Changes to Casual Overtime Calculations

Overview:

The Fair Work Commission (FWC) has reviewed all awards in relation to what casual employees should be paid when working overtime. 

The FWC has made changes to 97 Awards, confirming the way casual employee’s overtime should be calculated – there are three (3) methods of calculating overtime for casual employees:

1. The Substitution Method

Overtime is calculation on the permanent base rate, and it excludes the casual loading:

$20 (base rate) x 150% (overtime penalty) = $30

2. The Cumulative Method

The overtime entitlement and the casual loading are applied to the permanent base rate:

$20 (base rate) x 175% (overtime penalty + 25% (casual loading)) = $35.00

3. The Compounding Method

The overtime entitlement is calculated on the casual loaded rate of pay:

$25 (base rate + 25% casual loading) x 150% (overtime rate) = $37.50

Previously, there have been various interpretations as to which method should be applied. This recent decision by the FWC  provides clarity for employers on how to pay casual employees for overtime worked, under their specific Award.  These changes are effective from the first full pay period on or after 20 November 2020.

As an employer, you will be affected by these changes if you:

• You have any casual employees; &
• Your casual employees are covered by any of the Award(s) listed in Appendix 1 to this article; &
• Your casual employees work overtime.

So, if the above applies to you this may mean you need to pay your casual employees more, less or the same pay when they work overtime from 20 November 2020 onwards.

What do you need to do next?

1. Review your casual employee to determine which Awards they fall under and check this against the list provided in Appendix 1;
2. If your casual employees are covered by an Award listed in Appendix 1., apply the most suitable overtime pay calculation method (see 1,2 or 3 above). Compare the rate resulted from the calculation against the one you are currently using to pay overtime for your casual employees. Has the rate changed to result in a greater or lesser rate or stayed the same?
3. If there is a change to the way your business has been calculating your casual employees overtime, you will need to change this in your payroll system and notify your casual employees how they will be paid for overtime from the first full pay period on or after 20 November 2020.

If you need any assistance ascertaining if you are affected by this change in calculating overtime for your casual employees, get in touch with Cecilia White, Director, Perks People Solutions

Appendix 1 (Awards affected in alphabetical order)