Changes to casual overtime rates from 20 November 2020

There has always been quite a lot of confusion around whether casuals received overtime rates at all, or if they did, the rate they should be paid.

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So the Fair Work Commission has been working on this area and in August and October 2020, the Fair Work Commission (FWC) amended the overtime provisions concerning casual employees in several modern awards, which take effect in the first full pay period on or after 20 November 2020.

The confusion usually arose because of the interplay between an overtime penalty rate and the casual loading. For example, did employees get both entitlements when working overtime, or should the casual loading be disregarded? If they get both, is the overtime penalty rate applied once the casually loading has been applied, or are they applied separately?

Nothings ever straight forward is it when it comes to the Fair Work compliance space, and rather than provide for a uniform way that causal overtime should be calculated, the FWC has instead made variations to a number of awards to provide that casual overtime is calculated by one of three methods (which varies from award to award):

  • “The Substitution Method”
  • “The Cumulative Method”
  • “The Compounding Method”

Which awards are affected?

Use this link to view a list of the awards that are affected.

What to do now

Given one rule has not been applied to each award, it is important you check any award that affects your business to see if the change affects the casual overtime rates you are currently paying.

REMEMBER: the change to the Award will have no impact upon the entitlements or obligations of those currently employed under an Enterprise Agreement. 

I strongly encourage you to take this opportunity to review your operating and roster structure to consider what, if any, amendments can be made to minimise the impact of casual overtime, because believe it or not, across the 3 different methods the end result of what you need to pay a casual performing overtime is different.

Here are examples of these calculations:

1. “The Substitution Method”

Using this method, overtime is calculated on the permanent base rate, and does not include any casual loading. Eg where the overtime rate is x150% then:

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

2. “The Cumulative Method”

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

$20 (base rate) x 175% (overtime penalty) + (25% of casual loading on base rate) = $35

3. “The Compounding Method”

In this method the overtime entitlement is calculated once the casual loading has already been applied to the base rate of pay:

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

Given some of the amendments merely clarify what was already in place, it may well be that you do not need to make any changes.

Need assistance with this?

You can contact me directly if you need any assistance working out how the changes apply to your business or submit a question through our website and we’ll come back to you.

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This information was provided with the intention of helping you find more clarity, confidence and peace of mind as you navigate your own journey as an employer. I would love to hear your thoughts on this, and if you think someone else would enjoy it please feel free to share it on.

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About The Author
Jackie Strachan

Jackie Strachan

Jackie’s passion for creating better Human Resources outcomes stems from over 20 years’ experience in the field and a drive for finding innovative solutions.
Her HR career has seen her hold both operational and strategic HR management roles across a vast array of industry sectors including retail, financial services, child protection, professional services, dental, state emergency services, Department of Justice, agency recruitment and IT.
Combining her experience in each specialised area of Human Resources (such as learning & development, recruitment, WHS and employee relations etc), Jackie leads HR Tactics with an industry-respected foundation of knowledge.