How do you calculate overtime penalty rates?

Let’s consider this example: an employee works one hour’s overtime each day for two weeks. He is paid an overtime rate of time and a half, as prescribed by the applicable modern award (Meat Industry Award 2010). The award states that overtime is paid at time and a half for the first three hours and double time thereafter. The employee claims the penalty rate should be applied to the aggregated overtime hours (total of 10 hours over two weeks) during the relevant pay period. This would mean the overtime is calculated at time and a half for the first three hours and the remaining seven hours would attract double time.

So, what is the correct method of applying the penalty rate in this circumstance?

The Meat Industry Award 2010 (cl 36.1) states that all time worked outside ordinary working hours on any day will be deemed to be overtime, to be paid at the rate of time and a half for the first three hours and double time thereafter.

This means that in computing overtime, each day’s work stands alone. In this case, the one hour of overtime worked each day is paid at time and a half. The overtime penalty would not be calculated on the employee’s aggregated overtime hours worked over the two weeks.

How is overtime calculated?

A general principle of overtime in modern awards is that in computing overtime, each day’s work stands alone. As such, the overtime worked on each day is treated separately. It can also be implied that overtime is calculated daily where the applicable modern award provides a span of daily hours in the ‘hours’ clause. This is important in circumstances where an employee works overtime before the start of their ordinary hours and after their normal finishing time on the same day. 

For example, let’s say this employee worked two hours overtime before their ordinary start time and two hours after their normal finishing time. This means the penalty rate is applied to the total number of hours overtime worked that day. Consequently, the last hour worked after the normal finishing time would be paid at double time (based on time and a half for the first three hours and double time thereafter).

A modern award or an enterprise agreement may contain terms which specifically prescribe those hours which are considered overtime, contrary to the general principle. An example is the Pastoral Award 2010 in relation to employees working in certain sectors of the pastoral industry.

What is overtime?

The applicable modern award or enterprise agreement will determine which hours of work are considered overtime. The term “overtime” is applied to all hours worked in excess of the limitations prescribed by the applicable modern award or enterprise agreement.

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
• outside the times during which the award or agreement requires the ordinary hours to be worked each day.

The bottom line: Generally, the overtime penalty rate is calculated on the number of hours overtime worked each day, unless otherwise prescribed by the applicable modern award or enterprise agreement.