What is time off in lieu?

Time off in lieu means an employee receives paid time off as compensation for working overtime instead of being paid overtime.

Offering time off in lieu of pay is considered “comp time” and is generally only allowed for exempt employees in the private sector and both exempt and non-exempt in the public sector. Under the Fair Labor Standards Act, private employers may not offer comp time to non-exempt employees. 

Employees typically receive an amount of PTO equal to the amount of overtime they work. Employers often set parameters for how and when employees can take the PTO they accrue.

Related: Indeed’s Public Sector Talent Hub

Pros of TOIL

Time in lieu can be beneficial for both your company and your employees. Here are some reasons you might want to implement TOIL:

• Reduced costs: Paying overtime can significantly increase your costs since you’re paying a higher rate. Additional time off is paid at the normal rate and often spread out over time instead of being due to the employee on that pay period.
• Motivator: For many salaried employees who already bring home large paychecks, the option to earn additional PTO can be a motivator. It can be more of an incentive than a larger paycheck for employees earning high salaries.
• Work-life balance: Having more time off from work can be beneficial for employees’ well-being. It encourages them to focus on their work-life balance and disconnect from the office to get a mental break.

Cons of TOIL

Not everyone is a fan of time in lieu, especially employees. It can also be a pain for you. Here are some cons of using TOIL:

• Employee preferences: Some employees would rather receive time and a half for their extra work instead of getting more vacation time. This is especially true for employees who earn lower wages. If you try to get your employees to accept TOIL, it could hurt employee satisfaction.
• Time-consuming: Monitoring worked hours and calculating TOIL adds to your workload. You need to have accurate time tracking and stay on top of the calculations. It can also add complexity when employees use TOIL PTO since it’s typically categorized differently than regular PTO.
• Employee misuse: Some employees might take advantage of this opportunity and work longer hours to earn TOIL even when overtime isn’t necessary. Having clear overtime policies in place and safeguards such as required manager approval for overtime can prevent this.
• Mix of overtime and TOIL: Employees have to agree to TOIL, so you might have some employees who accept it and others who prefer overtime pay. This can be difficult to track and requires greater organization and attention to detail.

Legal concerns about time in lieu

The Fair Labor Standards Act (FLSA) requires that employers pay non-exempt employees overtime pay that’s at least 1.5 times their normal pay rate for all hours beyond 40 per week.

Exempt employees, which usually include salaried employees, aren’t entitled to overtime pay, although employers can still pay them for their overtime hours. However, private employers might offer time in lieu to exempt employees to compensate them for their overtime hours, even though they don’t have to pay them for those hours. Public entities can generally offer time off in lieu to both exempt and non-exempt employees with some limitations.

Keep in mind that private employers generally cannot offer time off in lieu to non-exempt employees.

State labor laws can be more restrictive than federal labor laws, so you should review the labor laws in your area before making any decisions on overtime compensation. Failing to pay your employees proper overtime could come with serious consequences. A labor attorney can give you specific advice based on your situation and the state and federal labor laws that apply to you.

Creating a policy

It’s essential to have a written policy when employees work in lieu of overtime pay for PTO instead. It should explain whenand how they can use it. Include the following details in your policy:

• Who qualifies for TOIL
• How much PTO an employee can accumulate as time off in lieu
• Deadline for using TOIL, such as by the end of the year
• Restrictions on when employees can use the time off
• Need for approval to work overtime
• What happens to the accumulated PTO if the employee quits before using it

Some employers restrict when employees can use the accumulated PTO. For example, you might restrict its use during a busy time. You might also require that they use it before the end of the calendar or fiscal year. You might be required to pay out the TOIL PTO if the employee quits before they use the time. Review relevant labor laws before creating your policy to ensure it’s compliant.

How to calculate time off

When using time in lieu for salaried employees, you need to track their working hours carefully. You also need to review the contract or established hours for your employees. A 40-hour workweek is standard, but some companies establish full-time as fewer hours, such as 37 hours per week.

To calculate TOIL, you need to know how many hours beyond the standard workweek the employee worked. For example, if a salaried employee is contracted to work 40 hours per week and they work 48 hours one week, they worked an extra eight hours. That means they would get eight hours of additional PTO. If their workweek is 37 hours, they would get 11 hours of PTO for working a 48-hour week.

Best practices for TOIL

Implementing time off in lieu can be challenging at first. These best practices can make it easier.

Do a trial run

If you’re not sure how well this option will work for you, do a trial run with a few employees. You might start with one department or a certain level of employee. This gives you an idea of how time-consuming it’ll be and lets you get feedback from the employees who participate.

Sign an agreement

The employer and employee have to agree on using TOIL as compensation for overtime. You should both sign an agreement that includes the details of the arrangement to show that both parties consent.

Track time accurately

Accurate time record keeping is essential if you offer time in lieu. Using a digital time tracker can make the process much easier. Employees are responsible for tracking their time accurately. Ensure you have tools and policies in place to help them.

Apply TOIL consistently

When you agree to offer PTO for overtime hours, make sure you calculate and add the PTO hours consistently. This ensures all employees are compensated fairly for their time. It keeps employees happier and reduces frustration if some people get their PTO and others don’t.