Managing people

What is overtime?

Determining what constitutes overtime isn’t always straightforward. Learn more about overtime here.

21 September 2021

Overtime is not a statutory employment entitlement, however most modern awards and enterprise agreements specify limitations on the ordinary hours of work of employees, with the payment of a penalty rate for worked performed outside the prescribed ordinary hours of work.

High Court decision

Some years ago, the High Court was asked to determine the meaning of ‘overtime’ in considering an interpretation of ‘ordinary remuneration’ under Superannuation Guarantee legislation. The case involved casual employees who only worked weekend hours, which fell outside the span of hours prescribed by the Queensland Clerical Employees Award.

Remuneration for these weekend hours was deemed overtime by the court and not included in ordinary time earnings for the purposes of the Superannuation Guarantee legislation.

This interpretation overturned years of accepted case law on the nature of overtime. The High Court decided that, in the absence of a specific provision to the contrary in the applicable industrial instrument, hours worked outside the span of ordinary hours prescribed by the relevant industrial instrument are considered overtime.

Although this decision was determining hours of work performed by casual employees, it also dealt with hours worked by full-time and part-time employees who perform some or all of their work outside the span of ordinary hours prescribed by the applicable industrial instrument. See Australian Communication Exchange Ltd v Deputy Commissioner of Taxation [2003] HCA 55. 

Each day stands alone

Overtime provisions under most industrial instruments contain a provision that in computing overtime each day’s work shall stand alone. In such cases the overtime worked on each day is treated separately.

It can also be implied that overtime is calculated on a daily basis where the applicable instrument provides a span of daily hours in the hour's clause.

This is important in circumstances where an employee works overtime before the start of ordinary hours and after their normal finishing time on the same day. For example, the instrument prescribes overtime at the rate of time-and-a-half for the first two hours and double time thereafter.

An employee works two hours overtime prior to their ordinary hours and two hours after their normal finishing time. In this case, the penalty rate is applied to the total number of hours overtime worked that day, meaning the two hours worked after the normal finishing time are at double time.

Similarly, if the same employee works two hours overtime each day (total of 10 hours overtime for the week), the penalty rate is applied to the overtime hours worked each day, meaning all 10 hours would be at time-and-a-half (two hours overtime each day).

The formula would not be applied to the total overtime hours worked in the week (i.e. first two hours at time-and-a-half and double time for the resulting eight hours). 

Is overtime allowance ordinary pay?

Payment for overtime must be a separately identifiable amount otherwise the nature of the payment may change. An employee’s salary that includes an ‘overtime allowance’ to compensate for the requirement to work overtime may be regarded as part of an employee’s ordinary pay.

In circumstances where an employee receives regular payment, despite working irregular hours, the total remuneration could form the basis of any calculation of ordinary pay, and be payable for leave entitlements and Superannuation Guarantee calculations.

Also, an employer should be aware that when agreeing to an annualised salary arrangement with an employee, the nature of any overtime component could automatically alter to the nature of the amount to ordinary pay. 

Paid leave and overtime

Does paid leave affect the calculation of overtime?

Consider this scenario: a full-time employee took two days' annual leave and worked 10 hours on Wednesday, Thursday and Friday. This meant the employee physically worked 30 hours that week with two days taken as annual leave based on the employee’s ordinary hours usually worked on those days.

If the hours for the period of paid annual leave are included in the total hours worked that week (15.2 hours), the total number of hours is 45.2. Does this mean the employee is entitled to overtime when the hours exceed 38 in that week?

In this case, the answer is yes. The minimum hour's provision under the National Employment Standards (s62(4)) states that the hours an employee works in a week are taken to include any hours of leave, or absence, whether paid or unpaid, that the employee takes in that week and that are authorised.

This means the annual leave period is considered to be time worked for the purpose of determining the employee’s overtime hours.

A similar situation with overtime would occur if the employee was absent on paid personal/carer’s leave or if a public holiday fell in that week.

The bottom line: The hours of work that attract the appropriate overtime penalty rate are determined by the terms of the applicable modern award or enterprise agreement.

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