Working hours, overtime, and penalty rates in Australia

Australia’s working-hours framework operates on two overlapping layers. The Fair Work Act 2009 establishes the National Employment Standards (NES) as the statutory minimum, while 122 Modern Awards impose industry- and occupation-specific rules covering ordinary hours, overtime, penalty rates, shift loadings, casual loading, and minimum engagement periods. Employees are entitled to whichever standard produces the higher outcome, and failures in award interpretation have driven more than AUD 2 billion in Fair Work Ombudsman underpayment recoveries over the past five years.

The statutory position tightened significantly between 2023 and 2026. The Closing Loopholes reforms introduced a new casual employee definition, the right to disconnect, and criminal wage-theft offences from 1 January 2025. Superannuation Guarantee contributions also increased to 12% from 1 July 2025, with Payday Super replacing quarterly contributions from July 2026.

For foreign employers, most exposure comes from award misclassification, payroll errors, and missed overtime or penalty-rate obligations rather than the 38-hour week itself.

Under section 62(1) of the Fair Work Act 2009, an employer must not request or require a full-time employee to work more than 38 hours per week unless the additional hours are reasonable. For non-full-time employees, the cap is the lesser of 38 hours per week or the employee’s ordinary hours.

Section 62(2) gives employees the right to refuse unreasonable additional hours. Section 62(3) sets out the factors used to assess reasonableness, including:

• Health and safety risk
• Family and personal responsibilities
• Workplace operational needs
• Whether the employee is compensated for additional hours
• Notice given by either party
• Usual industry working patterns
• The employee’s role and level of responsibility
• Whether the hours fall within a valid averaging arrangement under sections 63 or 64

Sections 63 and 64 allow ordinary hours to be averaged across a longer period. A Modern Award or enterprise agreement may permit averaging over up to 26 weeks, while employees not covered by such a term may enter a written averaging agreement of up to 6 months.

Averaging changes how overtime is calculated across the relevant period, but it does not displace:

• The NES maximum-hours framework
• The section 62 reasonableness test

The NES itself does not prescribe overtime rates. Overtime triggers and payment multipliers are set by the applicable Modern Award. Foreign employers relying on a flat “additional hours” rate without award integration routinely underpay employees even where the headline salary appears commercially generous.

Modern Awards are legislative instruments made by the Fair Work Commission under Part 2-3 of the Fair Work Act. There are currently 122 in force, classified either by industry or occupation. Each award operates as a separate legal instrument with its own ordinary-hours span, overtime triggers, penalty rates, allowances, classifications, and minimum pay rates. Awards apply by force of law, and employers in the relevant industry cannot opt out unless a valid enterprise agreement displaces the award through the Better-Off-Overall Test (BOOT).

Award coverage is determined through a two-step process:

• The employer’s principal business activity determines the applicable industry award
• The employee’s duties determine their classification level within that award

A software company operating a café, for example, would generally place café staff under the Hospitality Award rather than an IT-related award. Misidentifying the applicable award remains one of the leading causes of systemic underpayment in Fair Work Ombudsman investigations.

While the NES caps ordinary hours at 38 per week, Modern Awards separately define a “span of ordinary hours”, the daily and weekly window within which ordinary-time rates apply. Work performed outside that span attracts overtime or penalty rates regardless of weekly totals. The Clerks Award span runs Monday to Friday from 7:00 am to 7:00 pm, while Hospitality and Retail Awards extend much further into evenings and weekends.

Overtime and penalty rates are award-specific. Common overtime structures include 1.5× for the first few overtime hours, followed by 2× thereafter, though escalation points differ by award. Penalty rates from 1 July 2025 commonly include:

• Saturday rates between 125% and 150%
• Sunday rates between 150% and 200%
• Public holiday rates up to 250%

The National Minimum Wage from 1 July 2025 is AUD 24.95 per hour or AUD 948.00 per week, and no award rate may fall below that floor.

Casual employees also receive a 25% loading to compensate for the absence of paid leave entitlements. The interaction between casual loading and penalty rates varies across awards. Under Hospitality, the penalty rate already incorporates the casual loading, while under Retail and Clerks the loading is applied separately on top of the base rate. Most awards also impose minimum casual engagement periods of 2-3 hours per shift.

Following a wave of wage-underpayment cases, the FWC introduced revised annualised salary clauses into 22 Modern Awards effective 1 March 2020. The list includes the Clerks Award, Hospitality Award, Banking Finance and Insurance Award, and Restaurant Industry Award. An employer paying an annualised salary under these clauses must:

• Notify the employee in writing of which award provisions are satisfied by the salary and the calculation methodology, including overtime and penalty-rate assumptions
• Record “outer limits” (the maximum number of overtime and penalty hours per pay period included in the annualised salary); any hours beyond those limits must be paid at award rates within the same pay cycle
• Keep records of each employee’s start time, finish time, and unpaid breaks, signed or acknowledged by the employee each pay cycle
• Conduct an annual reconciliation calculating what the employee would have been paid under the award and pay any shortfall within 14 days

An employer relying on a common-law set-off clause rather than the formal annualised-salary clause still has to maintain the record-keeping and reconciliation discipline. Annualised-salary non-compliance was one of the leading drivers of the AUD 213 million recovered from large corporates in FWO’s 2024-25 enforcement year.

Section 333M, introduced through Closing Loopholes No. 2, gives employees the right to refuse to monitor, read, or respond to work-related contact outside working hours unless the refusal itself is unreasonable. The right applies to contact from both the employer and work-related third parties.

The provision commenced:

• On 26 August 2024, for non-small-business employers
• On 26 August 2025, for small businesses with fewer than 15 employees

Section 333M(3) assesses reasonableness by considering:

• The reason for the contact
• How the contact is made
• Whether the employee is compensated for availability
• The employee’s role and level of responsibility
• The employee’s personal circumstances

Where contact is required under Commonwealth, state, or territory law, the employee must respond regardless of preference.

