Managing people

How overtime pay works

Overtime is work performed outside an employee’s span of ordinary hours.

Most awards specify limitations on the ordinary working hours of employees covered by the award. 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.

‘Overtime’is applied to all hours worked in excess of these limitations.

What is considered ‘overtime’?

Overtime, in most cases, includes all time worked by day workers:

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
outside the times during which the award requires the ordinary hours to be worked each day.
In the case of shift workers, overtime generally includes all time worked
in excess of the maximum hours fixed for each day
in excess of the maximum hours fixed for each week
in excess of the maximum hours fixed for any 14 consecutive days or longer period specified
in excess of a specified number of shifts per week or day or other period specified.

The National Employment Standards (NES) prescribe the maximum weekly hours which a full-time employee can be required to work as 38, plus reasonable additional hours.

When determining whether additional hours are reasonable, the following factors are to be considered:

any risk to employee health and safety from working the additional hours
the employee’s personal circumstances, including family responsibilities
the needs of the workplace or enterprise in which the employee is employed
whether the employee is entitled to receive overtime payments, penalty rates or other compensation for, or a level of remuneration that reflects an expectation of, working additional hours
notice (if any) given by the employer of any request or requirement to work the additional hours
the notice (if any) given by the employer of his or her intention to refuse to work the additional hours
the usual patterns of work in the industry, or the part of an industry, in which the employee works
the nature of the employee’s role, and the employee’s level of responsibility
whether the additional hours are in accordance with the averaging terms of the modern award or enterprise agreement that applies to the employee, or with an averaging arrangement agreed to by the employer and employee under s64 of the Fair Work Act
any other relevant matter.

Understanding the overtime allowance

An employer should be wary of any arrangement in a contract of employment where an employee receives an 'overtime allowance' to compensate for working extra hours.

Where an employee receives regular payment, even if working irregular hours, industrial courts have determined this 'allowance' would form part of the employee's ordinary remuneration for the purposes of calculating the employee's entitlements.

When is an employee authorised to work overtime?

No employee is entitled to the payment of overtime or penalty rates unless such overtime is authorised by an employer. Self-authorisation of overtime by employees trusted to work alone or in responsible management positions has never been recognised by tribunals.

Overtime under such circumstances is allowed only where it’s expressly or impliedly authorised and it may be authorised by implication where the circumstances permit no alternative.

Calculating overtime pay for casual employees

Casual employees who work outside the span of ordinary hours prescribed by the applicable industrial instrument, or in excess of the maximum ordinary weekly hours, are entitled to the appropriate overtime penalty rate prescribed by the instrument. The instrument may also limit the number of ordinary hours an employee (including a casual employee) may work each day.

As a general rule in modern awards, where penalties apply, the penalties and the casual loading are both to be calculated on an employee’s ordinary time rate.

Where an industrial instrument provides for a span of ordinary hours, eg 6:00am to 6:00pm, Monday to Friday inclusive, any work performed by a casual outside these hours is regarded as overtime and, therefore, not included in ordinary time earnings (used to calculate superannuation guarantee contributions).

Directing an employee to work overtime

Overtime is paid to an employee when directed to perform such work by an employer. Overtime is not payable where the employee initiates a request for work or performs work by their own choice.

An employer who knowingly allows an employee to perform overtime without directing the employee to cease work may be required to pay overtime under such circumstances.

Double time payments

Most awards provide that overtime shall be paid at time and a half for the first two (or three) hours worked each day and double time thereafter. Where an employee under an award works overtime before their usual start time and again works overtime after their normal end time the relevant overtime formula is applied to all overtime hours worked that day.

For example, where the award prescribes time and a half for the first two hours and double time thereafter, an employee who worked two hours overtime before commencing the day’s work and who also worked overtime after their normal finishing time on the same day would be entitled to payment at double time rates as soon as they commenced work for the second period of overtime.