As the 2016-2017 financial year comes to an end, businesses are hastily tying up loose ends in preparation for the new financial year. Often employers can put themselves at risk when pressuring their employees to work extensive overtime to finalise projects, meet deadlines and finish annual reports before the end of the financial year.
Employers who direct their employees to work additional hours must tread carefully and ensure their direction complies with the provisions of the Fair Work Act 2009 (Cth).
A 2016 survey conducted by the Australia Institute, Centre for Future Work titled ‘Excessive Hours and Unpaid Overtime: An Update’, found that on average, full-time workers complete 5.1 hours of unpaid overtime per week, and part-time workers averaging 3.74 hours unpaid overtime.
For the full-time employee this excess time worked equates to approximately $10,000 or 13% of actual earnings, and for part-time employees this equates to $7,500 or 25% of actual earnings. The calculated loss when applied to the national economy is approximately $116 billion in unpaid overtime.
When it comes to work-life balance, employers have a statutory obligation to provide a safe workplace. If an employer imposes excessive overtime, it may be in breach of this obligation. Encouraging work-life balance for employees is the key to productivity and a positive working environment.
How can I determine if the overtime is reasonable?
Employers should be aware of their legal obligations to their employees when requesting overtime. Commonly, many employment contracts specify that amongst the contracted hours there will be an expectation of reasonable overtime. However, an employee always has the right to refuse to work unreasonable additional hours.
Section 62 of the Fair Work Act 2009 (Cth) outlines factors that help determinate whether additional hours are reasonable:
- “any risk to employee health and safety from working the additional hours;
- the employee’s personal circumstances, including family responsibilities;
- the needs of the workplace or enterprise in which the employee is employed;
- whether the employee is entitled to receive overtime payments, penalty rates or other compensation for, or a level of remuneration that reflects an expectation of, working additional hours;
- any notice given by the employer of any request or requirement to work the additional hours;
- any notice given by the employee of his or her intention to refuse to work the additional hours;
- the usual patterns of work in the industry, or the part of an industry, in which the employee works;
- the nature of the employee’s role, and the employee’s level of responsibility;
- whether the additional hours are in accordance with averaging terms included under section 63 in a modern award or enterprise agreement that applies to the employee, or with an averaging arrangement agreed to by the employer and employee under section 64;
- any other relevant matter.”
The Fair Work Ombudsman recognises that overtime is characterised as working beyond the ordinary working hours, outside agreed number of hours and outside the spread of ordinary hours.
When an employee objects to overtime
Section 62 of the Fair Work Act 2009 (Cth) states that an employer must not request or require an employee to work more than the contracted hours in a week unless the additional hours are reasonable. If the hours are found to be unreasonable employees may object either verbally or in writing, however it is dependent upon the terms of the contract or award if an employee tries to claim compensation for this time either monetarily or with time in lieu.
Any adverse action taken against an employee for refusing to work unreasonable additional work hours or making a complaint about them is a breach of the general protections provisions of the Fair Work Act 2009 (Cth).
If you are unsure about your overtime policies in the workplace, we recommend seeking legal advice.
End of financial year bonuses
In addition to unpaid overtime, employees are usually working to achieve their end of financial year bonuses. Contention surrounding bonus payments have been brought to the forefront this financial year with the Deutsche Bank of Germany recently decided to cut bonuses for local employees.
Incentives are governed by the terms of an employment contract and the payment of any bonuses is subject to the overriding discretion of the employer. This discretion is usually expressed as being absolute or unfettered and is often relied upon by employers to withhold the payment of a bonus. However, courts have shown a preparedness to restrict employers from exercising their discretion in a way that is capricious or arbitrary, even in circumstances where the terms of the contract provide that the discretion is unfettered.
Employers who are unsure how to incorporate incentive plans into your workplace should seek legal advice.
About the author
Trent Hancock is a Senior Associate with McDonald Murholme, an employment law firm based in Melbourne and Adelaide.