Time off in lieu (TOIL)
Summary definition: A policy that grants employees paid time off in exchange for working overtime.
What is time off in lieu?
Time off in lieu (TOIL), also known as compensatory time off (CTO), is an arrangement in which employees who work extra hours beyond their standard schedule (i.e., overtime) receive equivalent paid leave instead of elevated overtime wages.
While available to all organizations, time in lieu is commonly associated with public-sector and government employers, where it’s long been used as an alternative to overtime compensation.
Key takeaways
- Time off in lieu (TOIL) is a leave arrangement in which employees receive paid time off (PTO) for overtime hours worked, rather than elevated wages.
- Under a typical time off in lieu policy, the arrangement is governed by a defined set of rules covering eligibility, authorization, accrual rates, accrual caps, and redemption windows.
- When implemented well, TOIL leave benefits both employers and employees, but without clear parameters and manager accountability, these benefits can quickly become liabilities.
Time off in lieu vs. overtime pay
While time in lieu and overtime wages both address employees working extra hours, choosing between them ultimately depends on employee preference and operational needs.
| Time off in lieu | Paid overtime | |
| Compensation form | Paid time off | Higher hourly wage (often 1.5x) |
| Cost to employer | Deferred labor cost (e.g., backfill risk during leave) | Immediate payroll cost |
| Employee preference | Those prioritizing flexible working | Those prioritizing immediate income |
| Employee preference | Additional accrual tracking and leave management | Additional payroll calculations |
How does time off in lieu work?
Under the Fair Labor Standards Act (FLSA), nonexempt employees eligible for overtime pay accrue 1.5 hours of leave for every hour of overtime worked, mirroring the time-and-a-half rate of traditional overtime pay.
Furthermore, nonexempt state and local government employees can accrue up to either 240 hours of time in lieu, or up to 480 hours if they work in certain public safety, emergency response, or seasonal roles.
Employees must be allowed to use accrued leave within a reasonable period, and any unused leave must be paid out at an employee’s final regular rate of pay if they’re terminated.
Within those requirements, time off in lieu policy procedures are typically straightforward:
- Authorization: Employees confirm with their manager before working overtime hours, establishing up front that the extra time will be compensated as time in lieu rather than additional pay.
- Accrual: Worked overtime is logged and converted to leave.
- Redemption: Employees request and take their TOIL leave within an agreed window, subject to operational availability and manager approval.
What should a TOIL policy include?
To help prevent informal arrangements, accrual disputes, and compliance exposure, a well-structured TOIL policy should include at least some of the following elements:
- Authorization process: Whether overtime work and TOIL use must be pre-approved.
- Redemption window: The timeframe in which TOIL leave must be taken before it expires or is paid out.
- Recordkeeping: How, where, and by whom time is tracked and stored for audit purposes.
Due to the potential complexity of tracking TOIL leave, many organizations choose to partner with a leave management or workforce management system provider to reduce administrative burdens and create an auditable record of accrual and use.
TOIL benefits and challenges
The true value of TOIL leave depends on how well the program is structured and how easily employees can use the leave they accrue.
| Benefits | Challenges | |
|---|---|---|
| For employers | Defers immediate payroll costs during periods of high demand | Creates leave liability on the books that must eventually be used or paid out |
| Supports flexible working arrangements without increasing headcount | Requires a formal, structured TOIL policy to avoid risks of inconsistent adoption or use | |
| Can improve retention by offering employees flexibility over how overtime is compensated | Requires reliable tracking systems to manage accruals, caps, and expiration | |
| For employees | Encourages work-life balance by converting extra hours into meaningful rest time | May be less appealing for employees who rely on overtime income to meet financial obligations |
| Provides flexibility to take paid time off when it suits personal or family needs | Restrictive approval processes can undermine the benefit’s purpose and utility | |
| Gives employees agency over how their extra effort is recognized and rewarded | Can be difficult to access in practice for those in client-facing or operationally critical roles |
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