Small business owners often find themselves grappling with complex and ever changing employment laws and regulations. One area which often causes confusion is determining when overtime applies, especially where an employee takes leave. Paying at the applicable overtime rate can be a significant expense to the business, so it is natural to ask this question.

Should leave count towards “time worked” for the purpose of calculating overtime? The interpretation rules surrounding this issue remain far from settled. However, a recent decision by the Fair Work Commission (FWC) regarding the Clerks – Private Sector Award 2020 (Clerks Award) has provided some much-needed guidance.

In this blog, we will delve into the key points of this decision and its implications for small business owners.

 

The Case of EPI Capital

In an application made by EPI Capital, the business sought to vary the terms of the Clerks Award. The main reason behind making this application is they took a view that there was “ambiguity” in how the ordinary hours clause interacts with the overtime clause.

Specifically, they questioned whether leave or absence should be considered as “time worked” or “hours worked” for the purpose of determining when overtime applies. They also questioned whether leave or absence taken after reaching the maximum number of ordinary hours should be counted as overtime.

The FWC dismissed their application on the basis that there was no ambiguity in the way these clauses interact with one another. It found that viewing leave or absence in the sense of whether or not it amounts to “time worked” or “hours worked” is not the correct approach. The award itself does not require work to have been done before overtime starts to apply. The FWC has helpfully provided clarity on how these clauses should be interpreted through the following example.

Suppose an employee works 10 hours per day from Monday to Wednesday, and 8 hours on Thursday. If the employee takes annual leave on Wednesday and works 4 hours on Friday, the annual leave taken on Wednesday counts toward the employee’s total number of ordinary hours. As such, the 4 hours worked on Friday needs to be treated as hours exceeding ordinary hours, thereby entitling the employee to the applicable overtime rate.

In addressing the second question, the FWC found if an employee is absent during a period in which they would have worked overtime, they would not be entitled to the overtime rate for that absence. The absence from overtime work means that the employee did not actually work that overtime and, therefore, should not receive the overtime rate for that specific absence.

In short, the FWC clarified if an employee wants to be paid at the overtime rate, they must have actually “worked” overtime hours. But, to get to the point where overtime starts to apply, the employee does not necessarily need to have actually worked all their ordinary hours – their leave counts toward those ordinary hours, too.

 

Conclusion

The FWC reached a fairly harsh conclusion with respect to EPI Capital’s arguments, commenting their positions were simply “not arguable”.

The decision clarified that leave or absence counts toward ordinary hours, and only overtime itself needs to have been “worked” for overtime rates to apply. While there may have been confusion and uncertainty in the past, this recent decision has certainly provided clearer guidance for employers regarding the interaction between these two clauses.

If you have any queries about any of the above or require assistance with working out the correct entitlements under an industrial instrument, please contact the HR Connect team for more information about how we can assist your business.

Remember, understanding and adhering to employment regulations not only protects your employees but also safeguards your business from potential legal complications.

 

Disclaimer

The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact HR Connect for advice.

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