Overtime is avoidable - Common causes and strategies to compliantly reduce your overtime spend
A lot has been written about unpaid overtime for salaried staff and the associated occupational health and safety and productivity issues. However, there is less literature related to award-based overtime and the impact it has on award staff. Yet every employer we speak to who is contemplating implementing a new or replacement rostering, time and attendance solution cite labour cost reduction, and more specifically overtime spend reduction as a key business driver.
Before we kick off, it is important to note that no two Awards or Enterprise Agreements (EAs) are exactly the same, and what may trigger overtime on one Award or EA may not trigger overtime on another. Now, let’s take a look at some common triggers of overtime.
Common Overtime Triggers
1. Exceeding maximum ordinary hours (Daily/Weekly/Roster Cycle)
Most commonly employees can work a maximum average of 38 (or 40) ordinary hours per week. I say average because many Awards allow for an employees ordinary hours to be rostered over a roster cycle between 1 and 4 weeks. Thus, it may be possible to roster a full time employee for 50 hours in week 1 and 26 hours in week 2 for a total of 76 hours in a fortnight, or an average of 38 hours a week without incurring overtime.
Maximum shift lengths and/or the maximum number of hours an employee can work in a day before incurring overtime must also be considered. Maximum shift lengths vary from Award to Award, however where an employee works more than the allowed maximum hours in a day the remaining hours are typically subject to overtime. Note that annualised salaries often fail to take into account all overtime hours – you can read more about annualised salaries here.
2. Consecutive days of work and/or consecutive days of rest
These would have to be some of the least understood, overlooked and misinterpreted clauses in Awards. Time and time again I’ve seen organisations paying overtime they could have avoided with more effective rostering practices, or worse, they have failed to pay overtime relating to consecutive days and face a large back payment bill following a payroll audit.
The General Retail Industry Award 2020 (GRIA) highlights these complexities. Here I’ve summarised clause 15.7 Rostering arrangements. An employer may not roster an employee for more than 5 days per week, other than where this clause allows. But an employee can work ordinary hours on 6 days in one week where the same employee is rostered to work their ordinary hours on no more than 4 days the following week. Whilst adhering to this, the employee must also have 2 consecutive days off per week or 3 consecutive days off per 2 week cycle and no employee can work on more than 6 days in a single week. To add further complexity, clause 15.8 states that employees regularly working Sundays must have 3 consecutive days off (including Saturday and Sunday) per 4 week cycle.
Confused? Yes, I don’t blame you, there’s a lot to unpack in those two clauses and it is little wonder some retailers struggle to understand, and or, fail to be compliant 100% with the GRIA.
3. Minimum rest between shifts
Another clause that varies by Award. For example, the minimum rest period between shifts under the Cleaning Services Award 2020 is 8 hours whilst under the Vehicle Repair, Services and Retail Award 2020 it is 10 hours. And it’s not just the minimum rest period to consider. Payments may vary depending on whether the employee worked unplanned overtime prior to commencing their next shift and/or whether they were rostered or worked unscheduled hours. Note that some Awards also provision of split shifts and where this is the case (i.e. 2 hour break between shifts), the minimum rest clauses are unlikely to apply.
Also worth noting is whether the applicable payments are considered overtime (in which case are likely not superable) or if the payments are considered as part of ordinary hours and subject to super. Some Awards also provision for employees to be paid their ordinary hours originally scheduled where they have been stood down in order to receive the prescribed rest between shifts. Given these complexities and variations between awards, it is important to check your understanding and obligations under the relevant Awards.
4. Unable to take meal breaks
Employees are generally entitled to breaks (rest and/or meal breaks) depending on the length of shift worked. Some Awards provision for overtime payments, or higher rates to be paid to employees where their meal breaks are either interrupted or not able to be taken at all. For example, under the Hospitality General Industry Award 2020 (HIGA) employees are entitled to an additional 50% of the employee’s ordinary hourly rate extra from the end of 6 hours after starting work until either the employee is allowed to take the break or the shift ends (Clause 16.6).
Whereas under the Cleaning Service Award 2020, employees are entitled to overtime payments where their meal break is interrupted, and they are directed to work until the employee is allowed to resume their meal break (Clause 14.3a).
5. Other considerations
Some additional triggers of overtime include working employees with fixed shift patterns outside their ordinary hours. This typically includes swapping a shift where the originally agreed shift must be paid and the additional shift is paid at overtime rates. Where employees are not required to agree a fixed shift patterns, roster changes may be permissible within specific timeframes (which vary by Award) and with appropriate documentation. Overtime may be payable where these timeframes are not met, and where appropriate documentation is not kept, a risk obviously exists should an organisation be audited or an employee makes a claim.
It is important to note that what may trigger overtime for one type of employee may not trigger overtime for a different type of employee in the same scenario. Thus, it is important to understand the various overtime triggers for your permanent employees (both full time and part time), your casual employees and shift work employees.
