Overtime can be a confusing subject when it comes to payroll as conditions that determine overtime payment varies amongst Modern Awards, Enterprise Agreements and annualised wage conditions.

Often paying overtime incorrectly can have an adverse impact on your business in the forms of both overpayments and underpayments. Many companies reported by Fair Work have often been found to calculate employee entitlements such as overtime incorrectly.

At Employment Innovations, we understand that payroll calculations can be complex, with a variety of industrial instruments that can impact the way your employees are paid. To help guide your business, our team of Payroll experts answer some key questions about overtime and its application within the payroll process


What is Overtime?

Fair Work describes overtime as when an employee works extra time. It can include work performed:

  • beyond their ordinary hours of work
  • outside the agreed number of hours
  • outside the spread of ordinary hours

However, these conditions are dependent upon the Modern Award or Employment Agreement that an employee is paid according to, or underpinning a rate such as over-award or annualised salary.


How is Overtime Calculated in Australia?

If you are unsure how to calculate overtime, the first place to check is your Modern Award or Enterprise Agreement, where you are able to identify conditions that meet overtime.

This can include, but is not limited to:

  • Maximum hours worked in a day
  • Maximum hours worked in a shift period (weekly, fortnightly or four weekly)
  • Time since the last shift worked
  • Ordinary spread of hours
  • Taking unpaid meal breaks
  • Working outside of agreed hours (such as for part time employees)
  • Working on call
  • Recalled to work provisions

In addition, you may also have individual flexibility arrangements that are documented within your employees’ employment contracts, which may also alter the application of these award provisions. The ability to include these types of arrangements are also award-dependent and covered under the section of the award titled “Individual flexibility arrangements”.

When paying using a Modern Award or Enterprise Agreement, it is imperative to use payroll software that can cater to the conditions you wish to pay against, reducing any manual intervention and therefore mitigating any risk of under or overpayments.


Annualised Wage Arrangements and Overtime

For employees that are paid under annualised salary arrangements, it is also crucial for businesses to ensure that records of time (such as timesheets) worked by employees that fall under these arrangements are kept, so that the business can perform an annualised wage reconciliation, to ensure that employees are paid better off under their salary rather than the award conditions.

Example Award Clause: Clerks – Private Sector Award 2020 – Section 18.2

18.2 Annualised wage not to disadvantage employees

(a) The annualised wage must be no less than the amount the employee would have received under this award for the work performed over the year for which the wage is paid (or, if the employment ceases earlier,over such lesser period as has been worked).

(b) The employer must each 12 months from the commencement of the annualised wage arrangement or upon the termination of employment of the employee calculate the amount of remuneration that would have been payable to the employee under the provisions of this award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.

(c) The employer must keep a record of the starting and finishing times of work, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement for the purpose of undertaking the comparison required by clause 18.2(b). This record must be signed by the employee, or acknowledged as correct in writing (including by electronic means) by the employee, each pay period or roster cycle.


Are Casual Employees entitled to Overtime?

Casual employees are entitled to overtime, however the conditions under which this is calculated and paid also derives from the Modern Award or Enterprise Agreement that they are paid according to.


What is ‘Reasonable Overtime’?

Fair Work states that an employer can request that an employee works reasonable overtime – which means that the following points have been considered and taken into consideration when offering overtime to an employee:

  • any risk to health and safety from working the extra hours
  • the employee’s personal situation, including their family responsibilities
  • the workplace’s needs
  • if the employee is entitled to receive overtime payments or penalty rates for working the extra hours
  • if they are paid at a higher rate on the understanding that they work some overtime
  • if the employee was given enough notice that they may have to work overtime
  • if the employee has already stated they can’t ever work overtime
  • the usual patterns of work in the industry
  • the employee’s role and their level of responsibility 
  • if the overtime hours are in accordance with what an applicable award or agreement says about hours of work being averaged over a specified time
  • any other relevant factors.

In addition to the above, an employee also has the right to refuse to work overtime if they believe the request is unreasonable.


Key Takeaways

With the complexity of industrial instruments such as Modern Awards, Enterprise agreements and their flexibility arrangements, there are steps employers can take to reduce the risk of incorrectly paying their staff:

  • Regularly review the setup of your payroll system
  • When a payroll error has been identified to have affected an employee, review all of your employees to ensure this is rectified
  • Ensure your payroll administrator or team receive regular training (such as Modern Award-specific) and time to spend on reconciliations, system reviews and audits
  • Organise a third party to perform a review on your payroll process
  • Considering outsourcing your payroll process to reduce risk

About Employment Innovations

Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, legal services, payroll solutions, migration, human resource management and HR software.



The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.