When can employers offer time off in lieu instead of overtime pay? And what does ‘reasonable additional hours’ actually mean? An employment law expert clears up six common grey areas around overtime.

Managing overtime can be a deceptively complex task for HR, with questions around pay, wellbeing and record keeping creating a number of legal grey areas.

According to Will Snow, Director at Snow Legal, there are two main legal risks associated with mismanaged overtime. 

Firstly, there is the risk of underpayment, particularly where employees are covered by an award and their overtime entitlements are not properly accounted for. 

What starts as a small payroll error can quickly accumulate into a significant backpay liability, and knowingly allowing underpayments to continue can potentially escalate into allegations of wage theft.

“The other issue with overtime is about safety and fatigue,” he says. “The National Employment Standards say maximum hours of work are 38 hours a week, plus reasonable additional hours. 

“‘Reasonable’ is one of those slippery words – but, for example, if you’re regularly [asking employees] to work 45 to 50-hour weeks – unless there’s a really good reason for it, and you’re compensating people for it, and everyone’s on board – then you risk breaching the National Employment Standards. And, from a safety perspective, that’s not a particularly sustainable way of working.”

Below, Snow answers six common questions about managing overtime, including what counts as reasonable additional hours, when employees can refuse overtime and what HR needs to consider when employees work additional hours without being asked to.

1. What does ‘reasonable additional hours’ actually mean in a contract?

The Fair Work Act and many employment contracts allow employers to require employees to work ‘reasonable additional hours’. 

But what is considered reasonable will depend on the circumstances – there is no fixed number of hours that automatically meets the definition.

“Reasonable often comes down to: are people getting paid for the work they’re doing?” says Snow.

For example, an employee who is paid significantly above the relevant award may have some additional hours effectively absorbed into their salary. By contrast, where an employee is paid at award rates, employers need to be particularly careful about ensuring overtime entitlements are being met, he says.

Industry expectations and operational demands can also be relevant.

“If you work in hospitality or tourism at peak periods, you’re going to get busy,” says Snow. “Or if you work in the horticultural sector or the wine industry and you’re doing vintage, you’re doing long hours, and the expectation is clear and it’s understood.”

For an office-based worker, an example of reasonable grounds to require overtime might be that other employees are off sick and their work needs to be covered.

However, employers should be cautious about relying on overtime as a long-term solution to workforce shortages or poor planning.

“If you do have those surge moments where everyone’s really busy, then you’ve got to be sure that when it’s not as busy, you’ve got the messaging that says, ‘Look, take your time off. We want to make sure everyone has sustainable careers.’” 

There are also specific criteria under the Fair Work Act which must be taken into account in determining if additional hours are reasonable, which includes an employee’s personal circumstances, notice given by the employer to work the additional hours, and the nature of the role and the employee’s level of responsibility, being some of those factors. 

“If you’re short-staffed because you’re just not managing your staffing correctly, and you’re asking for overtime again and again, that’s not likely to be seen as reasonable.” – Will Snow, Director at Snow Legal

2. Can an employee refuse to work overtime?

Employees can refuse to work additional hours if they have reasonable grounds to do so, says Snow.

“For example, maybe they’ve got annual leave planned, or they have carer’s responsibilities, or their health doesn’t really permit them to do that right now. It’s really [considered] case by case,” says Snow. 

If a dispute around overtime escalates to legal action, the Fair Work Commission will consider both sides of the equation, including the employer’s reason for requiring overtime and the employee’s individual circumstances. 

The broader context of the request will also be relevant, including whether the additional hours are genuinely necessary or are becoming a regular feature of the role.

“If you’re short-staffed because you’re just not managing your staffing correctly, and you’re asking for overtime again and again, that’s not likely to be seen as reasonable,” he says.

3. Can employers offer time off in lieu instead of paying overtime?

Offering time off in lieu (TOIL) can be an appealing option for employers looking to manage the cost of overtime, as well as for employees who value additional time off.

“It suits a lot of people,” he says. “But different people want different things. You might love the money because you’re saving up to go overseas, whereas I want the TOIL because I’m doing a [personal] project at the moment.”

For employees covered by an award, Snow says employers generally need to have an agreement with the employee before TOIL can be provided instead of overtime pay.

“You can certainly encourage or set policies that encourage people to take TOIL,” he says. “But, almost every award states that while you can offer TOIL, you’ve got to have an agreement and, often, a confirmation in writing.”

