Time off in lieu (TOIL) has nothing to do with the Holidays Act 2003. If provided it is an agreed term between the employer and employee.

The whole point of TOIL is not to pay for additional hours worked. This is not about overtime as overtime is an agreed term and is about being paid for additional hours worked. Just to confirm, there is nothing in employment law about overtime, however, there is in tax law when overtime is provided. The Income Tax Act 2007, Section RD5 provides the definition for salary and wage and states that overtime is part of salary and wage. RD7 provides the definition for an extra pay and it clearly states that overtime is not an extra pay.

TOIL is really for employees that work standard hours usually on salary without overtime built into their salary rate, so working extra hours would be an additional cost to the business. Giving TOIL instead of paying for additional hours means the business stays within its budget for labour. TOIL does not suit an environment where the job is based on a lot of overtime and additional hours because this is where an employee makes their money. In this context TOIL would not work because taking time off could not be achieved because the employee is needed ongoing to cover the additional hours of work that the employer needs to be worked. As stated, this is an agreed term so it can only be used when both the employer and employee agree.

Here are some examples of how TOIL could be used:

Example – working additional days:

  • John works Monday to Friday 8 to 5 each week. John’s manager asks if he would work next Saturday because of a special event and if he does she advises him that he can take off the following Friday to have a long weekend. John agrees to this (John does not have to as his agreed week is Mon to Fri). John won’t receive any additional payment for working on Saturday and in payroll he will be paid exactly the same from one week to the next.

Example – working additional hours:

  • Mary receives a salary based on a 40-hour week but from time to time by agreement she works some additional hours on top of her standard hours. Mary has an agreement that she won’t be paid for these and her salary does not include remuneration for these additional hours. Mary has an agreement that any additional hours worked can be accumulated and taken off during her normal hours of work at a later time with her manager’s agreement. In payroll it means Mary just gets her standard salary and nothing else for these extra hours.

Issues with TOIL

Just like any leave entitlement it must be managed by getting the employee to take it. If TOIL is allowed to accumulate it will be even harder to use it up as the employee still has leave provided under the Holidays Act to take such as 4 weeks of annual holidays and public holidays.

An easy way to manage this would be to cap it, meaning you can only accumulate a day or week of TOIL and once reached that TOIL must be used in the next period or lose it. The manager has to ensure the employee can actually take it in this period or it undermines the purpose of TOIL. Think of work-life balance as being a good reason that the employee uses this as soon as it is earned. Of course, if an employee wanted to accumulate TOIL for a special reason (extended holiday) and the employer agrees, then all good as it provides an extra benefit to the employee and the employer at no extra cost.

Do watch out for the Minimum Wage Act 1983 especially if an employee is doing excessive hours but is told they will be added in TOIL and the employee is given no opportunity to then use it. It is starting to go across the line of dropping the employee’s hourly rate to be below the minimum wage. You must be able to show that the employee did get compensated for the hours worked. TOIL should not be used to pay an employee less!

Also, I have seen a couple of times where the agreement states that if the employee has any TOIL outstanding on termination it will be paid out at the ordinary rate. This undermines the purpose of it and it will not only be an additional payment, but will also have to be included in the 8% on termination.

Why does it need to be in payroll?

As this is not about paying the employee extra money for additional hours and, in effect, it means that the employee will just be paid the same, why does it need to be in payroll?

The main reason is so that it can be managed and reported across the business. By having it reported through to payroll it can be recorded, tracked and reports provided. However, if only one employee is affected then a manager should manage this without the need to involve payroll.

If it is to be held in payroll, there needs to be some thought given as to how it is reported in as it eats into the time payroll should be spending on actually paying employees their wage or salary and that is a business-critical activity. The key is to keep it simple, so it does not become a nightmare for payroll.

So in conclusion, TOIL is a way for the employer to have additional hours worked by the employee (if agreed between them) without paying for those hours. The employee gets to take the time off at a later date while being paid their standard pay. The key is to get the employee to take TOIL as soon as possible so it never gets to an unmanageable amount.

NZPPA supporting NZ payroll since 2007!

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