This situation may arise where an employee who is retrenched has habitually worked “extra hours”. If they are “reasonable extra hours”, it is most likely they were paid at the ordinary rate of pay (e.g. because they did not exceed the daily limit – see under “what is overtime” below). 

The Fair Work Act 2009 (s119(2) provides that redundancy pay is the amount payable at the employee’s “base rate of pay” for their “ordinary hours of work”. It would seem this means the employee’s contracted number of ordinary hours per week. The base rate of pay excludes, among other payments, overtime (whether or not it attracts a penalty rate) and other separately identifiable amounts. 

The Act does not provide an averaging mechanism for determining the base rate of pay (or any other employment arrangement, except for pieceworkers). Of course, the employer could apply an averaging system as this would be more beneficial than the requirement under the National Employment Standards (NES).  

 

What is overtime? 

Hours that are considered overtime are not included in an employee’s base rate of pay for the purpose of redundancy pay under the NES. 

Most modern awards and enterprise agreements specify limitations on the ordinary hours of work of employees. These limitations usually relate to the number of hours that may be worked on any day or in any week or other period specified, as well as the times each day during which such hours may be worked. The term “overtime” is applied to all hours worked in excess of the limitations prescribed. 

Overtime in most cases includes all-time worked: 

  • in excess of the maximum number of hours fixed for each day 
  • in excess of the maximum hours fixed for each week 
  • before the usual starting time or after the usual finishing time each day, and 
  • outside the times during which the award or agreement requires the ordinary hours to be worked each day.

The High Court determined that, in the absence of a specific provision to the contrary in the applicable award or agreement, hours worked outside the span of ordinary hours prescribed by the relevant industrial instrument are considered overtime.