An effective TOIL policy can help ensure a consistent and legally compliant approach to managing time off in lieu for overtime.
What is TOIL?
TOIL stands for ‘Time Off In Lieu’. It refers to time off given to an employee to ‘replace’ any overtime they have already worked.
Employees may earn the right to TOIL when they work extra hours or extra days, above and beyond their contractual obligation. It is an alternative to paid overtime and can be advantageous for both employers and employees as it allows a degree of flexibility in working arrangements. However, with this flexibility also comes risk, and employers should take proactive measures to ensure clarity of procedure and policy in the availability and use of TOIL.
When do employees get paid for TOIL?
Strictly speaking, employees are not paid for TOIL. Rather, if an employee works overtime, you decide whether to pay them for that, or whether to give them Time Off In Lieu instead. It is not a legal requirement for employees to be paid for working overtime. Therefore, employees are paid for overtime if their contract of employment states that they must be. For example, some contracts will state core working hours, but go on to explain that on occasion these hours may need to be varied or exceeded in accordance with the business needs of the employer. For this reason, you are more likely to see paid overtime given to staff who are paid on an hourly basis as opposed to those on an annual salary.
Time Off In Lieu is a good alternative for salaried employees as it allows the employer to set the boundaries while rewarding employees for their extra effort and commitment. TOIL is earned and taken by the employee in addition to their contractual annual leave entitlement.
To avoid confusion, employment contracts and policies need to be clear whether overtime entitles the employee to pay (paid overtime) or TOIL (Time Off In Lieu).
Can employees be required to work overtime?
The answer to this is yes, as long as the requirement is stated in the employee’s contract of employment. Alternatively, overtime can be purely voluntary, by agreement with the employer, although there is, of course, no obligation on you to offer any at all.
Overtime can also be guaranteed by the employer in the contract of employment, or non-guaranteed, but still obligatory. Regular overtime can lead to a recalculation of an employee’s holiday pay. This is dealt with in ‘risks to avoid’ below.
Is there a limit on how much overtime employees can work?
Yes. Employers must abide by the Working Time Regulations 1998 (WTR) in setting their employees’ hours of work. The WTR set a maximum of 48-hours on the working week, which includes overtime, though the employee may opt-out of this protection by signing an opt-out agreement.
In addition, the WTR state that an employee must receive a compulsory break of 20 minutes after six hours of work and a break of 11 hours in every 24, and one day off a week or two days off a fortnight. It is not possible to opt-out of these obligations.
How is TOIL calculated?
It is for you to decide how much TOIL to allocate for different types of overtime work. It can be as simple as one hour of overtime gives one hour of TOIL. However, as an incentive to work at unsociable hours, an employer may choose to enhance the rate of overtime pay, or allow an employee to accrue TOIL one a one and a half or even double time basis. Some examples are given below. It is important to remember that how you choose to allocate TOIL in your organisation depends on what is normally expected of your employees and how far the overtime they have done deviates from their standard working pattern.
Staying on late after ‘normal’ office hours could lead to a simple one to one ratio. For example, if an employee has to stay on for three hours to work on a project deadline, they would have accrued three hours of TOIL to take as leave at a later date.
Contrary to popular belief, bank holidays are not automatically paid holiday days. You may choose whether or not your organisation is closed on these days, but if you wish your employees to work, you should make it clear in their contracts of employment. If you do pay them as holiday days, it can either be counted as part of your employees’ statutory annual leave entitlement of 5.6 weeks or be in addition to it.
In order to entice employees who might otherwise rather stay at home, an employer may choose to reward employees through a rate of accrual of ‘time and a half’. For example, for every full day worked on a Bank Holiday, the employee will ‘bank’ one and a half days of TOIL.
As previously stated, it is for your organisation to assess how to reimburse an employee for their time spent working away. For example, where an employer already enhances salaries to account for the inconvenience of international travel, then a simple one to on swap might be appropriate. If not, then this rate may be enhanced.
Again, this depends on the context. International travel is much more exhausting and anti-social than an extended work trip within the UK, but both can disrupt personal and family life. For example, if the employee is staying overnight, this would be at the employer’s expense, along with an amount allocated for meals and other expenses where appropriate.
If an employee’s job involves travel during their normal working hours, an employer can choose how much to them for it. This should be stated in the contract of employment and care should be taken to follow the National Minimum Wage legislation.
Employees will not usually be required to work at weekends unless their contract requires it. Therefore, weekend work could well be rewarded in a similar way to bank holidays, i.e. time and a half. Accordingly, working all day on a Saturday will give the employee one and a half days of TOIL.
Can employees take compensatory time off in lieu of overtime pay?
Compensatory time off in lieu of overtime pay is in essence the same as TOIL leave. However, it is not advisable to create a third option for employees.
It is for you to decide whether or not overtime is paid, and whether TOIL is also an option and in what circumstances. This should be stated in the employee’s contract of employment and, if so, covered by a TOIL policy (see below).
