Often used in contracts and other legalese, the term “in lieu of” quite simply means in place of or instead of. The term offers a quick and direct way for organizations to express when one thing is being substituted for something else. The easiest way to think about it is this in place or instead of that. In business, in lieu can be seen used in a number of places. Below are the more common examples its use.
Paid time off in lieu of overtime pay
While most companies are obligated to provide employees with overtime pay, employers can offer employees an option to take paid time off (vacation time) in place or in lieu of overtime pay. Employer may do this for multiple reasons including managing the organization’s cash flows or protecting a client’s project budget. Paid time off in lieu of overtime pay may also be offered as a way to promote work-life balance for employees who may be logging long hours on a tough project or during busy season.
How much paid time off an employee is entitled to may be calculated differently depending on company policies and the jurisdiction that the business operates in. There may also be restrictions as to when the employee must take this time off. Employers should consult with a tax attorney and or compensation consultant to ensure that the company’s paid time off in lieu of overtime pay policies are in line with all legal requirements.
Pay in lieu of notice
In most jurisdictions, when an employer terminates an employee, they must provide the employee with sufficient notice. Pay in lieu of notice, or termination pay, is when the employer pays out the employee’s notice period, thus allowing the employer to release the employee immediately. Employers may choose to provide pay in lieu of notice to minimize potential retaliation by the employee and to reduce the impact of the departure on the rest of the team and corporate culture.
Notice is calculated differently depending on the jurisdiction of the company and will directly impact the amount that is paid to a terminated employee. It is typically tied to how long an employee has been with the company. With that said, if an employer finds themselves in a position where they need to terminate an employee, it is better to address it sooner rather than later. Employers should also note that pay in lieu of notice is not the same as severance pay, which may be owed to the employee in addition to termination pay. Always consult with HR and tax attorneys to determine what needs to be paid to the employee upon termination.
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Pay (cash) in lieu of benefits
Some companies provide pay in lieu of benefits, which is where an employee opts out of receiving and participating in benefits, such as health and dental, in return for cash. Companies with a diverse group of employees may provide pay in lieu of benefits as it empowers employees to pick what they want their benefits to look like. This is particularly attractive for employees who may already receive benefits through other means (e.g. health benefits through their spouse). Also, employers may prefer to pay in lieu of benefits in certain cases where paying out cash is more cost-effective.
Benefit packages are one of the pinnacles of an employee’s overall compensation. Being able to provide choice as part of the compensation package adds tremendous value and can be a significant factor when recruiting top talent and negotiating overall pay. Companies that choose to provide pay in lieu of benefits should ensure that policies are documented and that all agreed-upon benefits are reflected in the employment contract.
In lieu of travel (or alternative travel)
Companies, where employees spend a significant amount of their work time travelling, may offer in lieu travel, or alternative travel, as a perk. In lieu travel is when an employee travels to an alternative destination rather than back home after a work trip. For example, an employee, who based in Chicago, travels to see a client in San Francisco from Monday through Thursday. Instead of travelling back to Chicago on Thursday, the employee may opt to travel to Los Angeles for a personal trip for the weekend.
This perk is typically seen in large consulting firms where employees are on the road frequently and has even been used as a tool for attracting potential employees. Many companies bill travel expenses directly to the client and with that do not care where their employees travel to and from, so long as the travel is within the client’s budget. For companies that choose to offer in lieu travel, it is recommended that policies be in place to clearly define when in lieu travel is appropriate and how employees should go about booking alternative travel.
Cash in lieu of fractional shares
Fractional shares are created when an organization undergoes an event such as a stock split or a merger. They are not typically traded on the open market which may make them unfavorable for existing shareholders as they lack liquidity. To address this, organizations will typically offer cash in lieu of fractional shares, where organizations will pay out the fractional share amounts with cash.