What is overtime?
The Fair Work Ombudsman defines overtime as time worked beyond an employee’s regular or ordinary hours. Overtime applies when an employee works outside their agreed spread of hours or exceeds the maximum weekly hours allowed under the Fair Work Act. An employee’s contract or award determines how overtime is calculated and when it applies, including whether overtime is assessed on a daily or weekly basis.
Overtime laws in Australia are set out in modern awards, enterprise agreements and individual employment contracts. These documents specify when overtime applies and how overtime pay is calculated. In most cases, employees are entitled to receive higher overtime rates, such as time and a half or double time, for the additional hours they work.
Overtime can occur when:
- full-time employees work beyond 38 hours per week, the standard maximum weekly hours under the NES. The hours of work for a full-time employee are generally capped at 38 hours per week, and any hours worked beyond this threshold are considered overtime
- part-time employees work beyond their agreed regular hours
- employees work outside the ordinary span of hours or exceeds the ordinary hours of work as defined in their award or agreement, for example, before 7 am or after 7 pm in some industries. Ordinary hours of work are the standard or contracted hours set out in the employee’s award or agreement, and any work beyond these hours triggers overtime
- work is performed on public holidays or weekends, where penalty rates apply.
Whether overtime is paid or time off in lieu (TOIL) is granted, employers must ensure that all additional hours worked are compensated fairly and in accordance with relevant industrial instruments.
Overtime pay and employee entitlements
Employees may be entitled to receive overtime pay for additional hours worked if this is specified in their applicable award, enterprise agreement or employment contract. Casual employees may also be entitled to overtime pay, depending on the terms of their award or enterprise agreement.
Overtime payments are typically calculated on the employee’s ordinary hourly rate, multiplied by the relevant overtime rate, for example, time and a half or double time.
Employers are responsible for ensuring that employees are compensated for all overtime worked, and that overtime entitlements are provided in accordance with the law. Failure to pay correctly calculated overtime rates can result in breaches of the Fair Work Act and may attract significant penalties.
A full-time employee who works overtime is generally entitled to overtime pay for subsequent hours, with rates increasing as the duration of overtime extends. Accurately calculating overtime pay using the correct rates and formulas is important; for instance, the first two hours may be paid at time and a half, with further hours paid at double time.
Where an award or agreement allows, an employee and employer may agree to take paid time off instead of receiving overtime pay. This is referred to as time off in lieu.
Calculating overtime pay
Calculating overtime pay requires careful attention to the employee’s classification, pay period and the terms of their award or agreement. Calculate overtime using the correct formulas and rates for different scenarios by confirming:
- Ordinary hours: The standard hours defined in the employment contract or award.
- Overtime hours: Any hours worked in addition to the ordinary hours.
- Employee’s overtime hours: Tracking the employee’s overtime hours is essential for correct payment and compliance.
- Overtime rate: The multiplier that applies to the employee’s minimum hourly rate.
For example, if an employee’s normal wage is $30 per hour and their overtime rate is time and a half, they would receive $45 per hour for overtime worked.
When calculating overtime pay, employers also need to account for public holidays and penalty rates, which may increase the total amount payable. Employers are responsible for keeping accurate records so that employees receive correct overtime payments for all hours worked.
Unpaid and excessive overtime
Unpaid overtime occurs when employees perform additional work without compensation. According to research by The Australia Institute, workers perform an average of 4.6 hours of unpaid overtime per week, equating to billions of dollars in lost wages annually. This unpaid work can breach overtime laws and expose employers to legal risk.
Regularly review hours worked to ensure that employees are not consistently exceeding their ordinary hours without receiving overtime pay or time off in lieu. Excessive overtime can negatively impact the employee’s health and has safety implications for both the employee and the workplace, such as fatigue and reduced productivity.
Monitoring work hours and workloads and encouraging staff to maintain a healthy work-life balance helps reduce the likelihood of unpaid or unreasonable overtime.
Reasonable overtime and the Fair Work Act
The Fair Work Act sets clear limits on maximum weekly hours and defines what constitutes reasonable overtime.
Full-time employees cannot be required to work more than 38 hours per week, while part-time employees cannot work beyond their agreed ordinary hours, unless the request is reasonable.
When determining whether additional hours are reasonable, employers must consider:
- any risk to employee health and safety from working extra hours
- the employee’s personal circumstances, such as family responsibilities, health and well-being
- the needs of the business
- whether the employee receives appropriate compensation for additional hours
- the amount of notice given for the request
- the usual patterns of work in the industry
- the nature of the role and the employee’s level of responsibility.
Employers must account for factors such as employee’s personal circumstances, health, safety and business needs when determining if overtime is reasonable.
An employee is entitled to refuse overtime work if the request is unreasonable. Requiring unreasonable overtime that breaches overtime law and the Fair Work Act can result in significant penalties for employers.
