Understanding Overtime Pay

Understanding Overtime Pay

Table of content

  1. What is overtime pay?
  2. What is reasonable overtime work?
  3. Who’s entitled to overtime pay?
  4. What are the types of overtime pay?
  5. How much overtime pay are workers entitled to?
  6. How to calculate overtime pay?
  7. How can Workstem assist you with overtime pay?

What is overtime pay?

Overtime pay, often referred to as penalty rates, is the additional compensation that employees receive when they work beyond their ordinary working hours listed on an award or agreement. It is a legal requirement in Australia to ensure that employees are adequately rewarded for their extra efforts and to deter employers from overworking their staff. Overtime pay is usually paid at a higher rate.

What is reasonable overtime work?

Reasonable overtime work is work that exceeds an employee’s ordinary working hours but is considered necessary for the job. What is considered reasonable may vary depending on the award, enterprise agreement, employment contract, occupation or other registered agreement.

Normally, an employee can work a maximum of 38 hours in a week unless an employer asks them to work reasonable extra hours. Employers can only request or require employees to work more than their maximum weekly hours where the additional hours are reasonable. Also, an employee can refuse overtime if the request is unreasonable.

Who’s entitled to overtime pay?

Overtime pay in Australia apply to various categories of workers, including full-time, part-time, and casual employees. However, eligibility for overtime pay can vary based on industry-specific awards, employment contracts, and agreements.

Full-time employees

An employee who is engaged to work an average of 38 hours per week. Full-time employees are entitled to overtime pay when they work beyond these standard hours.

Part-time employees

An employee who is engaged to work fewer than 38 hours per week on a regular basis. Part-time employees are entitled to overtime pay when they work more than their agreed-upon part-time hours. The overtime rates are typically the same as those for full-time employees.

Casual employees

An employee who is engaged on an irregular or intermittent basis, with no expectation of ongoing employment. Casual employees may also be eligible for overtime pay if they work beyond a certain threshold of hours. However, the rules regarding overtime pay can be different from full-time and part-time employees.

What are the types of overtime pay?

Compulsory overtime

Compulsory overtime, also known as mandatory overtime, refers to situations where an employer requires an employee to work extra hours beyond their regular schedule. This typically occurs during peak workloads, emergencies, or unexpected situations, and it is usually regulated in employment agreements.

Voluntary overtime

Voluntary overtime involves employees willingly choosing to work additional hours beyond their regular schedule. They are not obligated to accept overtime shifts but do so voluntarily.

Non-guaranteed overtime

Non-guaranteed overtime occurs when employees have no guarantee of receiving overtime work, but they are available for it if needed by the employer. Employers do not have an obligation to offer non-guaranteed overtime.

Time off in lieu (TOIL)

In some cases, employees may have the option to take time off instead of receiving overtime pay. This arrangement is known as “time off in lieu” (TOIL). The decision to grant time off in lieu typically depends on mutual agreement between the employer and employee and must be outlined in employment contracts or awards.

Instead of receiving additional pay, employees accrue TOIL hours for overtime worked. They can then use these accrued hours to take time off with full or partial pay, subject to employer and workplace agreement policies.

How much overtime pay are workers entitled to?

The amount of overtime pay workers are entitled to depends on various factors, including the award industry, EA, occupation, and employment agreements, etc. In general, overtime pay is calculated as a percentage of the employee’s ordinary hourly rate.

Common rates are as follows, but in some awards, the overtime rates may differ from one another since there’s employee classification.

For overtime worked on

Overtime rate

% of minimum hourly rate

Monday to Saturday—first 2 hours

150%
Monday to Saturday—after 2 hours

200%

Sunday—all day

200%

Public holiday—all day

250%

How to calculate overtime pay?

Calculating overtime pay involves determining the extra hours worked, the applicable overtime rate, and any additional factors like shift differentials or public holiday rates. The formula for calculating overtime pay is:

Overtime Pay = (Overtime Hours Worked) x (Ordinary Hourly Rate) x (Overtime Rate)

For example, Lucy gets the ordinary hourly rate at AU$25. She works overtime for 8 hours with the overtime rate at 150%. Then the overtime pay of these 8 hours is:

8 hours x AU$25 x 150% = AU$300

How can Workstem assist you with overtime pay?

Workstem is a one-stop HR & payroll platform that can streamline overtime pay management for both employers and employees. We integrate rostering, attendance, leave and payroll, with the AI engine, all attendance related data will be processed in one database and then auto-calculate the overtime pay according to different rates.

Workstem helps automate record-keeping, track hours worked, calculate overtime pay and stay in compliance. By using Workstem, you can simplify the process of managing overtime pay and improve transparency in your workplace.

With Workstem, no matter your people is full-time, part-time or casual, no matter they’re under what award, even EA, we can handle all automatically! Click to get a 14-day free trial.

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