Time off in lieu vs paid overtime: what's best for your workplace?

Business is booming. You’re rushed off your feet with non-stop tasks. And you don’t have enough hours in the workday to get everything done…

In this situation, you might ask staff to work overtime. And if you’d like to reward staff for their commitment, you have two options: paying for their time or time off in lieu (TOIL).

To help you decide between the two, we explore which could be better for your business.

Paid overtime in a nutshell

Paid overtime means you pay staff for time they work outside their contracted hours. It’s not a legal requirement, but it helps you get a positive response when you ask staff to volunteer their time.

That’s because, unless you’ve added compulsory overtime to your employees’ contracts, staff can refuse overtime. So paid overtime is a great way to boost incentive when you need your team the most.

Your overtime rate doesn’t need to match your employees’ normal pay. If you do pay for overtime, the rate you pay is up to you. But whether it’s higher or lower, be sure to include this in your employees’ contract.

And remember, the average hourly rate can’t fall below the National Minimum Wage.

So, how is TOIL different?

By contrast, TOIL means you reward staff with additional holiday in lieu (instead) of paying wages. So if an employee works an extra two hours, they’d get this time back as holiday. Over time, they could bank enough hours to book multiple days off.

Staff need to confirm they’re happy to work for TOIL. This means you should put the offer – and terms – in writing for each employee and ask for their written consent.

When it comes to choosing between TOIL or paid overtime, it’s mainly a question of whether you’d rather spare the leave or money. But there are other considerations, too. Let’s take a look…

Time in lieu is great if…

Your work is seasonal

Some businesses have peak times during the year. For example, a B&B near the beach might be non-stop during the summer months, and not-so busy in the winter.

If that’s the case for your business, offering TOIL could work well – as long as you set out when employees can (and can’t) use their banked holiday. This means your staff can work overtime during busier months and take leave when things are quiet.

And this helps you avoid issues with overstaffing. Because when work is too quiet, you could be forced to reduce hours or lay off staff. But if employees use their TOIL during those quiet periods, you keep your workforce all year round – without having to lay off or rehire seasonal staff.

You want to keep costs under control

It might go without saying, but offering TOIL is a cheaper alternative to paid overtime.

If your work is seasonal, you could be busy for a large chunk of the year. And if you opted to pay staff for overtime, this could mean paying extra wages for months on end.

Plus, if you need staff to regularly work overtime, you’d need to pay more all year round… which isn’t exactly cost-effective for your business. So if overtime is a frequent occurrence – and you can afford to spare the extra holiday – TOIL is much more affordable for your business.

But paid overtime is better if…

You want to avoid holiday building up

You already offer at least 5.6 weeks’ of annual leave. And when you offer TOIL in addition to this, your staff might struggle to spread leave evenly across the year. 

If your business is busy all year round, this could create a real problem. Because when all your staff have a hefty holiday allowance, it could mean clashing holiday requests. It could mean conflict over the holiday rota. And it could mean you don’t have enough staff to meet your demands…

Which brings you back to square one. If you’d rather avoid a big build-up of holiday, paid overtime could be better for your business.

Alternatively, consider putting a cap on the amount of TOIL days your staff can receive. So if you’d struggle to spare more than five extra days per employee, make sure their contract makes this clear.

You pay staff by the hour

If your staff have an annual salary, it can be harder to break down the extra hours and update their wages. Especially since you’re used to calculating pay on a monthly basis.

But when you pay your employees by the hour, it’s simple a case of adding up any hours worked outside their contracted amount.

You rarely ask for overtime

When overtime is a rare event, paying for any additional hours could make more sense for your business. 

If your employee only worked two hours overtime as a one-off, they wouldn’t have enough TOIL to book a full days’ leave. So in this instance, paying for any out-of-hours work could be a better incentive for your staff.

Things to consider…

How much overtime is too much?

If you find yourself requesting overtime all the time, you could be understaffed. When staff work beyond their contracted hours regularly, they could feel stressed or overwhelmed. To avoid an unhappy workforce, consider welcoming an additional member to your team.

How many hours are your staff working?

Staff can’t legally work more than 48 hours per week unless they ‘opt out’ of the weekly limit. To ask for overtime beyond this, you need written consent from your staff.

What does your TOIL or overtime policy include?

Decided to offer time off in lieu? Make sure your staff agree with your terms in writing first. Once you get their consent, create a TOIL policy and share it with your employees. In it, make sure you answer these questions:

• Is there a limit to how many TOIL days your staff can receive?
• When can employees use their TOIL days throughout the year?
• What happens to any TOIL when staff quit?

And if you’ve decided to pay for overtime instead, include when you might require overtime, how much you pay, and how this is calculated.

Manage overtime in a click with Bright HR

Whether TOIL or paid overtime is best for your business, BrightHR is here to help.  

With smart software, there’s no guesswork involved. Staff log their overtime online, so you won’t need to manually track their hours and update their lieu bank. BrightHR does it all for you.

And with Blip, you can check your team’s hours on the go. With an exclusive clocking in and out app, you’ll know for sure when staff have worked overtime – even if you’re not in yourself. 

To discover more about BrightHR software, get in touch today on 0800 028 2420.