Can TOIL be carried over?
Employers should decide if TOIL leave can be carried over into the next annual leave year, or whether it will simply ‘expire’ after a fixed period of time, for example twelve months. It is also for the employer to decide how much TOIL leave an employee is allowed to accrue before they must take that TOIL leave. It is in everyone’s interest to monitor this, as business continuity will be affected if key employees accrue too much TOIL leave and are absent for long periods.
How to manage TOIL
TOIL needs to be managed effectively before and after it is accrued. Therefore, there should be a system in place for approving overtime in advance of the employee actually working that overtime. This would apply whether the employee was submitting a travel request or seeking permission to stay late and accrue some TOIL.
Following its accrual, employees should expect to apply to their managers to take TOIL leave in the same way they would to take annual leave, i.e. that request can be declined if there are already too many team members on leave or off sick etc.
The employer must also decide what happens to TOIL days that have accrued, but not been taken by the time the employee leaves their job. Ultimately, if the employee has not taken the accrued leave by the time of their departure, the employer must pay the employee for that time, either at their normal rate or the agreed overtime rate, as appropriate.
For these reasons, it is essential for your organisation to have a TOIL policy setting out the rules and procedures for the accrual of TOIL.
What should the TOIL policy include
The TOIL policy should state clearly:
- The exact circumstances in which TOIL is accrued
- Who approves TOIL and when
- When overtime is paid and when it is given as TOIL and if the employee has a choice
- The maximum amount of TOIL that can be accrued and by when it must be taken, for example the end of the annual leave or financial year or after twelve calendar months
- Whether TOIL can be carried over beyond these periods and if so how much
There can be different TOIL policies for different groups of staff, but care should be taken not to discriminate between groups by offering some better arrangements than others.
Errors to avoid
In addition to possible breaches of the WTR referred to above, the two biggest risks to avoid relate to holiday pay and national minimum wage calculations.
The right to paid holiday is also contained in the WTR. The calculation of an employee’s holiday pay is based on their ‘normal pay’. Where an employee works guaranteed overtime for which they are paid, then this amount is included in their ‘normal pay’ calculation. However, recent court decisions mean that compulsory, non-guaranteed overtime will also count towards an employee’s ‘normal pay’. Therefore, it is safest to assume that regular overtime payments must be used by the employer in the calculation of at least four weeks of an employee’s holiday pay.
The statutory holiday entitlement in the UK is 5.6 weeks for a full time worker. However, the law that states that employees’ overtime pay should be included in their holiday pay calculation comes from EU law, and EU regulations only require four weeks of paid holiday per year. You may wish to use 5.6 weeks in your calculations as it is simpler and easier for everyone to understand. However, if your organisation is a big employer with a large overtime bill, there could be a cost to this.
If an employee is obliged to work a certain amount of overtime without pay or TOIL, then their hourly pay may fall below the National Minimum Wage in a particular Pay Reference Period. A Pay Reference Period follows how often an employee is paid (for example, weekly) and cannot be longer than 31 days.
TOIL legal risks
If you do not have a TOIL policy your employees may perceive unfairness in the way they are compensated for working overtime. This could be because managers do not act in a way that is consistent with each other, or because they do not ensure consistency within their own teams. By making sure that all employees know how to accrue and claim TOIL, this should be avoided.
However, a badly managed TOIL policy can also cause problems. For example, a TOIL policy can be open to abuse by employees who stay longer at the end of the day on a regular basis simply to accrue an extra day off. This could lead to resentment amongst team members who have to cover for that person on their day off. The best way to avoid this is to have a system in place whereby working extra hours is pre-approved by a manager on the basis that it satisfies an actual business need.
On the other hand, requiring, or even just requesting, employees to work overtime or at anti-social hours can put a strain on their family life and mental health. A comprehensive and well-implemented TOIL policy should go some way to striking the right balance.
DavidsonMorris are specialist UK employment lawyers, with expertise in all areas of workforce management and HR issues, such as pay and leave entitlements. If you have a question about time off in lieu, contact our experienced legal advisers.
TOIL policy: FAQs
What is TOIL leave?
TOIL leave is where an employer allows an employee to take time off work instead of being paid for overtime.
How is time off in lieu calculated?
TOIL should be calculated in line with your organisation’s policy. How an employer chooses to allocate TOIL depends on what is normally expected of its employees and how far the overtime they have done deviates from their standard working pattern.
Can TOIL be carried over?
Depending on the organisation’s TOIL policy or what has been agreed between the employer and the employee, TOIL may be able to be carried over from one holiday or calendar year to the next.
Is time off in lieu lawful?
TOIL is lawful provided it has been agreed by the employer and the employee and it does not breach Working Time Regulations. TOIL should be dealt with in a written agreement, usually the employee’s employment contract.
How can DavidsonMorris help?
DavidsonMorris' team of employment lawyers can support employers with all aspects of pay and entitlements, including use of TOIL and developing a time off in lieu policy.
Last updated: 5 August 2022