From 20 November 2020, employers are now required to apply the compounding approach when calculating the pay of their casual employees who work overtime. This means that the employee is required to pay time and a half, double time and double time and a half on the rate that is inclusive of the casual loading.
Overview of Casual Employees and Casual Loading
A casual employee is one that has no guaranteed hours of work, does not receive paid leave such as annual leave, personal/carer’s leave and long service leave, works irregular hours and can be terminated without notice. In compensation for not receiving the same benefits as full-time and part-time employees, casual employees receive a casual loading.
Casual loading is an additional amount paid to a casual employee above the base rate of pay that is paid to permanent employees. Under the Electrical, Electronic and Communications Contracting Award 2020 (the Electrical Award) the casual loading amount payable is 25% above the base rate of pay.
In a recent determination, the Fair Work Commission addressed the issue of how employees, receiving a casual loading, are to be paid when they are working overtime.
How to apply overtime rates for Casual Employees
The Electrical Award provides that casual employees are entitled to the same overtime provisions as permanent employees.
There are two views on how overtime rates are to be applied to casual employees covered by the Electrical Award:
- the compounding approach – where the overtime rate is applied to the ordinary hourly rate of pay which is made up of the base rate of pay and the casual loading; and
- the cumulative approach – where the casual loading are added separately to the minimum hourly rate.
Historically, the Electrical Award was interpreted to apply the cumulative approach. However, in the recent determination, the Fair Work Commission found that the compounding approach should be applied to casual employees covered by the Electrical Award and that it will apply from 20 November 2020.
NECA made submissions to the Fair Work Commission that the compounding approach should not be adopted and that the cumulative approach should be followed, however the Fair Work Commission did not accept NECA’s submissions.
Calculating overtime rates
Please see the following example on how to apply the compound approach to a grade 5 licenced electrical worker:
A grade 5 licensed electrician is entitled to $25.31 per hour. A casual employee is entitled to $25.31 plus a 25% loading, namely $31.64. When the casual employee works overtime they are entitled to:
- $47.46, which is time and a half of the casual employees rate of pay;
- $63.28, which is double time of the casual employee rate; or
- $79.10 which is double time and a half.
More information or advice
This summary is a guide only and is not legal advice. For more information on legislative or contractual obligations, please contact CTI Lawyers on 02 9021 9699 or email [email protected].