How Australian companies must calculate the overtime entitlements of casual employees is changing. Here’s what you need to know.
Historically, paying overtime loadings might have been considered incompatible with the terms of employment for casual employees. After all, by definition they perform ad hoc duties and have flexible hours of work.
But there has long been a question about whether casual employees were actually entitled to overtime loadings and, if so, how overtime should be calculated. Now, we have an answer — and it comes to us from the Full Bench of the Fair Work Commission’s first and final four-yearly modern award review.
The Commission issued its final determinations in late October for the variation of 96 modern awards to clarify casual employee entitlements to overtime loadings. Here’s what it means.
From 20 November 2020, overtime for casual employees under these 96 modern awards will need to be calculated either:
- In substitution for casual loading;
- In addition to casual loading (cumulative approach); or
- In addition to the sum of an employee’s minimum hourly rate plus casual loading (compounding approach).
The result is that under a number of these modern awards, casual employees’ overtime loadings should be calculated inclusive of casual loading (the compounding approach).
Understandably, this has left some employers scratching their heads.
How did the Full Bench reach its decision?
The Full Bench pointed to two previous decisions and concluded that the meaning of the award expressions “time and a half”, “double time” and “double time and a half” referred to an employee’s ordinary time rate of pay.
In applying the “compounding approach”, the Full Bench noted that casual loading forms part of a casual employee’s ordinary rate of pay, unless the definition in that modern award of “hourly ordinary time rate” explicitly excludes casual loading.
The terms of each modern award do vary; however, the entitlement to an overtime loading typically arises where:
- An employee works in excess of 38 hours per week; or
- An employee performs work outside the spread of hours prescribed under the applicable modern award.
What does this mean for employers or casual staff?
Employers who engage casual employees under an enterprise agreement do not need to make any immediate change to overtime payments for those casuals while the current enterprise agreement continues to apply.
However, on entering into bargaining for any future enterprise agreements, employers will need to review their overtime calculation methods to ensure that their casual employees are still better off overall, where the cumulative or compounding calculation methods of overtime calculation would otherwise apply under the applicable modern award.