Working additional hours (i.e. overtime) is a common practice in many industries, but especially for small businesses that need to adapt quickly to changing workloads and a roster of casual staff.
As a small business owner, you need to familiarise yourself with the latest overtime pay and rates so that your employees are fairly compensated – and you are compliant with Australian employment laws.
What is the meaning of overtime work?
Overtime work is simply a term used to describe any hours worked beyond the ordinary hours – that is, hours that have been stipulated in an employment contract or the standard working hours defined by the relevant award or agreement.
In Australia, ordinary hours are, on average, set at 38 hours per week for full-time employees. Any work performed beyond these hours is considered overtime. Separating ‘overtime’ from ‘normal hours’ means employees are able to be paid at a higher rate for the extra time they have dedicated to their job.
There are many difficult reasons why overtime can arise, from an unexpected surge in the regular workload to special projects that need more staff on-site or covering for absent colleagues (e.g., sick or on holiday). Both employers and employees should have a good understanding of the conditions under which overtime applies and the rates at which it should be compensated. It’s the best way for staff to enjoy a healthy work-life balance while small business owners abide by their legal obligations.
What is overtime in Australia?
For Australian businesses, overtime is defined as any time worked beyond the ordinary hours of work as specified in the applicable award or agreement. While in most cases this amounts to 38 hours per week for a full time employee (e.g. 9am to 5pm, Monday to Friday), the specific hours will depend on the industry, the job role, as well as how the business itself operates.
Reasonable overtime can include any work performed outside the standard daily working hours, such as late nights or weekends, unless these times are already considered part of the normal hours under an agreement.
The Fair Work Ombudsman is in charge of all regulations around overtime. Overtime rates, which are higher than modern award rates, are often updated in line with various factors. So as an employer, you will need to stay across these exact rates to stay compliant with the Fair Work Act and avoid any potential disputes or legal issues.
Time off in lieu
Time off in lieu (TOIL) is an arrangement where employees are given time off instead of receiving overtime pay. This means that instead of being paid for the overtime hours worked, staff can take an equivalent amount of time off at a later date.
For many workers, TOIL can be a great alternative to enjoy more work-life balance, while for employers it can help you manage your day-to-day workloads more effectively.
Be aware, however, that in order to roll out TOIL in your workplace, it must first be agreed upon by both employer and employee. In other words, get it documented in writing.
The Fair Work Ombudsman recommends creating very clear agreements to avoid any misunderstandings – a legal expert will be able to help here. For example, be specific about how the time off should be taken within a reasonable period after the overtime is worked.
Overtime hours vs double time
Overtime pay is a higher rate than regular pay to compensate for the additional time spent working. The standard rate for overtime is usually ‘time and a half’, meaning 1.5 times (or 150% of) the regular hourly rate.
In certain circumstances, such as if a staff member is working excessive hours or during specific times like weekends or public holidays, then the rate can increase to ‘double time’, which is twice the ordinary rate (200%). Double time is most often used when employees are working under particularly demanding conditions. For example, an employee working on a public holiday may be entitled to double time to recognise the inconvenience and effort required.
When overtime applies
Overtime pay must apply whenever an employee works beyond their regular hours of work, as defined in their employment contract, award, or agreement. This includes working extra hours on a regular workday, extending work into the weekend or working on public holidays. According to the Fair Work Ombudsman, overtime is considered reasonable when it is necessary to meet business demands, and when the employee’s health and safety are not compromised.
As a small business employer, you should consider all the moving parts if you plan on asking staff to work overtime, including the employee’s personal situation, any family responsibilities, the number of hours the employee works normally, as well as the amount of notice given for the overtime. Any overtime worked must be in line with industry standards and can’t exceed what is considered reasonable under the Fair Work Act.
Do casuals get overtime after 38 hours?
While most casuals earn a higher hourly rate to compensate for the lack of benefits like annual leave and sick leave, they are still eligible for overtime rates when they work extra hours.
Overtime for casuals applies after 38 hours per week (or 76 hours per fortnight) or after 10 hours in a day or shift. The overtime rates for casual employees will be outlined in the relevant award or agreement.
How much should workers be paid overtime?
Overtime pay is calculated based on the staff member’s ordinary hourly rate, with extra hours paid at a higher rate. The standard overtime rate is 150% for the first few hours of overtime worked. If the overtime continues, the rate may increase to 200% for subsequent hours.
The exact rates and conditions for overtime pay will depend on the industry, the relevant award or agreement, as well as the actual circumstances of the overtime work. Employers should refer to the Fair Work Ombudsman and their industry awards to find out the correct overtime rates.
Who is entitled to overtime pay?
● Full-time employees: You will pay overtime to full-time staff for any hours they work beyond their standard 38-hour workweek.
● Part-time employees: If they work overtime beyond their agreed-upon hours or the standard full-time hours.
● Casual employees: While they usually receive a higher base rate, casuals are still entitled to overtime pay when working beyond the ordinary hours specified in their award or agreement.
As their employer, you need to make sure you understand the specific entitlements for each category of employee to comply with the Fair Work Act and avoid potential issues down the track.
How to calculate overtime
Here’s a basic formula for calculating overtime pay in your small business:
Overtime pay = Ordinary hourly rate × Overtime multiplier × Number of overtime hours
For example, if your employee’s ordinary hourly rate is $40 and they worked 5 hours of overtime at a time-and-a-half rate, the calculation would be:
Overtime pay = $40 × 1.5 × 5 = $300
All small business owners should stay informed about the latest regulations and work closely with their employees to manage overtime effectively (and legally). For more tips, head to our payroll hub page.
