Overtime and Federal Employment Law
In Australia, an employment relationship is generally structured to be a set salary in return for a set number of work hours. When the employee works beyond those hours, it is known as overtime. Depending on the relevant award, agreement or contract, an employee is entitled to penalty rates or time off in lieu. Overtime in Australia is regulated under the Fair Work Act 2009 (Cth), and breaches of these responsibilities carry penalties. This article explains the rights of employers and employees when it comes to overtime in Australia.
What Is Overtime?
Overtime refers to the hours of work performed beyond an employee’s ordinary hours of work, outside of the employee’s agreed number of hours, or outside their typical shift period. Usually, overtime rates are set out in the employee’s registered agreement, enterprise agreement, or award.
Modern awards and most enterprise agreements calculate overtime payments as a multiple of the employee’s normal hourly pay rate. Modern awards sometimes have special overtime rates for shift workers and working extra on the weekend or public holidays.
Otherwise, overtime is typically paid:
- Time and a half (150%) of ordinary rate in the first 2-3 hours; and
- Double time (200%) of ordinary rate after the first 2-3 hours.
In the event that an employee does not have coverage under an award or agreement, then their entitlement to be paid extra for extra work depends on their employment contract. Such an employee is unlikely to receive overtime unless they are a shift supervisor in the manufacturing sector.
An employer is legally entitled to ask an employee to work reasonable overtime. The definition of reasonable in this instance includes consideration for:
- Any risk to the employee’s health and safety;
- Operational requirements and work patterns;
- The employee’s personal circumstances, especially family responsibilities;
- Whether the employee’s base pay is higher to reflect the fact that the role requires overtime;
- Entitlement to overtime pay and penalty rates;
- The amount of notice that the employee was given; and
- Whether the employee has informed the company that they cannot work overtime.
How Much Is Reasonable?
The federal government regulates minimum National Employment Standards (NES) throughout Australia to cover an employee’s maximum hours of work, leave, flexible work arrangements and redundancy entitlements. These standards specify that only the employer can decide that extra work hours are needed, and an employee does not have an automatic right to be paid extra unless it is specified in the employment contract. Under the NES, a full-time employee works overtime if they work anything over 38 hours in a week. For a worker who is not full time, overtime is hours in excess of ordinary working hours or 38 hours, whichever is less.
Can An Employee Refuse?
An employee can refuse to work extra hours if the request is unreasonable according to the criteria outlined above. It may, in fact, be reasonable for an employer to ask the employee to work extra, but they can refuse to comply on the basis that it is not reasonable in light of their circumstances. For example, an employer might reasonably request that a team of employees stay at work for an extra two hours to finish a project by a tight deadline. However, a team member may find this an unreasonable request if they are the primary carer of a young child who must be collected from daycare, and there is no reasonably practicable way to make alternative arrangements on such short notice.
Some industries and companies allow employees to take leave or time off during ordinary work hours instead of overtime pay. This type of arrangement is known as “time off in lieu” or TOIL. TOIL policies vary slightly according to industry but share similar features, such as:
- An employee may only take TOIL with permission (usually in writing);
- The TOIL must be taken at a mutually agreeable time;
- The accumulated benefit must be taken within a set period, such as within six months. Otherwise, the overtime will be paid out;
- The employee may choose at any time to be paid overtime instead of TOIL;
- An employer cannot coerce the employee into taking TOIL; and
- An employee’s entitlement to TOIL or overtime must be paid out at the end of employment.
Not everyone can access TOIL. An employee that is not entitled to TOIL through an award or agreement can only substitute overtime for paid time off if it is provided for in their employment contract and with the agreement of their employer.
However, TOIL does suit many employers as it allows them to request their staff to work extra during busy periods and grant TOIL during slower periods without having to increase salary costs by paying penalty rates. It, therefore, suits industries where an employee can be absent during some ordinary hours without impact on work production. This is also the preferred choice for some employees, who gain valuable free time during business hours to make, for instance, medical appointments or attend school functions.
Employees should be careful to ensure that their overtime and TOIL is correctly calculated, and employers must take care to ensure that the correct award and penalty rate is applied. It is essential that a company have a firm grasp of the rules that apply in each case as there are significant penalties involved with incorrect payment of entitlements.
If you have any questions about overtime entitlements, please contact Armstrong Legal today on 1300 038 223.