Award Interpretation: The key decision impacting the allocation of overtime rates

Understanding and interpreting overtime clauses in modern awards is arguably one of the more complex processes you will deal with when paying your employees. 

Complexities in interpreting penalty rates, overtime and minimum shift engagement clauses have already led to several companies being outed for wage underpayment stories this year. 

Overtime rates are found in most modern awards and have varying rates based on the amount of overtime hours worked by an employee or the circumstances in which the overtime hours are completed.  

For example, in the Hospitality Industry (General) Award, Clerks Private Sector Award, and General Retail Industry Award (GRIA), overtime rates increase after either the first two hours or first three hours of overtime worked. For the purpose of this blog we will look at the GRIA, which contains the following clause:

Here is the clause: GRIA Clause 21.2 (e) – Table 10 – Overtime Rates

The Scenario


One of your store managers usually works Monday from 8am to 12pm. They were asked to come in an hour early and ended up working longer than their rostered shift, meaning they actually worked from 7am to 4pm. 

Your store manager as a result has worked in excess of their guaranteed rostered hours and is now entitled to overtime. You now have a decision to make in regard to allocating overtime rates for the excess hours that have been worked.

 

Key Decision – Do the “first 3 hours” of overtime need to be consecutive?

The visualisation shows two options to this question. 

The key question is do the overtime hours that are worked to form the “first three hours” (150% of ordinary pay rate) need to be worked consecutively or can they be spread across the shift?

Answer A – First three overtime hours can be spread 

This represents your decision that the first three hours of overtime can be spread across the shift. What this means for this scenario is that the one overtime hour worked from 7am to 8am counts toward the “first three hours” of overtime rate. 

Answer B  – First three overtime hours must be consecutive 

Option B represents your decision to treat the first three hours of overtime as consecutive. Meaning that the first three hours rate (150% of ordinary pay rate) in this example, can only count if the hours are consecutive. As a result the overtime hour worked between 7-8am does not contribute to the first three hours in this scenario. 

 

How does this decision impact the allocation of overtime rates?

The second visualisation is important as it demonstrates how your decision impacts the rates applicable to your store manager’s overtime hours, as it highlights the difference in the allocation of overtime rates based on your decision. 

Answer A – First three hours are spread 

You have made the decision that  the first three hours of overtime can be spread.  Therefore this is what the rate allocation should look like. Your store manager will receive a rate of 150% of their ordinary pay rate between 7am to 8am as well as for the two hours after their rostered shift (1pm to 3pm). After 3pm, your store manager is paid at 200% of their ordinary pay rate for until the end of their shift.

Answer B  – First three hours are consecutive 

You have decided that the first three hours of overtime need to be consecutive, and therefore  the overtime hour worked by your store manager between 7am and 8am does not contribute. The first three consecutive hours being 1pm to 3pm are paid at 150% of their ordinary pay rate and your store manager would only receive the “after 3 hours” overtime rate of 200% of their ordinary pay rate for one hour only

 

What this means for you


Overtime rate allocation is a great example of how different interpretations of clauses or rates can directly impact the entitlements your employees receive. Working through decisions like these can be complex, however can be achieved and is becoming more prioritised by businesses of all sizes. 

Despite the complexity highlighted in this blog, working through clauses like this in your agreement is possible. Interpreting these clauses in detail will allow you to pay your employees with confidence as well as with proof that you’re maintaining compliance. 

 

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The PaidRight Team

 

PaidRight (https://www.paidright.io/) is currently undertaking some research to develop some new tools aimed at supporting Payroll and Finance teams. These tools will help Australian businesses understand and interpret the award they work with so they can have confidence that they’re paying their employees correctly.

To develop the product, we’re speaking with people in finance and payroll teams to understand current processes, pain points and opportunities for improvement within existing processes and systems related to pay. In exchange for your participation, we’ll donate $150 to a charity of your choice.

Join the research group here