Understanding overtime pay

Overtime is work carried out by an employee, outside of the ordinary hours of employment that are set out in their contract, award, or agreement. This typically involves an employee working:

• in excess of their agreed daily or weekly number of hours (eg. more than 38 hours in a week for a full-time employee)
• outside the span of ordinary hours (eg. 7am – 7pm, Monday to Friday).

An employer can only request or require an employee to work overtime when the request is reasonable. Consideration must also be given to health and safety factors such as fatigue, particularly for employees working long hours or shifts with only a short break in between.

When is overtime ‘reasonable’?

A request for an employee to work overtime will be reasonable if:

• health and safety has been factored in and any risks minimised
• it fits in with their personal situation, including family responsibilities
• there is a genuine need for the work to be carried out at that time
• prior notice is given to the employee
• the employee is compensated for the additional hours worked
• the employee has not previously stated that they cannot work overtime.

If these factors have not been taken into consideration when making the request, the employee may refuse on the grounds that the request for overtime is unreasonable.

When do employers need to pay overtime (and how much)?

Each award or agreement has its own rules for overtime, including when overtime must be paid, and the rate at which overtime is paid. If an employee is not covered by a modern award or agreement, then whether or not they can earn overtime will be determined by their employment contract.

Many awards will include an overtime rate, which is to be paid when an employee works additional hours. An overtime rate is higher than an ordinary rate, and may differ depending on the number of hours and time or day worked. An overtime rate is often 150% (‘time and a half’) or 200% (‘double time’) of an employee’s ordinary hourly rate of pay.

In some circumstances, an employer may not need to pay extra for reasonable overtime if the employee is paid at a higher rate to off-set these award entitlements. This is often the case for employees in more senior roles, and will be stipulated in their contract or agreement.

What about time off in lieu?

When an employee works overtime, some awards permit the employee to request time off instead of receiving payment for overtime.

It is important to note that not all awards contain time off instead of payment for overtime provisions, and not all awards contain exactly the same provisions. For example, some awards provide that if an employee works two hours of overtime, then they are entitled to two hours of time off. Other awards provide that the time off is equivalent to the overtime that would have been paid, meaning that if an employee worked two overtime hours at the rate of 150%, they are entitled to three hours of time off, as is the case under the General Retail Industry Award 2020.

However, if the employee requests to be paid for overtime instead of taking the time off, the employer must pay the employee for the overtime.

Employers should check the terms of the modern award which applies to their employees before entering into an arrangement for time off instead of payment for overtime.

For information about overtime that is specific for your industry, visit the Fair Work Ombudsman website. [https://www.fairwork.gov.au/em...]