Late last month the Fair Work Commission, in 4 yearly review of modern awards – Overtime for casuals, confirmed that for casuals under the Aged Care Award 2010 and the Health Professionals and Support Services Award 2020, overtime calculations must include casual loading.

This decision applies directly to award employees, but it may also have relevance to the entitlements of employees who are covered by enterprise agreements.

The interaction between casual loading and penalty rates can be confusing and as a result, it can lead to underpayment issues. Sometimes casual loading is included in the base rate with a penalty rate calculated on top (known as compounding) and at other times it is excluded, or added after the penalty rate calculation. The appropriate way to calculate these items depends on the wording in industrial instruments and employment agreements.

Upholding a decision from August this year, the Commission determined that the meaning of “time’ in the expressions “time and a half”, “double time” and “double time and a half” at clause 25.1(b) of the Aged Care Award on its ordinary meaning meant “ordinary time rate of pay”. The Commission further held that a casual employee’s ordinary time rate of pay in the context of the overtime clauses in the Aged Care Award meant a base rate including casual loading, and therefore overtime is calculated on a casual employee’s rate inclusive of casual loading. In making their determination on the Health Professionals and Support Services Award, the Commission held that the approach to casual overtime should be consistent with the Aged Care Award.

In coming to the conclusion that overtime calculations must include casual loading, the Commission rejected the Australian Industry Group’s contention that it was “widely accepted” that a penalty rate should not be applied on top of another rate or premium. The Commission stated that “it may be normal, but certainly not a universally-applied proposition” and emphasised that, regardless, casual loading has not traditionally been characterised as a penalty rate.

The Commission’s conclusion in relation to casual loading and overtime is distinguishable from the way casual loading and shift allowance penalty rates interact. In its recent decision, the Commission commented that clause 26.3 in the Aged Care Award 2010 “plainly excludes” casual loading from the calculation of shift penalties because it states “For the purposes of clause 26.1, “ordinary hourly rate” means the appropriate weekly rate divided by 38”.

The Commission’s confirmation that casual loading is treated differently when it comes to calculating penalty rates, as opposed to overtime, is a good reminder of just how carefully these provisions need to be read and applied.

The Aged Care Award and the Health Professionals Support Services Award are just two awards in a long list of modern awards that were considered ambiguous on the issue of overtime entitlements for casual employees. The Fair Work Ombudsman first brought the matter of “Overtime for Casuals” to the Fair Work Commission’s attention via a research paper issued in 2014, which identified modern awards where casual employee’s entitlement to overtime and the interaction between casual loading and overtime rates either were or were not clearly stated. Following this, the Full Bench of the Commission issued a statement in 2017 tabling a list of the modern awards with ambiguity around “Overtime for Casuals”. The Full Bench of the Commission is slowly making its way through those awards during each 4 yearly review. Accordingly, we will be seeing more decisions like this in the future.

The Commission acknowledged that the COVID-19 pandemic has had a disproportionate effect on the aged care sector. Based on this, the Commission is giving aged care employers until 1 March 2021 to ensure that they have made any necessary adjustments to their procedures before the Aged Care Award’s variation (which will involve a table showing overtime rates inclusive of casual loading) comes into effect.

However, despite many aged care facilities employing people covered by the Health Professionals and Support Services Award, the Commission has not been as lenient and the variations to that award take effect on 20 November 2020.

While the awards will be formally changed on those dates, based on the Commission’s decision the current versions of the award should be interpreted to mean that overtime is compounded on casual loading. Accordingly, if employers are currently not paying overtime compounded on casual loading, there is still a risk that they are underpaying their casual employees.

This decision may also provide clarity for employers who are covered by enterprise agreements, as the wording in the agreement may reflect the wording in the award.