Calculating Overtime for Casual Employees

Introduction

On 30 October 2020, a Full Bench of the FWC published a decision 4 yearly review of modern awards – common issue – overtime for casuals – final determinations. (October Decision) [2020] FWCFB 5636.

The October Decision made determinations on the method of calculating overtime payments for casual employees in a number of Awards

In the October Decision the Full Bench said This decision will finalise the matters outstanding from the October (2019) decision and the August decision and in doing so will deal with the matters raised in the parties’ submissions. It will not be necessary for us to refer to submissions which simply expressed support or a lack of opposition to the draft determinations.

The August and October Decisions determined whether the ‘’cumulative” or “compounding” approach should be used to calculate overtime payments for casual employees in a number of Awards including the Electrical, Electronic and Communications Contracting Award 2010 (Electrical Award)

The ‘Cumulative Approach’ adds the casual loading and overtime penalty separately to an employee’s base rate of pay: base rate + casual loading + overtime penalty

The ‘Compounding Approach’ adds the casual loading to the base rate of pay and multiplies that figure by the overtime penalty: (base rate + casual loading) X overtime penalty.

Mainly through consent of the parties, the Full Bench in both the August and October decisions determined that the cumulative approach should be adopted in a number of awards.

The Electrical Award

The Full Bench dealt with the Electrical Award at [63] to [74] of the October Decision and determined that the Compounding Approach should be adopted.  In doing so the Full Bench rejected NECA’s submissions and those of other employer groups.

At [70] the Full Bench stated:

[70] As stated in the August decision, the Yallourn and Domain Aged Care decisions establish a default position whereby the use of the expressions “time and a half”, “double time” and “double time and a half” indicate that the compounding approach is to be taken unless there is some textual contra-indicator supportive of a different approach. We reject the NECA’s submission that the use of the expression “for all hours worked” indicates that a contrary approach should be taken; it is not a question of whether the casual loading is payable for all hours worked (which is not in dispute), but rather of the extent of the penalty rate for working overtime imposed by the use of the expressions “time and a half”, “double time” and “double time and a half”. For the same reason we reject the submission of the NECA that because the value of the entitlements to paid leave, redundancy and the like for which the casual loading is intended to compensate do not increase in overtime, the casual loading should not increase on overtime. While the premise of the submission is correct, it is not a case of the casual loading increasing, but rather of the overtime penalty rate.

The ‘Yallourn Decision’ (AMWU v Energy Australia Yallourn Pty Ltd [2017] FWCFB 381 and the ‘Domain Decision’ ANMF v Domain Aged Care (QLD) Pty Ltd [2019] FWCFB 1716 both considered the meaning of “time” as in “time and one half” and “double time” to describe the penalty to be applied to the working of overtime.

The Full Bench in the October Decision referred to [318] of the October 2019 decision which said:

And went on to state at [69]

[69] We are not persuaded by the submissions of the NECA, MEA or the Ai Group that we should depart from the provisional view we expressed in the August decision. The fundamental issue is that the overtime rates in the Electrical, Electronic and Communications Contracting Award are prescribed by use of the expressions “time and a half”, “double time” and “double time and a half”. As earlier explained, these expressions were determined in the Yallourn decision and the Domain Aged Care decision to have an established industrial meaning whereby they operated as multipliers of the rate of pay applicable to the employee in ordinary time which, in the case of casual employees, includes the casual loading. Neither the NECA nor MEA contended that these Full Bench decisions were wrongly decided. We have earlier dealt with the submissions of the Ai Group concerning these decisions, and we are not persuaded that we should depart from the Yallourn/Domain approach where applicable.

It appears from the above that absent any evident wording to the contrary, ‘time’ when used in an overtime clause is taken to mean what the employee would be paid for working ordinary time, which in the case of casuals includes the casual loading.

Clause 26, Overtime, of the Electrical Award uses the expressions ‘time and one half’ and ‘double time.’

By way of contrast the Full Bench at [292] to [298] of the August Decision determined that the ‘Cumulative Approach’ was to be adopted when calculating overtime payments for casual employees covered by the Wool Storage, Sampling and Testing Award 2010.

Clause 10.3 of the Wool Storage Award is in similar terms to the Electrical Award. Both substantially state:

(b) For each hour worked, a casual employee will be paid no less than 1/38th of the minimum weekly rate of pay for their classification in clause 13—Classifications and minimum wage rates, plus a casual loading of 25%.

However clause 25.1 of the Wool Storage Award as amended on 20 November describes overtime loadings as 50% and 100% of the base hourly rate instead of time and one half and double time as follows:

25.1 Overtime payments—employees other than continuous shiftworkers

[25.1 substituted by PR723993 ppc 20Nov20]

(a) Except where provided otherwise in clause 25, a full-time or part-time employee (other than a continuous shiftworker) will be paid the following additional payments for all work done in addition to their ordinary hours:

(i) 50% of the ordinary hourly base rate of pay for the first two hours and 100% of the ordinary hourly base rate of pay after two hours, for overtime worked from Monday to 12.00 pm Saturday;

(ii) 100% of the ordinary hourly base rate of pay for overtime worked after 12.00 pm on a Saturday and at any time on a Sunday; and

(iii) 150% of the ordinary hourly base rate of pay for overtime worked on a public holiday.

