What is ‘time off in lieu’ and how does it work?

When an employee works overtime, some awards permit the employee to request time off instead of receiving payment for overtime.

This option is attractive because it helps to promote work-life balance which is something all workers are looking for more of.

Payment for overtime is the default

The default position is that employee is entitled to receive payment for any overtime hours worked at the relevant penalty rate.

For example, if a part-time retail assistant employed under the General Retail Industry Award 2020 worked two hours of overtime on Monday, they would receive 150% of their ordinary hourly rate.

Some awards allow agreement to be reached between the employer and employee for time off instead of payment for overtime.

It is important to note that not all awards contain time off instead of payment for overtime provisions, and not all awards contain exactly the same provisions. For example, some awards provide that if an employee works 2 hours of overtime, then they are entitled to 2 hours’ time off.

Other awards provide that the time off is equivalent to the overtime that would have been paid, meaning that if an employee worked 2 overtime hours at the rate of 150%, they are entitled to 3 hours’ time off, as is the case under the General Retail Industry Award 2020.

Employers should check the terms of the modern award which applies to their employees before entering into time off instead of payment for overtime arrangements.

Award requirements

The General Retail Industry Award 2020 contains time off instead of payment for overtime in clause 21.3. The clause requires that the following conditions be met:

• there must be written agreement between the employer and employee that the employee takes time off instead of being paid for a particular amount of overtime that the employee has worked.
• the period of time off that an employee is entitled to take is equivalent to the overtime payment that would have been paid.

Example: The part-time employee worked 2 hours overtime at the rate of 150%, so they are entitled to 3 hours’ time off.

• the time off must be taken within 6 months after the overtime is worked, and at a time or times within that 6-month period agreed by the employer and employee.

If the employee requests at any time to be paid for overtime and they have not taken the time off, the employer must pay the employee for the overtime, in the next pay period following the request, at the overtime rate applicable to the overtime when it was worked.

If the time off is not taken within the 6-month period as mentioned above, the employee must be paid for the overtime at the relevant rate, in the next pay period following those 6 months.

An employer must not put any undue influence or pressure on an employee in relation to any decision that they make regarding taking time off instead of payment for overtime.

Example: Taking time off instead of payment for overtime

The part-time retail assistant must attend their child’s parent-teacher interviews at school on Wednesday. In order to attend, the employee needs to leave work early.

The part-time employee makes a request to their manager that instead of being paid for the 2 hours of overtime worked on Monday, that they can leave work early on Wednesday.

In line with the General Retail Industry Award 2020, the employer agrees to the employee’s request. The employee is entitled to 3 hours’ time off.

What happens if an employee resigns or their employment is terminated and there was an agreement for time off instead of payment for overtime?

If an agreement was made between the employer and employee for time off instead of payment for overtime, and employment has ended, the employer must pay the employee for the overtime at the relevant overtime rate.

An example of an agreement for time off instead of payment for overtime

Name of employee: _____________________________________________

Name of employer: _____________________________________________

The employer and employee agree that the employee may take time off instead of being paid for the following amount of overtime that has been worked by the employee:

Date and time overtime started: ___/___/20___ ____ am/pm

Date and time overtime ended: ___/___/20___ ____ am/pm

Amount of overtime worked: _______ hours and ______ minutes

The employer and employee further agree that, if requested by the employee at any time, the employer must pay the employee for overtime covered by this agreement but not taken as time off. Payment must be made at the overtime rate applying to the overtime when worked and must be made in the next pay period following the request.

Signature of employee: ________________________________________

Date signed: ___/___/20___

Name of employer representative: ________________________________________

Signature of employer representative: ________________________________________

Date signed: ___/___/20___