Implementing time off in lieu system

Implementing time off in lieu system

Where an employee works in excess of their normal contracted hours, as an alternative to paid overtime you could implement a time off in lieu (TOIL) system. What provisions do you need to ensure you cover in a TOIL clause or policy?

TOIL system

Employees have no statutory right to paid overtime, so whether you pay it (and what rate you pay) is a contractual matter, subject to the proviso that you must meet your national minimum wage (NMW) obligations. An alternative way of handling overtime is to implement time off in lieu (TOIL). Under a TOIL system, an employee who works additional hours beyond their normal hours can take paid time off at a later date instead of receiving overtime pay.

Trap. Where overtime pay for extra hours worked is a contractual right, you cannot alter this without employee consent.

Pros and cons of TOIL

The benefits of operating a TOIL system include that: (1) it doesn't cost you anything so it can be a practical alternative to overtime pay if you have a tight budget; (2) you can ensure TOIL is taken during quieter work periods and so balance out your busy work periods; and (3) it provides flexibility for the employee and this can help to foster loyalty. However, the drawbacks include that: (1) it's often a burden to administer as tracking overtime and granting TOIL can be complex; (2) it means more time off work for the employee which may not suit the needs of your business; and (3) it can lead to staffing shortages if too many employees are off at the same time.

Implementing a TOIL system

You should set out the terms of your TOIL system clearly in writing, either in a contractual clause or a policy, and this should cover: (1) how TOIL is accrued and at what rate - accrual could be equal to excess hours worked or it could be at time and a half, double time, etc; (2) any limits on how much TOIL can be accrued, say, each month; (3) how and when TOIL can or must be taken; (4) the process for authorisation of TOIL; and (5) what happens to accrued but untaken TOIL on termination of employment.

Tip. Also put in place a system to accurately record both accrued and taken TOIL . It's better if you can use tracking software for this to ensure more precise record keeping.

Tip. It's advisable to have rules which prevent the excessive accrual of TOIL as otherwise this could give you operational problems down the line.

Trap. Any additional hours worked by an hourly-paid worker in a pay reference period to earn TOIL must not take the worker below the NMW for that pay reference period.

TOIL on employment termination

As set out above, your TOIL clause or policy needs to specify what happens to accrued but untaken TOIL on termination of employment. You could, e.g. direct that the outstanding TOIL must be taken during the employee's notice period if possible and they will lose any that isn't taken, i.e. they will not receive any payment in lieu for accrued but untaken TOIL. Or, if you want to be more generous, you could provide that outstanding TOIL will be paid at the employee's normal pay rate. It's entirely up to you what you want to provide here.

Your TOIL clause or policy should cover how TOIL is accrued and at what rate, whether there are any limits on how much can be accumulated, how and when it can or must be taken and what happens to untaken TOIL on termination of employment. Ensure you also keep adequate records of all TOIL that is accrued and taken.

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