Correcting a double-dip on overtime payments

By Robert Lamb, Director & Caitlyn Wessels, Lawyer at Hillhouse Legal Partners
| 4 min. read

Key takeaways

  • Check that staff on annualised salaries that cover overtime are not also claiming Time Off In Lieu
  • Annualised salaries can reduce the administrative load of managing payroll
  • Annualised salaries should be checked each year to ensure employees pass the Better Off Overall Test

Paying your staff with an annualised salary is a great way to streamline the administrative burdens of payroll, but it is vulnerable to double-dipping on overtime payments.

Claiming Time Off In Lieu (TOIL) for overtime already factored into an annualised salary is reasonably common in various businesses including medical practices. It can happen in any workplace where there is no clear understanding of what is covered in a salary package by both the employer and their employees.

The main benefit of an annualised salary is to reduce the onerous tasks involved in processing employees’ wages, allowances, and benefits each and every pay cycle. An annualised salary can package up all these entitlements to deliver a set figure for each pay cycle.

While this is more efficient for employers, it also benefits employees. They know precisely how much to expect each pay cycle and will receive a higher superannuation contribution thanks to a higher ordinary hourly rate.

An annualised salary does not have to operate under the award, but it must pass the BOOT – the Better Off Overall Test. It’s a good idea to schedule an annual check to ensure your employees still pass the BOOT.

The first thing to look at is the number of hours of overtime that have been factored into their package and check it against the amount of overtime they are regularly performing. If the actual level of overtime is regularly more than the set time, you need to sit down and calculate what they would have been paid if an annualised salary was not in place. If this check reveals the employee is not better off – you will need to revise their contract.

It is also essential to check any movement with minimum wage increases or changes to employment laws. You can generally start with the calculations used to work out the annualised salary and check each employee is being paid enough through their package.

If you discover that staff have been consistently paid twice for their overtime, fixing this mistake can be a delicate balance between applying the law and keeping your workers happy. It’s not the employees’ fault that they have been essentially paid twice for the same overtime worked. And at a time when many businesses are finding it hard to recruit and retain quality staff – addressing this problem requires care.

One method that has worked well for our clients is incremental changes. This can work by putting employees on new contracts that explicitly state what is included in their annualised salary – and softening the blow of removing or lifting the threshold for TOIL by delivering a small pay rise. This pay rise may already be required to keep up with increasing minimum wage rates or the BOOT test. However, the additional remuneration will help to counter the loss to the established practice of double-dipping for overtime and help you retain your staff.

We can help and advise you on preparing new contracts for your team. To make a time to discuss contracts and annualised salaries, send us an email or call 07 3220 1144.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.