4. What should HR do if employees regularly work overtime without being asked or instructed to do so?

A common grey area arises when employees work additional hours without being explicitly told to do so.

“There’s often nothing preventing employees from getting to work early because they want to be prepared for the day, or maybe they’re about to go on leave and they want to make sure that everything’s in a good order,” says Snow.

“That’s discretionary effort… And, if they’re making that decision, there’s no strict requirement in a black-and-white sense to pay them for it, because there’s an aspect of it which is voluntary.”

However, HR should not assume that all additional work is genuinely voluntary.

An employee may not have been directly instructed to work late, but if they have been given an unrealistic workload or deadline that can only be met by working excessive hours, the situation becomes more complicated. Or perhaps there is an unspoken rule in the office that ‘You don’t leave before the boss’, who is consistently still sitting at their desk at 8pm each night.

“That can start creeping maybe into the safety risk area, because it’s an identified psychosocial hazard to have way too much work to do,” he says.

Employers should pay attention to patterns of employees regularly working long hours. If those hours become excessive and consistent, it’s worth flagging this with the employee to ensure their job demands haven’t become unmanageable.

It’s also worth documenting any conversations you had with the employee to encourage them to leave work on time, in case they choose to make a claim in the future.

“You can certainly encourage or set policies that encourage people to take TOIL… But, almost every award states that while you can offer TOIL, you’ve got to have an agreement and, often, a confirmation in writing.” – Will Snow, Director at Snow Legal

5. What obligations do employers have to record working hours?

Employers do not necessarily need to record the working hours of every employee, says Snow. 

Record keeping obligations generally require records about the hours of work if someone’s casual, if they work irregular hours, or where an employee is entitled to be paid certain loadings, penalty rates, overtime rates, or other additional payments, which can often be the case for many award-covered employees. 

Where record keeping is required, employers often need to capture key details such as start and finish times.

“Break times are often overlooked, and there have been recent cases where that has [come up],” he says.

A major fast food corporation is currently facing a Federal Court trial over allegations that it systematically denied thousands of workers the paid rest breaks they were entitled to. If the claim is successful, the company could face significant back-pay liabilities and penalties.

For HR, a useful check is whether the organisation could produce clear evidence of working hours and breaks if an employee later challenged their pay. It might not be as specific as a rostered break time – it could instead be evidence of consistent and clear messaging to a team about taking breaks that are consistent with both award requirements and also employee wellbeing. 

Strictly rostering break times is sometimes inconvenient for employees and impractical for the working environment. However, there can be specific requirements outlined in some awards. Some awards also contain additional obligations about recording hours of work. 

6. How can employers effectively track working hours when employees are working flexibly?

Flexible and hybrid working can make it harder to see when employees are working beyond their ordinary hours. This makes clear expectations around recording working hours particularly important.

Snow suggests including a regular note on employee payslips reminding them how the business records hours and asking them to ensure their hours of work are logged accurately.

“A regular disclaimer like this reaffirms expectations about how hours are counted,” he says.

Employers should also make sure those expectations are consistent across teams and reinforced by managers, rather than relying on employees to work out for themselves what should be recorded.

Fostering healthier cultures around working hours

Managing overtime is not just about meeting minimum legal requirements. A big part of HR’s role is recognising when long hours are becoming a pattern, and reinforcing that employees can raise concerns if their workload is becoming unsustainable.

“If overtime is [constant], you’re going to get unhealthy and worn down. Your immune system’s going to be shot, and your ability to cope is going to be exceeded by the demands put on you,” says Snow.

“So it’s in the organisation’s interest to be careful with the energy that we’ve all got.”

Regular check-ins, workload audits and clear expectations around working hours can help identify issues with overtime before they become a legal or wellbeing risk.

Keep an eye out for this month’s episode of ER/IR Unpacked, AHRI’s new podcast – recorded live at AHRI’s National Convention and Exhibition – where Will Snow and other employment lawyers answer audience questions on overtime management and much more.

🧰 HR’s career resource toolkit

• Learning: Take your employment law expertise to the next level with AHRI’s Advanced HR Law course, or ensure you’ve got your bases covered with this introduction course.
• Article: When does a demanding workload turn into a psychosocial risk?
• Article: HR’s role in preventing and responding to underpayments
• Podcast: Stay across Australia’s evolving employment law landscape with AHRI’s ER/IR Unpacked podcast.

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