Employer Alert — Are you applying the right method when calculating overtime for your casual employees?

There is often some debate about what method should be used to calculate overtime for casual employees.

Did you know there are 3 methods for calculating overtime for casual employees?

• Substitution method – overtime is calculated on the permanent base rate and casual loading is excluded.
  Example - $20.00 (base rate) x 150% (overtime penalty) = $30.00
• Cumulative method – overtime and the casual loading are applied to the permanent base rate.
  Example - $20.00 (base rate) x 175% (overtime penalty + 25% casual loading) = $35.00 

• Compounding method – overtime is calculated on the casual loaded rate of pay
  Example - $20.00 (base rate + 25% casual loading) x 150% (overtime rate) = $37.50

Good news!

The Fair Work Commission has reviewed all Modern Awards to clarify the right method to use for calculating overtime for casual employees.

Consequently, 97 Awards have changed. The change is effective from the first full pay period after 20 November 2020. 

The updates are different for each Award. Some updates to Awards change the overtime pay rates for casual employees.

Essentially, overtime payments for your casual employees may decrease, increase or remain the same.

What you need to do

• Review the provision for Overtime in the Awards that are relevant to your business.
• Check the calculation of your casual overtime rate. Has the overtime rate changed?
• If there is a change, you will need to change this in your payroll system and advise your casual employees how they will be paid for overtime.

Pay calculator and guides

The Pay Calculator and the Award Pay Guides on the Fair Work Ombudsman website are currently being updated with the new overtime rates for casual employees. They will be available soon. https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/updates-to-casual-and-overtime-clauses-in-most-awards