Time Off In Lieu (TOIL) In New Zealand: Managing Alternative Leave

If you run a small business, it’s pretty common to have team members working outside the “standard” Monday-to-Friday schedule - weekends, evenings, and yes, public holidays.

That’s where time off in lieu (often shortened to TOIL) comes up. But in New Zealand, TOIL can mean different things depending on the context. Sometimes it’s a voluntary arrangement you agree to with your employee, and sometimes it’s a legal entitlement triggered under the Holidays Act 2003 (most commonly when someone works a public holiday).

This guide breaks TOIL down from an employer perspective, so you can confidently manage rostering, payroll, and leave records - while staying compliant and avoiding the kinds of disputes that can snowball fast.

What Does “Time Off In Lieu (TOIL)” Mean In New Zealand?

In everyday workplace language, TOIL generally means an employee works extra time (or works at an inconvenient time) and instead of being paid extra cash, they take paid time off later.

However, under New Zealand law there are two common “types” of TOIL that employers talk about:

1) Alternative Holidays (Holidays Act TOIL)

This is the most “official” version of TOIL under the Holidays Act 2003. It usually happens when:

• an employee works on a public holiday, and
• that public holiday would otherwise have been a working day for them.

In that case, they’re generally entitled to:

• time-and-a-half pay for the hours actually worked, and
• an alternative holiday (a paid day off they can take later).

This is the TOIL concept most closely tied to “alternative leave under the Holidays Act”.

2) Contractual TOIL (Agreed Time Off Instead Of Extra Pay)

Separately, you might agree with an employee that if they work extra hours (for example, overtime during a busy period), they can take equivalent paid time off later.

This can be lawful, but it must be set up carefully so you don’t accidentally:

• undercut minimum entitlements (like minimum wage),
• create confusion about what’s “leave” vs what’s “hours worked”, or
• trigger payroll mistakes that cause Holidays Act compliance issues.

If you want a broader overview of TOIL, it can also help to check how it fits alongside overtime and rostering practices (for example, Working Overtime expectations and pay terms).

When Is TOIL (An Alternative Holiday) Required Under The Holidays Act 2003?

For employers, the key point is this: if an employee works a public holiday that would otherwise be a working day for them, they generally become entitled to an alternative holiday.

That entitlement is not something you can “trade away” by agreement (for example, by saying “we’ll just pay your usual rate and you won’t get a day in lieu”). The Holidays Act sets minimum standards.

Step 1: Confirm It’s A Public Holiday

New Zealand public holidays are set nationally (and in some cases regionally, depending on the day observed).

If your business operates in hospitality, retail, healthcare, logistics, or similar, you’ll often have staff scheduled on those dates - so it’s worth building a clear process for checking public holiday calendars before finalising rosters.

Step 2: Decide Whether It Would “Otherwise Be A Working Day”

This is where many employers get tripped up.

A public holiday only triggers an alternative holiday entitlement if the day would otherwise have been a working day for that employee. That depends on the employee’s actual work pattern, including things like:

• their employment agreement and agreed hours,
• their roster,
• the last few weeks/months of work patterns (especially for variable schedules), and
• any other relevant factors showing the “real” working pattern.

If you’re running rotating rosters or casual/variable shifts, it’s especially important to apply a consistent approach and keep good records (because disputes usually come down to evidence).

Step 3: Pay Time-And-A-Half For Hours Worked

If the employee works on the public holiday, you generally must pay at least time-and-a-half for the hours they actually worked on that day.

Even if you provide an alternative holiday, the time-and-a-half payment obligation still applies.

Step 4: Provide The Alternative Holiday

If it’s an otherwise working day, the employee earns one alternative holiday (a paid day off) to be taken later by agreement.

Practically, this means your payroll and leave system should record an “alternative holiday” balance separately from annual leave and sick leave.

If you’re trying to systemise all of this, having clear written terms and a consistent payroll workflow is crucial - and it often starts with having the right Employment Contract in place for each role.

Can You Offer TOIL For Overtime Or Extra Hours?

Yes, employers can agree to TOIL-style arrangements for overtime or extra hours - but you need to be careful about how you structure it.

The Holidays Act specifically governs minimum leave entitlements like annual holidays, sick leave, and alternative holidays for public holidays worked. Outside of those minimum entitlements, you and your employee can agree on additional benefits and flexible arrangements.

That said, a “TOIL for overtime” arrangement can create legal and payroll risks if it’s vague or inconsistently applied.

When TOIL For Extra Hours Can Make Sense

TOIL arrangements can be helpful where:

• your business has seasonal peaks (for example, events, retail peak periods, or project deadlines),
• you want flexibility without constantly paying overtime rates, and
• the employee prefers time off rather than extra pay.

Key Compliance Issues To Watch

Before you roll out a “TOIL instead of overtime pay” approach, check these points:

• Minimum wage risk: if TOIL means extra hours aren’t paid as wages when they’re worked, you can create underpayment issues over time (including if total pay divided by total hours worked ends up below the minimum wage).
• Record-keeping risk: if you don’t document when TOIL was accrued and when it was taken, it becomes hard to prove what was agreed.
• Misclassification risk: TOIL (for extra hours) is not the same thing as an alternative holiday (earned on public holidays), and confusing the two can lead to incorrect leave balances.
• Expectation drift: informal TOIL can become an “unwritten policy” that team members rely on, even if managers apply it differently.

To keep it practical, many small businesses set up clear rules in a workplace policy or handbook so managers apply TOIL consistently across the team (for example, via a Staff Handbook).

How Do You Document TOIL Properly As An Employer?

