How to Handle Employee Overtime Under Modern Awards

Overtime is one of the most misunderstood parts of the Modern Award system. Some employers do not pay it at all, assuming a salary covers everything. Others pay it incorrectly because they do not understand when it is triggered or what rate applies. And a surprising number pay overtime when they do not need to because they have confused overtime with penalty rates.

Getting overtime wrong is expensive. Underpaying overtime creates back-pay liability going back 6 years. Overpaying it erodes margins unnecessarily. And the calculation is more complex than most people realise — it depends on the specific award, the day of the week, how many hours have been worked, and whether the employee is full-time, part-time, or casual.

This guide covers how overtime works under Modern Awards, when it is triggered, how to calculate the correct rate, and the common mistakes that catch employers out.

When Is Overtime Triggered?

Overtime is triggered when an employee works beyond the limits set in their applicable Modern Award. There are typically two triggers:

1. Daily Overtime

Most awards set a maximum number of ordinary hours that can be worked in a single day. When an employee exceeds this limit, the additional hours are overtime.

2. Weekly Overtime

Full-time employees work 38 ordinary hours per week (or an average of 38 over a roster cycle). Hours beyond 38 in a week are overtime — unless the award allows averaging over a longer period (commonly 2 or 4 weeks).

Part-time employees trigger overtime when they work beyond their agreed hours (if the additional hours are not mutually agreed to be extra ordinary hours), or beyond 38 hours in a week.

3. Outside the Ordinary Hours Span

Some awards treat work outside the "spread of hours" or "ordinary hours span" as overtime regardless of the total hours worked. For example, under the Clerks Award, ordinary hours can only be worked between 7am and 7pm Monday to Friday. Work outside these times is overtime (or attracts penalty rates, depending on the clause).

Overtime Rates: What You Need to Pay

Most Modern Awards prescribe overtime at two tiers:

Standard Overtime Structure

This is the standard structure used by the majority of awards. However, some awards have variations:

• The Building and Construction On-site Award pays 200% after the first 2 hours on a weekday and 200% for all Saturday overtime
• The Clerks Award treats all Saturday work as overtime, with 150% for the first 2 hours and 200% thereafter
• The Hospitality Award has specific overtime provisions that interact with the roster cycle averaging arrangements

Worked Example: Retail Award

An employee classified as Level 1 under the General Retail Industry Award works a 10-hour shift on a Wednesday. The award allows a maximum of 9 ordinary hours per day.

• Base rate: $23.23/hr
• First 9 hours: Ordinary time at $23.23/hr = $209.07
• Next 1 hour: Overtime at 150% = $23.23 x 1.5 = $34.85

Total for the day: $243.92

If the employee had worked 12 hours:

• First 9 hours: Ordinary time = $209.07
• Next 2 hours: Overtime at 150% = 2 x $34.85 = $69.70
• Final 1 hour: Overtime at 200% = $23.23 x 2.0 = $46.46

Total for the day: $325.23

Worked Example: Clerks Award

A Level 2 clerk ($24.16/hr base) works 42 hours in a week — 38 ordinary hours Monday to Thursday and a 4-hour shift on Friday afternoon.

• 38 ordinary hours at $24.16/hr = $918.08
• First 2 overtime hours at 150%: 2 x $36.24 = $72.48
• Next 2 overtime hours at 200%: 2 x $48.32 = $96.64

Total for the week: $1,087.20

Overtime for Casual Employees

Casual employees are entitled to overtime rates when they work beyond the overtime triggers in the award. The overtime rate for casuals is calculated on the base rate — not the casual-loaded rate.

This is an important distinction. A casual Level 1 employee earning $29.04/hr (base $23.23 + 25% loading) is not entitled to 150% of $29.04 for overtime. They are entitled to 150% of $23.23 = $34.85 for the first 2 hours, then 200% of $23.23 = $46.46 thereafter.

However, some awards calculate casual overtime differently. Under some awards, the casual overtime rate is the overtime multiplier plus the 25% loading applied to the base rate. Check the specific overtime clause in your award.

For example, under the Hospitality Award, a casual employee working overtime receives:

Reasonable Overtime

Section 62 of the Fair Work Act states that an employer must not request or require an employee to work more than 38 hours per week (plus reasonable additional hours). The concept of "reasonable overtime" is defined by considering:

• Any risk to employee health and safety
• The employee's personal circumstances, including family responsibilities
• The needs of the workplace
• Whether the employee is being compensated for the additional hours (through overtime rates or other means)
• Any notice given by the employer about the overtime
• Any notice given by the employee about their intention not to work the overtime
• The usual patterns of work in the industry
• The employee's role and level of responsibility
• Whether the additional hours are in accordance with averaging arrangements

There is no hard cap on overtime hours. A court would assess reasonableness based on all the circumstances. However, consistently requiring employees to work 50+ hours per week without reasonable justification would be difficult to defend.

Can an Employee Refuse Overtime?

An employee can refuse to work additional hours if the request is unreasonable. Whether a refusal is justified depends on the same factors listed above. An employee who regularly refuses reasonable overtime requests may be managed through performance processes, but an employer cannot terminate an employee for refusing unreasonable overtime.

Time Off in Lieu (TOIL)

Many awards allow employers and employees to agree to take time off instead of receiving overtime payment. This is called Time Off in Lieu or TOIL.