Disputes are initially handled at workplace level before escalating to the Fair Work Commission under section 333P, which can issue stop orders or otherwise determine the dispute. The right has also been embedded into Modern Awards through the 2024 award variations, allowing awards to specify circumstances where refusal may be unreasonable.

Enforcement remains in an early phase. Only seven applications were lodged with the FWC during 2024-25, and no major stop-order decisions had been published as of May 2026.

Section 114 entitles employees to be absent on a public holiday or part-public holiday. Employers may request work, but employees can refuse unreasonable requests. Section 116 separately requires payment at the base rate for ordinary hours that would otherwise have been worked, while work performed on a public holiday under most awards attracts penalty rates between 225% and 250% of the ordinary rate.

Australia’s public holiday system also operates across both federal and state levels. In addition to federal holidays such as Australia Day, Good Friday, ANZAC Day, Christmas Day, and Boxing Day, states and territories impose their own gazetted public holidays, including:

• Melbourne Cup Day in Victoria
• AFL Grand Final Eve in Victoria
• WA Day in Western Australia
• Reconciliation Day in the ACT
• May Day in the Northern Territory

Defaulting to federal holidays alone remains one of the most common payroll audit failures for foreign employers.

Annual leave under section 87 accrues progressively from day one at:

• 4 weeks per year for full-time and part-time employees
• 5 weeks for qualifying continuous-shift workers regularly rostered on Sundays and public holidays

Casual employees do not receive annual leave because the 25% casual loading compensates for the absence of paid leave entitlements. Section 95 permits leave cash-outs only where an award or enterprise agreement allows it, with employees required to retain at least four weeks of accrued leave.

Personal and carer’s leave under section 96 accrues at 10 days per year of service. The High Court’s decision in Mondelez International Pty Ltd v AMWU confirmed that “10 days” means 1/26th of an employee’s ordinary annual hours rather than ten rostered working days, regardless of shift length.

A standard 38-hour employee accrues 76 hours of leave. An employee working 12-hour shifts also accrues 76 hours rather than 120. Foreign employers operating compressed-week or non-standard roster arrangements frequently miscalculate this entitlement.

Section 535 requires employee records to be kept in English, retained for 7 years from the date of the record, including after employment ends, and remain readily accessible to a Fair Work Inspector.

Mandatory records include employment type and commencement details, pay rates and gross/net amounts, loadings and allowances, hours worked, leave balances, superannuation contributions, and termination records. Casual and time-paid employees must also have start and finish times recorded.

Award annualised-salary employees require additional compliance records, including:

• Start, finish, and break records signed or acknowledged each pay cycle
• Outer-limits documentation
• Annual reconciliation records

Section 536 separately requires pay slips within one working day of payday. Pay slips must include:

• Employer ABN
• Pay period
• Gross and net pay
• Ordinary and overtime hours
• Rates, loadings, and deductions
• Superannuation fund details

Federal penalty units increased to AUD 330 from 8 November 2024, with the next CPI indexation under section 4AA of the Crimes Act 1914 scheduled for 1 July 2026.

Civil penalties under section 539 for breaches involving pay, recordkeeping, and pay-slip obligations currently reach:

• AUD 19,800 per contravention for individuals
• AUD 99,000 for body corporates

Criminal wage-theft offences commenced on 1 January 2025 and intentional underpayment of wages or entitlements can now trigger:

• Up to 10 years imprisonment
• The greater of 3× the underpayment or AUD 1,650,000 for individuals
• The greater of 3× the underpayment or AUD 8,250,000 for body corporates

The offence requires intentional conduct, so genuine mistakes are excluded. However, discovering an underpayment and failing to remediate it promptly may itself support an inference of intent. Payroll managers and accountants may also face personal liability where their conduct contributed to the breach.

The Fair Work Ombudsman also operates a self-disclosure cooperation mechanism. Employers that proactively disclose an underpayment and fully remediate it under FWO supervision will generally avoid criminal referral, although civil penalties and employee recovery exposure can still apply.

As of May 2026, no criminal conviction under section 327A had been publicly reported. The FWO recovered AUD 358 million for more than 249,000 underpaid workers during 2024-25 and more than AUD 2 billion across the previous five years.

Most underpayment disputes in Australia do not come from misunderstanding the 38-hour NES limit itself. They arise when foreign employers apply overseas payroll assumptions to Australia’s award-driven system.

Common failure points include:

1. Treating the NES 38-hour week as the only working-hours requirement while ignoring award overtime, penalty-rate, span-of-hours, and minimum-engagement rules
2. Misclassifying ongoing workers as casual employees after the revised section 15A test took effect on 26 August 2024
3. Paying annualised salaries without outer-limits documentation, time records, or annual reconciliations
4. Missing weekend, public-holiday, and shift loadings under the applicable award
5. Failing to implement or honour right-to-disconnect obligations introduced through the Closing Loopholes reforms
6. Calculating Superannuation Guarantee on base salary instead of Ordinary Time Earnings (OTE)
7. Missing the increase to the 12% SG rate from 1 July 2025
8. Treating wage underpayment as a civil-only risk despite criminal wage-theft offences commencing from 1 January 2025
9. Applying only federal public holidays while ignoring state and territory public holidays
10. Failing to maintain compliant 7-year employee records

Several of these risks are compounded by payroll-system design rather than deliberate non-compliance. Flat-rate salary structures, imported time-tracking logic, and globally standardised payroll workflows frequently fail once Modern Award rules, penalty-rate calculations, and state-specific obligations are layered into the Australian employment framework.