How to calculate concurrent penalties and loadings

Analysis

How to calculate concurrent penalties and loadings

Calculating correct payment of concurrent penalties, loadings or allowances can be confusing. This article explains how to get it right.

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Calculating correct payment of concurrent penalties, loadings or allowances can be confusing. This article explains how to get it right.

Most modern awards prescribe penalty rates, loadings and allowances that are paid to an employee in specific circumstances.

Penalty rates usually describe payments prescribed by a modern award or an enterprise agreement for shift work, overtime, weekend work and public holiday work. Loadings would include casual loadings.

Monetary allowances can generally be separated into two broad categories, namely those which are intended to reimburse actual expenditure incurred by an employee, e.g. tools, travelling, meals, etc., and those which relate in some way to the nature or location of the work itself, e.g. disabilities, special skills, locality.

The number of different penalty rates prescribed by an industrial instrument that can apply in different circumstances means that two (or more) penalties, loadings or allowances, can apply to the same work. 

This can create confusion for an employer – do all the payments apply or does one payment take precedent. For example, a common question relates to the calculation of overtime when worked by a shift worker. Is the overtime penalty rate calculated on the employee’s shift penalty?

This article identifies issues that may arise regarding calculation of concurrent penalties, loadings or allowances.

Cumulative penalty rates – no award/agreement provision


It can generally be implied in a modern award or enterprise agreement that an employee is not entitled to the calculation of a “penalty on a penalty”.

For example, a shift worker who works overtime will have the appropriate overtime penalty rate prescribed by the modern award calculated on the ordinary hourly rate, exclusive of the relevant shift allowance or penalty, unless otherwise specified by the applicable modern award or enterprise agreement.

This is because the shift penalty applies to an employee’s ordinary shift, whereas overtime penalty applies to work performed outside the employee’s ordinary rostered hours. See Metal Trades Case (1942) 47 CAR 489; Re Merchant Service Guild (Bay, Harbour and River Vessels) Award (1958) 98 CAR 129. Also, shift allowances are not generally payable on Sunday or holiday shifts.

For example, it seems the use of the term 'overtime shift' could create confusion for an employer as it implies the overtime shift is considered part of an employee’s ordinary hours of work when the hours are overtime.

Casual loading & overtime


Another common issue relates to the appropriate calculation when a casual employee works overtime. Is the appropriate overtime penalty rate calculated on the casual loading?

Most modern awards provide for the payment of a loading to casual employees. The ‘standard’ casual loading is 25 per cent. This became across-the-board from 1 July 2014 when transitional arrangements for casual loadings in modern awards ceased. The loading generally is not considered a ‘penalty rate’ because the benefits for which a casual is compensated includes entitlements such as annual leave, personal/carer’s leave, public holidays, etc.

As a general rule in modern awards, where penalties apply, the penalties and the casual loading are both to be calculated on an employee’s ordinary time rate. For example, a modern award that provides a casual loading of 25% and a penalty rate for work on a public holiday of double time and a half (250%) would receive an “all-up” casual rate for public holiday work of 275%. See Award Modernisation Decision – Priority Awards [2008] AIRCFB 1000.

Public holidays and overtime


An employee who works hours on a public holiday in excess or outside the times worked on a normal shift are not entitled, under most modern awards, to be paid overtime rates in addition to the appropriate public holiday penalty rate.

For instance, where an award prescribes double time and a half rates for all work performed on a public holiday, an employee whose normal hours are eight per day would, if 10 hours were worked on the holiday, be paid 10 hours at double time and a half and NOT eight hours at double time and a half and two hours at treble time and three quarters, i.e. time and a half on double time and a half, unless otherwise prescribed by the applicable modern award or enterprise agreement.

All-purpose allowance


An award or enterprise agreement may provide that an allowance is “payable for all purposes of this award”. This means the allowance is to be included in any calculations under the industrial instrument that are based on an employee’s ‘ordinary pay’, such as overtime and penalty rates.

Examples of an ‘all-purpose allowance’ include industry allowance, tool allowance, leading hand allowance and first-aid allowance, although reference should be made to the relevant industrial instrument to determine whether a particular allowance is payable for all purposes of the award.

A modern award that provides for all-purpose allowances is the Manufacturing and Associated Industries and Occupations Award 2010.

The bottom line: In the absence of a specific provision in the applicable modern award or enterprise agreement, it is implied there is no penalty on a penalty when two penalties apply concurrently. The higher penalty rate will usually apply.
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