Standard TOIL Rules Under Awards

Most awards require:

1. Written agreement between the employer and employee for each occasion
2. TOIL accrual at overtime rates: If the overtime was at 150%, the employee gets 1.5 hours of TOIL for each overtime hour. If at 200%, they get 2 hours of TOIL per overtime hour
3. TOIL taken at ordinary rates: When the employee takes the time off, they are paid at their ordinary rate
4. Unused TOIL paid out: If the TOIL is not taken within a reasonable period, it must be paid out at the overtime rate that applied when it was earned
5. Employee can withdraw: Either party can terminate the TOIL arrangement with written notice, and any accrued TOIL must be paid out

Example

A full-time employee works 4 hours of overtime on a Tuesday (all at 150%). Instead of paying $34.85/hr for 4 hours ($139.40), the employer and employee agree to TOIL. The employee accrues 6 hours of TOIL (4 hours x 1.5). They take 6 hours off the following week and are paid at their ordinary rate of $23.23/hr for those 6 hours ($139.38).

The cost to the employer is essentially the same, but cash flow is managed differently.

Overtime and Salaried Employees

A common misconception is that salaried employees are not entitled to overtime. This is wrong if the employee is covered by a Modern Award.

If an employee is covered by an award, their salary must be sufficient to cover all entitlements under the award for the hours they actually work. This includes overtime rates for hours beyond the overtime triggers.

Many employers set salaries based on a 38-hour week without accounting for the fact that employees regularly work 42-45 hours. If those extra hours attract overtime at 150% or 200%, the salary may not be sufficient to cover the total award entitlements.

Best practice is to conduct an annual reconciliation comparing:

1. The total salary paid during the year
2. The total amount the employee would have been entitled to under the award (including all overtime, penalty rates, and allowances) for the hours actually worked

If the salary is less than the award entitlement, the employer must pay the shortfall.

The annualised salary provisions in many awards (e.g., clause 22 of the Clerks Award, clause 27 of the Hospitality Award) set out the requirements for this reconciliation, including which entitlements the salary must cover and when the reconciliation must be performed.

Part-Time Employees and Overtime

Part-time employees have agreed ordinary hours that are less than 38 per week. Overtime for part-time employees is triggered when they work:

• Beyond their agreed daily hours
• Beyond their agreed weekly hours
• Beyond the maximum daily hours specified in the award (usually 10-12 hours)
• Beyond 38 hours per week

Some awards distinguish between "additional hours" and "overtime" for part-time employees. Additional hours (above agreed hours but below 38 per week) may be paid at the ordinary rate, while true overtime (above 38 per week or above the daily maximum) attracts overtime rates. Check your specific award.

Common Overtime Mistakes

Mistake 1: Not Paying Overtime at All

Some employers pay a flat rate for all hours worked, regardless of whether overtime has been triggered. This is a contravention of the award and creates back-pay liability.

Mistake 2: Paying Overtime on the Wrong Base

Calculating overtime based on the loaded casual rate instead of the base rate, or applying the wrong classification level when calculating the overtime rate.

Mistake 3: Ignoring Daily Overtime Triggers

Only tracking weekly hours and missing the daily overtime trigger. An employee who works 9.5 hours on three days (28.5 hours total, well under 38) is still entitled to overtime for the 0.5 hours above the 9-hour daily maximum under many awards.

Mistake 4: Not Reconciling Annualised Salaries

Paying a salary that is based on 38 hours but consistently requiring 45 hours without checking that the salary covers the overtime component.

Mistake 5: Informal TOIL Without Written Agreement

Allowing employees to "take time off later" without a proper written TOIL agreement. Without documentation, the employer cannot prove the overtime was compensated, and the employee can claim unpaid overtime.

How AirComply Helps with Overtime Calculations

Overtime calculations depend on the specific award, the day of the week, the employment type, and how many hours have been worked. AirComply's calculator handles all of this — select the award and scenario, and the correct rate appears.

Check overtime rates now — free for all 155 Modern Awards.

Frequently Asked Questions

Is overtime compulsory?

An employer can require an employee to work reasonable overtime. What constitutes "reasonable" depends on factors including health and safety risks, the employee's personal circumstances, the needs of the business, and whether the overtime is compensated. An employee can refuse unreasonable overtime.

Do casual employees get overtime?

Yes. Casual employees are entitled to overtime rates when they work beyond the daily or weekly overtime triggers specified in the award. The calculation method varies by award — some apply overtime multipliers to the base rate plus casual loading, others apply a separate casual overtime multiplier.

Is overtime calculated daily or weekly?

Both. Most awards have both daily and weekly overtime triggers. An employee can trigger overtime by exceeding the daily maximum hours even if they have not worked 38 hours that week.

Can I average hours over multiple weeks to avoid overtime?

Some awards allow averaging of hours over a roster cycle (typically 2-4 weeks) for the purpose of calculating weekly overtime. However, daily overtime triggers still apply regardless of averaging arrangements. Check the specific averaging provisions in your award.

What is the difference between overtime and penalty rates?

Penalty rates apply to ordinary hours worked at particular times (weekends, public holidays, evenings). Overtime rates apply when total hours exceed the ordinary hours limits. An employee can receive both — for example, overtime worked on a Sunday may attract the Sunday overtime rate, which is typically higher than the weekday overtime rate.

Do I have to pay overtime to managers and supervisors?

If the manager or supervisor is covered by a Modern Award, yes. The only exceptions are genuine award-free employees (typically senior executives earning above the high-income threshold of $175,000 with a guarantee of annual earnings) or employees covered by an enterprise agreement with different overtime provisions.