Finally, many Awards provision for time off instead of an overtime payment. The details vary from Award to Award, and it is important to understand that time off is not necessarily a one for one relationship with overtime. For example, under the GRIA an employee that works 2 hours at the overtime rate of 150% is entitled to 3 hours’ time off (Clause 21.3b). What is generally consistent between Awards is that employees may choose to take time off rather than be paid overtime and an employer cannot only provide time off in lieu of an overtime entitlement. Again, check your specific Award(s) or Agreement(s) to understand your obligations.
Causes of overtime
At its core, overtime results from there being too much work to be completed by too few employees. Of course in practice it isn’t quite that simple, however I do argue that much of the award-based overtime incurred by employers in Australia is avoidable compliantly. Let’s now take a look at some of the common reasons overtime is paid and what you can do to minimise this additional labour cost.
1. Employee mix / Number of employees
Having too few employees (labour supply) to cover all work required (labour demand) typically leads to employees working additional hours and often receiving overtime for some of those hours. It can also lead to lost sales revenue and lower customer satisfaction scores (but that’s a topic of another blog!) Now, that may be a legitimate short term strategy where you don’t want to hire and onboard additional labour to manage short term demand anomalies, however if you are consistently paying significant overtime each pay cycle it is worth looking at the total number of employees you have available to meet your demand. This analysis will typically take into account employee availability (i.e. you may have a labour supply gap on a weekend), leave coverage and skill levels (i.e. you may have a skills deficit in a particular area of your business).
Even where you have enough employees to cover your demand, you may not have an optimal employee mix. Employee mix can be defined as the percentage of full time, part time, casual, and where relevant, shift workers that make up your total number of employees. Having too few casual employees may mean that you need to call on permanent employees where roster changes are required, and if this is not able to be done within your specific Award’s notice periods, overtime is likely payable. Deploying an optimal employee mix will likely yield additional labour cost savings - a topic for a future blog.
2. Poor rostering standards
Where rostering, time and attendance (RTA) systems do not have scheduling rules or alters built into them, it is very easy to create rosters that are not cost effective. In the best case scenario your RTA system will compliantly pay all relevant overtime, however if your system does not alert a rostering manager to potential overtime payments when creating a roster it is all too easy to create a roster with unnecessary costs.
For example, employees may be scheduled with less than the prescribed minimum break between shifts, rostered for more than the maximum ordinary hours, rostered without consecutive days of rest and/or rostered without adequate coverage to cover breaks. These are simple mistakes that are easily rectified by ensuring flags or alerts are built into your RTA system to ensure rostering managers are made aware of potential overtime costs. You may even wish to build in a control where rosters cannot be saved until the overtime triggers are corrected. In the absence of your RTA system being able to provide rostering alerts it is even more important that rostering managers have a good understanding of the Awards and/or EAs they work with (see 3 below).
We often advise our clients to set the minimum rest between shifts alert to an hour greater than that prescribed by the relevant Award. By doing this, if an employee needs to stay back and work any additional time, there is a bigger buffer before overtime is payable.
3. Lack of understanding of Awards / EAs
“But our operations / store / field managers don’t need to understand the Awards, our rostering and payroll systems look after all that”. If I had a dollar for every time I’ve heard a client say those words, I’d have…. well ten dollars at least! My point is, that no matter how compliantly your rostering and payroll systems are configured, employees responsible for creating rosters and managing timesheets should have a basic understanding of the Awards and / or EAs relevant to the employees they manage.
When an employee calls in sick at short notice and the shift must be filled, the responsible manager needs to understand the relevant Award to ensure they are replacing the sick employee compliantly and with the most cost effective staff member (without compromising sales and/or service). Award knowledge is also important for shift swaps, requesting employees to stay back after the end of their rostered shifts and sourcing additional coverage at short notice.
Whilst most systems are able to flag rosters that will cost your orgnisation overtime, unscheduled shifts are problematic in that systems are unable to proactively identify cost considerations of staff called in at short notice. It is really important for managers to identify any additional costs and compliance risks of calling in staff for an unscheduled shift. Some relevant questions include; Will this shift trigger maximum hours overtime? Will this shift compromise the employee’s ability to have the requisite number of consecutive days rest? If I call this employee in, have they had sufficient rest since finishing their previous shift?
Every pay period, managers are also required to manage employee timesheets and make decisions as to applicable allowances, break payments and, in some cases overtime, based on day of operations that systems can flag, but not automate entirely. Making the wrong decision may lead to under and/or overpayments and exposes the business to ongoing compliance risk.
Impact HRT has extensive experience identifying labour cost saving opportunities when reviewing Awards, EAs and roster/payroll/employee data. We have also developed Quick Reference Guides and on-line learning resources to build Award and EA knowledge in the business to reduce labour cost and increase compliance outcomes.
Contact us now for a confidential, obligation free discussion.
The information provided in this article is general in nature and should not be relied upon for any specific or individual scenario. Always seek qualified assistance in navigating employment and labour law.
