Managing penalty rates and overtime for employees on an annualised wage
The information within this article relates to employees who are paid under an annualised wage (previously called annualised salary). This is not the same thing as a salaried employee. Please ensure that you understand which, if any, of your employees this information is relevant to.
From 1 September 2022, there are new annualised wage arrangement rules in the Hospitality Award and the Restaurant Award, following a decision made by the Fair Work Commission. These replace the previous annualised salary arrangement provisions in these awards.
Additional payments
In any roster cycle, an annual wage can only cover an employee working up to a weekly average of:
- 18 penalty rate hours.
- Hospitality Award - Excluding time worked between 7.00pm and midnight, Monday to Friday.
- Restaurant Award - Excluding time worked between 10.00pm and midnight, Monday to Friday.
- 12 overtime hours.
These are called the ‘outer limits’. Sometimes an employee will work more than these hours over a roster cycle. These extra hours aren’t covered by the annual wage. Instead, an employer needs to pay these extra hours at the employee’s minimum hourly rate, plus any penalty or overtime rate on top of their regular wage for that pay period.
You can read more about these changes here.
Current process
- Record the hours worked by your annualised wage employees.
- Calculate the outer limits worked each pay period.
- Pay the additional rates to employees who exceed the outer limits specified above.
The first thing to do is to work out the spread of hours worked by your salaried employees. The best way to do this is via the clock log.
Note: It is recommended that your salaried employees clock in/out so that you can have an accurate record of their hours worked. You can calculate the hours worked with Rosters or Approve Shifts but this will be less accurate.
Export the clock log
- Navigate to Time & Attendance > Clock Log.
- Set the date range.
- You should consider reporting on this weekly to reduce the workload at the end of a roster cycle.
- Use the available filters to identify the applicable employees.
- If you only have a small number of employees that this applies to, you can select them in the Employee drop-down.
- If you use the salaried position setup (auto-approval process), you can click the 'Salaried only' checkbox to quickly filter to those employees.
- Click Submit and then CSV Export.
- Select the fields you're interested in.
- At a minimum, you'd want to include Employee ID, Employee, Clock In, Clock Out, and Shift Duration.
- Remember to save your selection for later use by clicking into Additional Options.
- Export CSV.
You can read more about the clock log here.
Calculating hours worked
There are 2 things we're looking for here. Overtime and penalty rates.
Note: It is recommended that you keep a separate spreadsheet to track the overtime & penalty rate hours for each applicable employee.
With your CSV exported it would be good to start by sorting based on the employee ID column. This will allow you to work with 1 employee at a time.
Overtime
- Note any shifts that are greater than the max ordinary hours per day specified by your award. The number of hours greater than the maximum will be overtime.
- Calculate the total clocked hours (add the Shift Durations). Anything that exceeds your max ordinary hours for the week minus any daily overtime (what we calculated above) will be overtime.
- Note down any hours that fall into overtime (ideally in a separate spreadsheet). This value will be used in your average over the roster cycle.
Penalty rates
- Note any hours that fall within the specified times for weekdays.
- Hospitality Award - Night work - midnight - 7 am.
- Restaurant Award - Early morning - midnight - 6 am.
- Note any shifts that are worked on a weekend. Saturday & Sunday are both penalty rates for the entire days.
- Total your penalty rate hours and note it down in your separate spreadsheet.
In the example below, I've made the following changes to the clock log export:
- Formatting to make it more readable.
- Totalled the shift durations for the week.
- Highlighted shifts longer than the maximum ordinary hours for a day (in red).
- Calculated the overtime.
- Highlighted shifts with penalty rates (blue for early morning, green for weekend).
- Calculated the penalty rate hours.
Average hours over roster cycle
Assuming that you're keeping a record of your hours in a spreadsheet, averaging the hours for overtime & penalty rates will be an easy task.
In the below example we're recording the penalty rates & overtime totals for a rostered week for each applicable employee.
For peace of mind, you can use the award test feature to confirm the clocked hours. The way to do this will be to use the clocked hours and build a scenario against an award position. This will need to be done for a single week & a single employee at a time.
- Navigate to Payroll > Award Test
- Select 'Create a scenario' and fill in the details of one employee, using their clocked information.
- Select an Award & choose a comparable position (the rules are more important than the rates in this instance).
- Select Begin Analysis
- The results of this analysis will clearly display overtime & the number of hours per timeframe.
Employees who work more penalty or overtime hours than the limit specified by Fair Work will require additional payment.
The recommended method for handling these payments will be through pay items.
The workflow for setting up & paying these is as follows.
- From the main menu, navigate to Awards & Agreements > Pay Items & Allowances.
- Create pay items to cover your additional payments.
- At a minimum, you should create 2 pay items. Penalty rate additional payment and overtime additional payment.
- It's recommended that you leave the rate at 0 in the pay item setup. This will allow you to easily add the correct rate for each employee as the need arises.
- Ensure you apply the pay item to all appropriate awards to have it available for all employees.
- To pay employees for additional payments, edit their payslip and add the appropriate pay item/s.
- Add the number of hours and specify the rate.
- Update the payslip and the employee will be paid the additional amount when the payslip is processed.