National Minimum Wage and time off in lieu (TOIL)

04 August 2022

Time off in lieu (TOIL), or “flexi” or “flexible time”, has become an increasingly common method adopted by employers in the drive to be more agile and adaptable in meeting the growing needs of the business whilst, crucially, striking a balance with the health and well-being of a flexible workforce.

Overtime policies don’t suit all businesses, and some workers even prefer the flexibility to manage their workload and take time back when it better suits them. Whatever reason the business has for operating TOIL, and whether this is by a formal policy with stringent control procedures, an informal policy managed by team managers, or a mixture of the two, there is an increasing spotlight on this area from a National Minimum Wage (NMW) compliance perspective.  

The spotlight on TOIL

HMRC’s ever-increasing focus on employers’ working time records inevitably means more scrutiny of TOIL arrangements. It has also been bought to the forefront of pro-active compliance support we have provided to employers when considering the change in salaried worker rules (for which employers had until April 2022 to implement changes to ensure compliance).

Unfortunately, there isn’t a ‘one size fits all’ fix for managing compliance with NMW in this area. Like any working time consideration for NMW, it depends on which of the four worker categories you engage and the worker fact pattern, and requires a control process/records to demonstrate that at least NMW has been paid in the relevant pay reference period.

How is TOIL treated for National Minimum Wage purposes?

In the last professional adviser meeting I attended with Department for Business, Energy and Industrial Strategy (BEIS) and HMRC, HMRC re-iterated its view that TOIL is not a feature in the NMW legislation. Although, HMRC is correct that the legislation doesn’t specifically mention TOIL, but to go as far as to say it’s not a feature when considering NMW compliance, is a little misleading.

If we take the two most common worker types to which TOIL is likely to apply - salaried and unmeasured workers - we can broadly summarise the potential treatment as follows:

  1. Salaried worker

The treatment of TOIL has to be factored into the excess hours calculation, i.e. the requirement under the regulations to check if the worker has exceeded their basic hours in the calculation year. If they have, the employer has to determine if an additional payment should be made to the worker to ensure that they have received at least NMW for all hours worked in the calculation year.

There is a long list of criteria to follow to calculate excess hours, so adding in TOIL is no easy task. Not only will it require adequate records to determine what time has been worked and not paid, but the exact timing of when the TOIL is taken back is required to reconcile whether this is within the worker’s calculation year. Unless an employer has sent communications to its workforce to change the calculation year (which is a possibility under the new salaried worker rules), then typically each worker will have a different calculation year, as this varies depending on the start date of their employment.  

  1. Unmeasured worker

For an unmeasured worker, the NMW rules require you to monitor a worker’s pay on a ‘pay period’ basis. Therefore, one control method employers typically look to apply for this category of worker is to ensure that any additional time a worker has worked during pay period 1 is taken off in lieu by the end of pay period 2.  

However, a word of caution on this approach. HMRC’s view is that if the TOIL is not taken back in the same pay period, i.e. pay period 1, then the TOIL has to be considered for NMW purposes. Practically, this means that if any other payment for leave is made in pay period 2, this may prevent or mitigate an offset of the TOIL worked in pay period 1. Similarly, if there is other unpaid working time or payroll deductions which reduce NMW pay, then this would also reduce the offset for the TOIL.

Protecting your organisation

The overriding message for any employers operating a TOIL policy is that record keeping will be key, but more importantly, a policy control framework which reflects the NMW worker category is a necessity.

However, another word of caution. In the majority of the cases we have come across where an NMW underpayment arises, this is not due to deliberate action, but instead arose because the employer was unaware that the worker was working for the time in question. It is, therefore, key that a considered communication and training strategy is implemented to ensure supervisors and team leaders across the business are aware of the importance of sticking to the policy and monitoring workers’ patterns against this.

If it doesn’t work for their team, it’s far better to flag internally and find another solution, than taking their own initiative to try and instigate change with the right intentions (the latter of which may lead to unfortunate consequences for NMW purposes).

If you have any questions regarding your NMW position and require assistance, please do not hesitate to get in touch with Kyle Newton, or your local expert:

Scotland –
Mike Hepburn

Yorkshire, North East,
North West & Midlands -
Kyle Newton

Bristol, Reading & Southampton –
Caroline Jones

East of England,
South East & London –
John Weston