What is casual loading?
Casual loading is an additional payment that you must make on top of your casual employee’s base rate of pay. The casual loading rate is usually 25%, but the award or registered agreement that applies to your employee may specify a different amount. So, make sure you check the award or registered agreement.
The reasoning behind casual loading is that casual employees should be paid at a higher hourly rate because they don’t get the same benefits as permanent employees, such as leave entitlements or job security.
Who is entitled to casual loading?
Casual employees who work at your business are entitled to receive casual loading. Sometimes there is confusion about whether an employee is a casual or part-time employee, so it’s important to be clear about the definition of a casual employee. According to the Fair Work Act, a casual employee is someone who:
- receives an offer of employment with no “firm advance commitment” to ongoing work with an agreed pattern of work; and
- they accept the offer of employment on that basis.
For example, if your employee’s roster changes each week to suit your needs and they can decline or swap their shifts, they could be considered a casual.
Unlike casuals, your permanent part-time and full-time employees:
- have ongoing employment
- can expect to work regular hours each week and
- have access to paid leave entitlements, such as annual leave and personal or carer’s leave.
How to calculate casual loading
To calculate how much you need to pay your employee, multiply their base rate of pay by the casual loading rate, which is expressed as a percentage.
For example, let’s say your employee’s base rate of pay is the national minimum wage, which recently increased to $21.38 per hour, and their award or registered agreement says they need to be paid a casual loading rate of 25%. Here’s how to calculate their pay including casual loading:
$21.38 (base rate of pay) + $5.35 (25% of the base rate of pay) = $26.73 (total hourly wage)
Casual loading and overtime
As you’ve seen, adding the casual loading rate to your employee’s base rate of pay is quite straightforward. However, things get a little trickier when you also have to pay them for overtime.
Just like their part-time and full-time colleagues, casual employees are entitled to higher pay rates for working particular hours or days, such as overtime, public holidays or weekends. The various awards have different rules about paying casual loading with overtime and other penalty rates. Here are the three main methods:
- Casual loading isn’t paid when a casual employee works overtime (for example, the Meat Industry Award 2020).
- The cumulative approach: casual loading and the overtime penalty are added separately to the base hourly rate (for example, the Clerks – Private Sector Award 2020).
- The compounding approach: the overtime penalty is applied to the ordinary hourly rate (base rate + casual loading). This is often referred to as the ‘all-purpose rate’ (for example, the Manufacturing and Associated Industries and Occupations Award 2020).
Let’s look at some examples of how to calculate the pay rates with overtime using the three different methods.
Emma is a casual employee. Her base rate of pay is $20 per hour and her casual loading is 25% ($5 per hour). This means her ordinary rate of pay is $25 per hour. Emma does two hours of work after her ordinary hours, so she is entitled to an overtime rate of 150% (time and a half). Here is how you would calculate her pay according to the three methods:
1: casual loading isn’t paid on overtime
$20 x 150% overtime penalty = $30 per hour (150% of the base rate)
2: adding casual loading
$20 (100% of the base rate) x 150% overtime penalty = $30 (150% of the base rate)
$30 (150%) + $5 (25% casual loading) = $35 per hour (175% of the base rate)
3: compounding casual loading
$20 (100% of the base rate) + $5 (25% casual loading) = $25 (125% of the base rate)
$25 (125%) x 150% overtime penalty = $37.50 per hour (187.5% of the base rate)
Other casual employment obligations
Paying your employees the correct wage is essential, but it is also important to understand the other rights your casual employees have. Here are some casual employment rights that you should be aware of as an employer.
Casual conversion
The National Employment Standards (NES) say that you must offer your casual employee (or they can request) the opportunity to go permanent if certain conditions are met. These conditions are:
- your employee has worked in your business for at least 12 months
- for the last six months of that period, they have worked a regular pattern of hours on an ongoing basis; and
- they could continue to work these hours as a permanent part-time or full-time employee without significant changes.
If your employee’s hours in the past six months have been the same as full-time hours, you must offer them full-time employment. Similarly, if they have worked less than full-time hours, but the work has been consistent and ongoing, you must offer them part-time employment.
Importantly, if you run a small business with fewer than 15 employees, you are not required to offer casual conversion. However, your employees can still request casual conversion.
Minimum hours for casual employees
For employers, one of the main advantages of hiring casual staff is the flexibility to adjust their hours depending on your business needs. You are not required to offer your casual employees a minimum number of hours per week and their hours may be irregular. So, you can ask your casual employee to work a shift at short notice, as long as it’s reasonable. However, casual employees are not obligated to agree to work, which means that they can decline shifts if they’re unavailable for any reason. You should also be aware of the requirements about the minimum number of hours you must pay casuals for when they work.
Minimum hours per shift
You may be familiar with this scenario: you roster one of your casual employees for a six-hour shift, but you end up getting far fewer customers than you expected and you send them home after just one hour. Can you just pay them for one hour or is there a minimum? In most cases, yes, an employee must be paid for a minimum number of hours per shift. This is known as the minimum engagement period. There is no set standard across all industries, but most awards specify a minimum engagement period for their industry. The number of hours varies greatly, from as little as two or three to as many as eight hours per day. Here are some examples of the rules for different industries:
- Hospitality: at least two consecutive hours.
- Hair and beauty: minimum daily engagement of three hours.
- Retail: the minimum daily engagement is three hours or 1.5 hours for secondary students in certain circumstances.
- Road transport (long-distance operations): minimum engagement of eight hours.
This means that if your business is in the hospitality industry and you send a casual employee home after just one hour, you must pay them for two hours. Check the relevant award to make sure you are providing your staff with the correct minimum engagement period.
Increasing the minimum engagement period
While the relevant award sets out the minimum requirements, you might consider offering an even higher minimum engagement period as part of your casual employee’s contract. Offering a more generous minimum number of hours per shift could help you attract more casual staff, particularly in industries with shorter engagement periods. It might also incentivise casual employees to stay with your business for longer.
Leave entitlements
Although casual employees don’t receive paid leave, they are entitled to some unpaid leave, including:
- two days of unpaid carer’s leave
- two days of unpaid compassionate or bereavement leave
- five days of unpaid family and domestic violence leave (in a 12-month period)
- unpaid leave for community service, such as jury duty.
Termination notice
If you decide to end the employment relationship with your casual employee, a minimum amount of notice usually isn’t required. Similarly, casuals typically do not have to give notice when they resign. However, some awards and registered agreements might have some exceptions. You could also agree on a minimum notice period and put it in writing in your casual employee’s employment contract.
Key takeaways
Casual loading is a payment that you must add to your casual employee’s base rate of pay. The casual loading rate is usually 25% of the base rate, but this varies for different industries. The rules about calculating casual loading and penalty rates, such as overtime, also vary depending on the industry. Always check the relevant award, registered agreement or employment contract to make sure you’re paying your employees correctly.
