Modern Award updates –the perils of calculating overtime for casuals

In 2017, the Fair Work Commission (FWC) was alerted to a number of Awards that were ambiguous about when casual employees are entitled to overtime pay and what rate applies. In October 2020, a Full Bench of the FWC made an important decision regarding overtime entitlements, amending a list of 97 Awards after consulting both employer and union representatives.

Click here for a link to the final determination to see whether the Modern Award covering to your organisation is listed, which includes the Aged Care Award 2010, the Clerks – Private Sector Award 2020, the Children’s Services Award 2020, the Educational Services (Schools) General Staff Award 2020, Educational Services (Teachers) Award 2020 and the Nurses Award 2010.

You might have assumed that the Full Bench would declare that one consistent method of calculating overtime pay for casual employees would apply, but this is not the case. The Full Bench decision confirmed that different Awards require different approaches, so you will always need to check your Award to confirm the correct approach.

Cumulative versus compound approach

The key issue in this case was whether the overtime rate of pay for casual employees under 97 Awards is calculated on a cumulative or on a compounding basis. This table illustrates the difference between the cumulative and compound approach:

Surprisingly, there is no single and consistent approach that is applied across the Modern Award system. The Full Bench took into account existing practices in the industry, the wording of the Award and the views of employer and employee representatives. This means that some Awards will continue to adopt a cumulative approach and some will apply a compounding approach. For example:

  • the Aged Care Award 2010 will adopt the compounding approach.
  • the Educational Services (Schools) General staff Award 2020 will adopt a cumulative approach.

Changes to 96 of the 97 Awards considered will come into effect on 20 November 2020. Amendments to the Aged Care Award 2020 will come into effect on 1 March 2021 because the pandemic has affected the ability of employers to make the required adjustments to address the Award variation.

Other Award interpretation issues

Given that the approach can vary between Awards, employers should pay careful attention to the correct approach for all relevant Modern Awards that apply to their workers. If your organisation is covered by more than one Modern Award, not knowing the differences can result in non-compliance, triggering a liability to rectify underpayments and potentially statutory penalties.

The types of issues our clients commonly encounter include:

  • When are part-time and casual employees entitled to overtime? Is it when they work outside their agreed overtime hours or when they work outside the ordinary spread of hours under the Award?
  • What is a “regular” pattern of work for a part-time or casual employee?
  • When is an employee entitled to shift work penalties under the applicable Award?
  • How should an employer pay an employee who is on call and who deals with the issue quickly over the phone?
  • Does the system of RDOs comply with the requirements in the applicable Award?
  • When does an employee who has been performing higher duties and receiving the higher duties allowance) need to be reclassified?

How we can help

There are many strategies for dealing with these types of issues, for example, the solution might be to obtain and rely on legal advice, or to sidestep the issue by adopting a new workplace practice, or to bargain for a new enterprise agreement so that employees’ terms of employment are aligned to your business’ practices (rather than needing to accommodate the arrangements in the Award). There may be others.

For more information or guidance, please do not hesitate to contact us.