termination) forfeiting TOIL, which is rarely enforceable under most awards.
TOIL is paid at the overtime rate the hours were earned at. If TOIL was earned at time-and-a-half (1.5x), pay it out at 1.5x of the ordinary rate — not the ordinary rate itself. Check your modern award or enterprise agreement for the specific overtime multiple.
Irrelevant. Accrued TOIL is still owed and must be paid in final pay, even if the employee breaches their notice obligation. You can offset other losses (e.g., damage caused), but TOIL payout is separate and non-negotiable.
Generally, no — not without the employee’s written consent. While Fair Work law allows set-offs in limited circumstances, TOIL payout in final pay is protected. Deductions for alleged breaches are risky and may expose you to underpayment claims. Get legal advice before deducting.
This is a compliance gap. If records are missing or unclear, the burden falls on you as the employer. The employee’s claim is likely to be accepted if you can’t produce evidence. Implement a TOIL register or payroll-system tracking immediately and ask the employee for their best recollection; document any agreement. For future clarity, keep contemporaneous records.
Most modern awards allow employers and employees to agree that TOIL must be taken within a set timeframe (e.g., 12 months), but forfeiture clauses are often unenforceable or restricted by the award. On termination, any untaken TOIL must still be paid out. Check your specific award — forfeiture is rare and must be explicit.
Yes. Annual leave is a statutory entitlement accruing at a fixed rate (usually 4 weeks/year at ordinary time). TOIL is an alternative to overtime pay, earned only when the employee works extra hours and accrues at the overtime rate. Don’t mix the two in your calculations.
Only with their agreement, and only if your modern award or enterprise agreement allows it. Some awards explicitly permit TOIL; others require overtime to be paid in cash. Never unilaterally decide to pay TOIL instead of overtime without checking your award and the employee’s agreement.
Join Fair Work Centre
Protect your business with the right HR support.
Join hundreds of Australian employers who rely on Fair Work Centre for employment law advice, HR documents, and Fair Work Commission representation.