(b) Except where provided otherwise in clause 25, a casual employee (other than a continuous shiftworker) will be paid the following additional payments for all work done in addition to their ordinary hours:

(i) 75% of the ordinary hourly base rate of pay for the first two hours and 125% of the ordinary hourly base rate of pay after two hours, for overtime worked from Monday to 12.00 pm Saturday;

(ii) 125% of the ordinary hourly base rate of pay for overtime worked after 12.00 pm on a Saturday and at any time on a Sunday; and

(iii) 175% of the ordinary hourly base rate of pay for overtime worked on a public holiday.

NOTE: The additional overtime payments for casual employees have been calculated by adding the casual loading prescribed by clause 10.3(b) to the additional overtime payments for full-time and part-time employees prescribed by clause 25.1(a).

 Enterprise Agreements

Section 57 of the Fair Work Act makes it clear that an Award does not apply to an Employee or Employer when an enterprise agreement applies to that employee and employer.  

The Yalourn Decision was concerned with the interpretation of an enterprise agreement.  

At [40 ] of the Yallourn Decision the Full Bench noted clause 5.3 of the Agreement

[40] Paragraphs 4, 5 and 6 of Clause 5.3 provides as follows:

“A casual employee for working ordinary time shall be paid per hour one thirty-sixth of the weekly rate prescribed in this agreement for the classification of work performed plus a loading of 25% of that weekly rate. A casual employee is entitled to penalty rates applicable to rostered shifts work by the employee based on the ordinary rate of pay.

The casual loading is in lieu of all paid leave, paid personal/carer’s leave, compassionate leave, public holidays not worked, notice of termination and the other attributes of full-time and part-time employment. Nor a casual employee is entitled to parental leave except in circumstances provided by the FW Act.

Casual employee shall be paid overtime for all hours worked in excess of ordinary hours on any day (i.e. eight hours/7 hours 12 minutes per day/ shift length). Except as provided by Clause 13 – Public Holidays of this agreement, all time worked which is in excess of ordinary daily as shall be paid at double time.”

And went on to conclude at [41]

We are satisfied that the words in the Agreement are not ambiguous or uncertain. The clause sets out how you calculate the ordinary time rate for casual employees and that rate includes the casual loading. The Agreement provides that casual employees are entitled to double time for working overtime. We are satisfied that that double time means double the amount paid for working ordinary time. We are satisfied that, in the absence of express words excluding the casual loading from the calculation of overtime, on its ordinary meaning, the clause provides that the loading is included when calculating overtime payments.  

In the Domain Decision a Full Bench of the Commission was required to interpret relevant passages of the Nurses Award for the purpose of conducting the Better Off Overall Test (BOOT).

At [19] the Full Bench stated:

[19] The Commissioner’s conclusion that overtime penalties are also paid on the loaded casual rates of pay is in our view also correct. Clause 28.1 simply speaks of ‘time and a half for the first two hours and double time thereafter’ for Monday to Saturday work, ‘double time’ for Sunday and ‘double time and a half for public holidays.’ The relevant ‘time earnings’ for a casual under clause 10.4 include the casual loading. Further, clause 28.1(c) provides that overtime rates are in substitution for and are not cumulative upon shift and weekend premiums. Nothing is said of the casual loading being excluded. We appreciate that this sub-clause is concerned with applying one penalty to the exclusion of another, rather than precluding the calculation of a penalty based on a loaded rate, which is the focus of the interpretative controversy in this instance. Nonetheless, clause 28.1(c) is a limitation on the interaction of different penalties, and nothing is said about confining the application of the casual loading. 

Can the Determination to adopt the Compounding Approach be applied retrospectively?

At [1] of the August Decision the Full Bench noted:

This decision is concerned with the identification and resolution of potential ambiguities in a number of modern awards in relation to the overtime entitlements of casual employees as part of the 4 yearly review of modern awards

In other words, the purpose of the review was to resolve ambiguities already existing in the subject awards.

It may be arguable therefore that, irrespective of the Determination coming into effect on 20 November 2020, the ‘Compounding Approach’ may have been the correct approach to the calculation of casual overtime payments since the Award’s inception.   

Conclusion

Unless there is a clear indication to the contrary in relevant clauses of an Award or Enterprise Agreement, there is a significant risk that the Compounding Approach may be used to calculate overtime payments for casual employees.

Given that the task the Full Bench undertook in the 4 yearly review was to cure anomalies, there is also a risk that the compounding approach may be applied retrospectively to enterprise agreements that do not make it clear that the casual loading is excluded from the base rate of pay when calculating overtime payments.

It may be prudent to replace expressions like ‘time and a half’ and ‘double time’ in overtime clauses of enterprise agreements with words similar to those used in the Wool Storage Award such as  for example:

“50% of the Ordinary Hourly Rate for the first 2 hours of overtime and 100% of the Ordinary Hourly Rate for each hour thereafter”

NOTE the “Ordinary Hourly Rate” does not include the casual loading.

Disclaimer: This summary is a guide only and is not legal advice. For more information on legislative obligations, please call NECA member services on 1300 361 099 or email memberservices@neca.asn.au.