Awards or Agreements will usually stipulate that “ordinary hours” consists of a certain number of hours that can be worked on any one day and the “spread” of hours between which these ordinary hours can be worked if they are to be paid at normal rates of pay.
| Example An Award says that eight hours per day will be classed as ordinary hours and will not attract overtime if all of those hours are worked within the ordinary “spread” of hours between 8am and 6pm. Using this example then, overtime will be payable when either:an employee starts before 8aman employee finishes after 6pm an employee works more than eight hours in any one day an employee works more than 40 hours in any one week. |
Do all employees receive overtime?
No. Employees not working under an Award or Agreement but a private contract are usually given a starting and a finishing time. Overtime is rarely paid to these employees unless payment for overtime worked is actually specified within their private contract.
Do employees have to work overtime if requested?
The general rule is that employers are allowed to request employees to work a reasonable amount of overtime. Some employees see overtime as an opportunity to earn extra money, while others see overtime as a right, working regular overtime each week and relying on the extra money.
The general standard overtime rate is time and a half (one and a half times) the employee’s ordinary rate of pay for the first three hours overtime and double time for each hour after that. However, there are now moves towards a rate of double time after two hours overtime.
Overtime is usually expressed as a multiple of the normal hourly rate and will vary according to when the overtime is worked. The rates are commonly referred to as:
time and a half (one and a half times the normal hourly rate)
double time (twice the normal hourly rate)
double time and a half (two and a half times the normal hourly rate)
triple time (three times the normal hourly rate).
The higher rates of overtime usually apply when significantly more than the employee’s ordinary hours have been worked on a particular day or when an employee works on one of their non-work days eg a public holiday or Sunday.
Overtime is always calculated on a daily basis, and it should be noted that Awards or Agreements may have some restrictions on the number of hours overtime that can be worked in any one week eg no more than 20 hours per week.
| Highlight Be aware that some Awards differ substantially from the examples quoted above. |
Will an Award or Agreement tell me everything I need to know about when to pay overtime?
As a minimum, the Award should cover the overtime rate payable for:
hours worked in excess of ordinary hours
hours worked outside the defined spread of hours
work performed on public holidays
work performed on weekends (Sunday in particular).
The Award may also state a minimum amount of hours to be paid at overtime rates eg if two or three hours guaranteed at overtime rates.
In general, Awards specify that overtime payment calculations are to be based on the “ordinary rate of pay”. In these circumstances, if an employee receives an hourly rate that is higher than the prescribed award rate, your organisation could choose to pay overtime based on the rate prescribed in the award rather than the actual rate they receive.
| TipOnce the actual rate is used as the basis for calculation however, it is very difficult for an employer to revert to the award rate because the precedent has been set. |
How do I calculate overtime?
The starting point is an employee’s hourly rate of pay. This is multiplied by the relevant factor (1½, 2, 2½, 3 etc) to achieve the overtime payment.
Unless an Award or Agreement says otherwise, allowances are usually included in overtime calculations.
| Tip Be careful where you make it a common practice to pay employees overtime where it is not necessary, as the practice may become part of the employment contract with an employee, and the employer could become contractually bound by it. |
What is ordinary pay?
Ordinary pay for any employee is that amount specified as “ordinary pay” in an Award, Agreement or private contract. You should know the classification of every employee to ensure that they are being paid the correct amount of ordinary pay and therefore the correct amount of overtime pay.
When no ordinary time rate of pay is fixed for a particular employee, ordinary pay is calculated by averaging the weekly wage earned during the previous 12 months. This is particularly relevant when an employee is paid wholly or partly by commission.
How do I pay and tax overtime?
In order to pay and tax overtime correctly, accurate details of all overtime hours worked by employees will be needed.
The gross amount of overtime payable should be added to the normal salary or wages payment and PAYE tax calculated on the total amount. Details of gross overtime paid should be shown separately on the employee’s pay advice.
Overtime should be paid on the next payday after advice of overtime worked has been received which allows for payroll processing deadlines from your pay office.
