10 May 2023
Modern awards (and a majority of enterprise agreements) provide for overtime or other penalty payments when employees work outside or in excess of their ordinary hours of work. Whether leave counts towards an employee’s entitlement to overtime pay is not an issue that is regularly or commonly raised in the Fair Work Commission (FWC).
Recently, EPI Capital made an application to the FWC to remove an ambiguity or uncertainty sourced in the overtime provisions of the Clerks Private Sector Award 2020 (Clerks Award). Clause 21.1 of the Clerks Award provides that an employer must pay an employee at an overtime rate for any hours worked at the employer’s direction in excess of the ordinary weekly hours, or in excess of 10 ordinary hours in one day (among other situations).
EPI Capital submitted that the Clerks Award was “objectively ambiguous” or uncertain for two reasons:
The FWC held that there was no ambiguity in the overtime provisions.
In response to the first issue, the FWC said that leave does count, under the Clerks Award, as ordinary hours for the purposes of determining whether an employee is entitled to overtime rates. That is, there is nothing in the Clerks Award that suggests that an employee must actually work all ordinary hours to trigger the obligation to pay overtime rates. It stated:
“The reference in [the overtime clauses] to ‘hours worked’ and ‘time worked’ is to the actual performance of work which is overtime because it is undertaken ‘in excess of’, ‘outside’, ‘on’ or at a trigger point identified by those clauses. It is not a reference to hours or time that is ordinary hours of work. Overtime rates, unlike ordinary time rates (which may be paid during some leave or absences), are only payable upon the working of overtime. Leave or an authorised absence is from time that would be ordinary hours of work which may be paid or unpaid depending on the nature of the leave or absence”.
Part of the FWC’s ruling is based on provisions in the Clerks Award that allow ordinary hours to be fixed on a given day or in a given week. Where the ordinary hours are fixed, they determine or “trigger” when the overtime is actually payable.
To illustrate, the FWC used a full-time employee with a fixed 38 ordinary hour week, comprised of 10 hours on Monday to Wednesday and 8 hours on Thursday as a practical example. If the employer asks this employee to work 4 hours on Friday, those 4 hours are plainly in excess of the employee’s fixed weekly ordinary hours. In those circumstances, overtime is payable. The FWC then states that, “what difference does it make that in the week the employee works on the Friday, that the employee was absent on annual leave on the Wednesday? The answer is of course none”.
A similar result is yielded when the same employee takes 4 hours of personal leave, returns to work and completes the remaining 6 hours, but then works (at the employer’s direction) an additional hour on that day. That is, the 4 hours of personal leave and 6 hours of work taken together constitute the maximum 10 fixed ordinary hours the employee is required to work that day. The additional hour must be paid at overtime rates because it is being worked in excess of the maximum amount of daily hours.
In response to the second issue, the FWC ruled that an employee’s period of leave does not amount to hours “worked” or time worked for the purposes of weekly and daily overtime clauses if taken after the maximum ordinary hours in those provisions are reached. Using the example above, the employee is required to work 4 hours of overtime on Friday. They work 2 hours in the morning, then take 4 hours of personal leave to attend an appointment and returns to complete the remaining 2 hours. According to the FWC, they will have only worked a total of 4 hours of overtime.
The FWC’s opinion about leave and overtime is now clear. Employers should take stock that employees who work to “top-up” their ordinary hours in a week coming from a period of leave may indeed be entitled to overtime payments.
The Clerks Award and its overtime provisions are not dissimilar to other modern awards. This decision will serve as a useful guide for employers operating under modern awards with similar overtime provisions. In that respect, it is a timely prompt for employers to assess how they apply overtime payments when employees have taken periods of leave in any given week.
That said, this decision may not apply where a business is regulated by an entirely different industrial instrument, such as an industry-specific enterprise agreement. Therefore, employers are encouraged to obtain specific legal advice in relation to their particular circumstances and operations.
You can read the FWC’s decision here. If you have any questions about this article, please get in touch with a member of our team below.
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.