Good TOIL management is mostly about clarity. When expectations are clear, payroll is simpler, rostering is fairer, and disputes are much less likely.

At a minimum, you want TOIL rules documented in writing (and aligned across your employment agreements, policies, and payroll practices).

What To Include In Your Employment Agreement

Your employment agreement should clearly address things like:

• the employee’s ordinary hours/days of work (or how rosters are set),
• how you manage public holiday work (including time-and-a-half and alternative holidays),
• any overtime rules (when it applies, who approves it, how it’s paid), and
• whether you offer any additional TOIL arrangement for extra hours (and on what terms).

This is the kind of detail that’s hard to “patch” after the fact - it’s much easier to set expectations from day one with a properly tailored Employment Contract.

What To Put In A TOIL Or Leave Policy

Your policy can go a step further and explain the day-to-day process, including:

• how employees request TOIL (and how far in advance),
• how managers approve TOIL,
• any blackout periods (for example, peak season),
• how TOIL is recorded in your timekeeping system, and
• timeframes for taking TOIL (to stop balances ballooning).

Also consider how TOIL interacts with breaks and fatigue management. If staff are consistently doing long shifts, you still need to comply with rest and meal break rules (see Work Breaks).

A Quick Note On “Handshake” TOIL

Informal TOIL (“Just take a day off next week”) can feel easy in a small team, but it often becomes messy when:

• the business gets busier,
• management changes,
• the employee resigns, or
• there’s a disagreement about how many hours were actually owed.

Even simple written confirmation (and accurate leave records) can save a lot of stress later.

Managing TOIL In Practice: Rosters, Records, Payouts, And Common Mistakes

Once you’ve got the legal concept right, the next challenge is operational: making sure TOIL is tracked, taken, and paid correctly.

Keep TOIL Records Clean (This Is Not Optional)

Good record-keeping is a core compliance issue under NZ employment law, and it becomes especially important for anything tied to the Holidays Act.

At a practical level, you should be able to quickly show:

• the public holiday worked (date and hours),
• whether it was an otherwise working day,
• time-and-a-half payment made for hours worked, and
• the alternative holiday balance accrued and later taken.

If you’re offering additional TOIL for extra hours, your records should also show:

• when the extra hours were worked,
• who approved them,
• the conversion method (e.g. 1:1 hours, or some other agreed rate), and
• when the TOIL was taken.

Don’t Let TOIL Balances Build Up Indefinitely

In a busy small business, it’s easy to keep postponing TOIL. But large TOIL balances create:

• fatigue risks (employees not getting proper rest),
• cashflow risk (if TOIL needs to be paid out on exit), and
• dispute risk (if nobody remembers what was agreed six months later).

A simple solution is setting expectations that TOIL should be taken within a reasonable timeframe, subject to operational requirements.

What Happens To TOIL When An Employee Leaves?

Employees leaving is where TOIL issues often surface.

For alternative holidays (Holidays Act entitlements), you’ll generally need to ensure the employee receives what they’re entitled to. If an alternative holiday hasn’t been taken, it may need to be paid out in certain situations (for example, where it’s not taken before the employee’s employment ends), depending on the circumstances and what the Holidays Act requires.

For contractual TOIL (agreed time off for extra hours), what happens on termination should be clearly set out in the employment agreement or policy. If it’s unclear, you risk an argument over whether it should be paid out as wages or treated as already “balanced”.

It’s also worth checking your termination processes more broadly, because leave and notice periods tend to overlap in practice. For example, if you’re ending employment and considering a payout instead of the notice period, it needs to be handled correctly as Payment In Lieu Of Notice.

Common TOIL Mistakes Employers Make (And How To Avoid Them)

• Calling everything “TOIL”: alternative holidays (public holiday TOIL) and “overtime TOIL” are different and should be recorded separately.
• Not paying time-and-a-half on public holidays: providing an alternative day doesn’t remove the time-and-a-half obligation.
• Inconsistent approvals: one manager is generous with TOIL, another refuses it - and suddenly you’re dealing with perceived unfairness or grievances.
• Poor roster design: unclear work patterns can make “otherwise working day” decisions harder to justify later.
• Using TOIL to manage reduced workflow: if you’re trying to “send staff home early” due to low demand, that can raise separate issues about pay, agreed hours, and process. In those situations, it’s worth thinking carefully about approaches like Reducing Staff Hours (and getting advice early).

If you want a deeper look at how TOIL is typically approached in NZ workplaces, Time Off In Lieu is a useful starting point - but the best outcome usually comes from tailoring your TOIL approach to your roster model and your industry.

Key Takeaways

• Time off in lieu (TOIL) in NZ often refers to an alternative holiday under the Holidays Act 2003, especially when an employee works a public holiday that would otherwise be a working day.
• If an employee works a qualifying public holiday, they’re generally entitled to time-and-a-half pay for hours worked and an alternative holiday (these are separate entitlements).
• You can agree on TOIL for overtime or extra hours, but it should be clearly documented and must not undermine minimum legal rights (including minimum wage and Holidays Act entitlements).
• Strong TOIL management comes down to clear written terms, consistent manager approvals, and reliable record-keeping of accrual and use.
• Untidy TOIL balances can create cashflow and compliance risk, particularly when employees leave - so set timeframes and processes to keep balances under control.
• If you’re unsure whether a day is an “otherwise working day”, or how TOIL should work in your business model, it’s worth getting advice early to avoid expensive Holidays Act mistakes later.

Note: This article is general information only and isn’t legal advice. For advice about your specific situation, it’s best to get tailored guidance.

If you’d like help setting up TOIL terms, reviewing your employment agreements, or putting a clear workplace policy in place, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.