Ordinary hours and maximum weekly hours
Ordinary hours are the regular hours that an employee is required to work under their award, agreement or employment contract. The NES sets the maximum weekly hours for full-time employees at 38 hours, not including reasonable additional hours. Part-time employees’ maximum hours are based on their agreed schedule.
Any work performed beyond these maximums without a reasonable basis has to be compensated as overtime.
Overtime in modern awards and agreements
Modern awards and enterprise agreements outline specific overtime provisions and define how overtime applies in different industries. For example:
- The Clerks – Private Sector Award specifies time and a half for the first two hours and double time thereafter.
- The Hospitality Industry (General) Award includes overtime rates for early morning shifts and public holidays.
- The Manufacturing Award may define overtime in terms of work performed outside the spread of ordinary hours.
The specific overtime provisions that apply to an employee are determined by the registered agreements, award or individual contract. It’s important to review the relevant award or registered agreement periodically to stay up to date with overtime regulations. Using the wrong rate or misclassifying employees can lead to underpayment and Fair Work compliance issues.
Time off in lieu of paid overtime compensation
Instead of paying overtime, employers and employees may agree to substitute time off in lieu (TOIL). This allows employees to take paid time off equal to the overtime hours worked.
For example, an employee who works two hours of overtime could take two hours off at a later date, depending on the rules of their award or enterprise agreement. However, requests for time off in lieu may be declined if made just before a tight deadline or during critical project phases with a major client.
Employers must ensure that TOIL agreements are recorded in writing and comply with relevant industrial instruments. Importantly, TOIL must be taken within a reasonable period or the overtime must be paid out at the correct overtime rate.
Both parties must agree to the arrangement voluntarily. Employees cannot be required to accept time off in lieu instead of receiving overtime pay.
Managing overtime responsibly
Employers have a duty to ensure overtime is used fairly, efficiently and safely. Regularly reviewing rosters, workloads and overtime reports helps identify patterns of excessive or unpaid overtime.
When employees consistently work additional hours, it may indicate staffing shortages or inefficient work allocation. Employers need to explore strategies to reduce excessive overtime, such as:
- hiring additional staff to manage workload
- streamlining business processes
- improving business operations to ensure compliance and efficiency in managing overtime
- encouraging task delegation among team members
- providing training to improve efficiency and productivity.
A proactive approach helps prevent burnout and ensures employees receive appropriate compensation for their work.
Employee health, safety and work-life balance
Frequent overtime can impact an employee’s health. Working excessive additional hours can increase fatigue, reduce focus and heighten the risk of accidents, particularly in high-risk industries.
Workplace health and safety laws protect employees from risks associated with long working hours. Encouraging rest breaks, monitoring workloads and respecting boundaries between business hours and personal time are vital steps in maintaining employee well-being.
Supporting employees to achieve a sustainable work-life balance also improves morale, productivity and retention.
Investigating and reducing excessive overtime hours
If overtime becomes excessive, employers need to investigate why it’s occurring. Questions to consider include:
- Are workloads too high for available staff?
- Are employees staying late to meet unrealistic deadlines?
- Do some employees feel pressured to work overtime for recognition?
After identifying the cause, employers can implement targeted solutions such as process improvements, flexible rostering or additional recruitment.
Transparent communication with employees reinforces trust and helps create a fair, safe working environment.
Home-based and flexible workers
With the rise of hybrid and remote work, the boundaries between work and home life can blur. Monitor home-based employees to check they don’t work beyond their regular working hours or exceed reasonable overtime.
Clear communication about work expectations and availability outside standard business hours is essential. Employers need to remind remote staff that they are not expected to perform unpaid work or respond to messages outside their scheduled shifts.
Providing guidance on managing workload and ensuring accurate time records for hours worked can help maintain compliance and prevent overwork.
Legal compliance and recordkeeping
Employers are legally responsible for complying with overtime provisions under the Fair Work Act, National Employment Standards and any relevant modern award or enterprise agreement.
This includes:
- keeping accurate records of hours worked, overtime hours and overtime payments
- ensuring employees receive correct overtime rates for all additional hours
- providing payslips that clearly show overtime payments
- retaining records for at least seven years, as required by the Fair Work Regulations.
Accurate recordkeeping protects both the employer and employee in the event of disputes or audits by the Fair Work Ombudsman.
Final considerations
Overtime can help businesses meet deadlines or cover unexpected workload increases, but it must be managed carefully. Overtime work needs to be reasonable, necessary and compensated in accordance with Australian overtime laws.
Before requesting or approving extra hours, consider whether it is reasonable under the Fair Work Act and whether employees will receive appropriate compensation. Managing overtime effectively supports compliance, productivity and staff well-being.
By understanding overtime laws in Australia and implementing clear policies, employers can maintain fair, transparent and compliant workplace practices for of both the business and its employees.
