Question: What are the rules on when to apply overtime penalty rates?

This question was recently answered by our workplace advice line.

Answer: Overtime rates are not mentioned in the Fair Work Act so not all employees can expect higher rates of pay for working overtime. Most modern awards and enterprise agreements (EAs), as well as some contracts of employment, have overtime clauses and it’s from these ‘industrial instruments’ that any entitlement to overtime rates will come. 

There are three main triggers for overtime which must be applied in the order specified below and assessed against each hour worked, in order from the first to the last hour in each pay cycle.

1: Working outside the ordinary range of hours

An award/EA will usually specify the range in which ordinary hours can be worked:

For example, the ordinary range may be: 

Monday – Friday 6am – 6pm; and Saturday 8am-12 noon.

Any hours worked outside that range are automatically overtime. 

So a 5 am start on Monday is one hour of overtime in this example. 

2: Working in excess of the maximum number of ordinary hours in a day

Many awards/EAs will specify a maximum number of ordinary hours (which includes paid breaks) that can be worked in any one day or shift. 

For example, eight ordinary hours per day or shift is common, often with an option to extend that to 10 ordinary hours with the employee(s) agreement. 

Once that maximum number of ordinary hours have been worked all remaining hours worked in that day or shift will be paid at overtime rates.

Note: These triggers are based on the ordinary hours worked. So in our first example under trigger 1 where an employee started at 5am and earned an hour of overtime that employee can still work eight ordinary hours and only becomes eligible for overtime rates again, under this second trigger, when working past their 9th hour.

3: Working in excess of the average ordinary hours per week 

Ordinary hours are generally 38 per week for full-timers and casuals, often less for part-timers.

Most awards/EAs will allow for ordinary hours to be averaged over a period of one to four weeks with some allowing for much longer periods. Businesses can choose to use an averaging period that is longer than the pay cycle.

Once the maximum number of ordinary working hours has been exceeded then overtime rates will apply for all remaining hours worked in the period. Again making sure not to count as ordinary hours any hours already paid as overtime under the first two triggers above. 

The penalty rates for overtime are specified in an employee’s award/EA. Typically overtime rates start at time-and-a-half for the first two to three hours on each new day or shift, then double time for the rest of that day or shift. Sunday is usually all double time. Shift penalties will normally not apply to overtime. Casual overtime rates vary between awards depending on how the casual loading is accounted for.

There are other ways to compensate for overtime that don’t involve penalty rates. Many awards and EAs allow for paid leave instead which could be in the form of a rostered day off (RDO) system, or with individual written agreements for paid time off in lieu (TOIL).

Some instruments also provide for an extra paid break when a certain amount of overtime is worked. Others will specify that after working overtime an employee should have a minimum number of hours off before returning to work.

Overtime hours do not accrue any annual leave, personal leave, or long service.

The bottom line: All the rules on how to apply overtime will be contained within an employee's award or enterprise agreement. The trick is to apply those rules in the right order.

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Disclaimer: While all due care has been taken in the preparation of this information, and it is believed to be accurate, no warranty of accuracy or reliability is given and no liability is accepted for errors or omissions or loss or damage suffered as a result of a person acting in reliance thereon. This information is not legal advice. If a legal opinion is sought please contact your legal advisor.

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