The most common award misinterpretations

Casual Loading, penalty rates, ordinary hours, and minimum engagement periods

With over 120 Modern Awards available under the Fair Work Ombudsman which govern the payment of employees across numerous industries, Award interpretation and ensuring employer compliance and associated payment of employees in alignment with clauses within the respective Awards can be a complex task.

Wage Compliance is a complex and evolving area, and with the criminalisation of wage theft from 1 January 2025 it is crucial that employers are taking steps to ensure compliance with Award requirements.

In this article, we will cover areas within Awards that can commonly be misinterpreted by employers, being:

• Casual Loading
• Penalty rates
• Ordinary hours
• Minimum engagement periods

Casual Loading

Fair Work defines Casual employees as employees who do not have a ‘firm advance commitment to ongoing employment’. Casual employees are entitled to casual loading of 25% under an Award, which is paid to these employees in lieu of any entitlements to paid annual leave, paid personal/carer’s leave, payments for Public Holidays not worked, as well as pay elements such as termination or redundancy pay.

Many employers incorrectly assume that casual employees lose loading if they work regular hours or that casual status automatically means minimal obligations. In fact, casuals still require correct loading unless they formally convert to permanent status, and awards often include provisions like minimum engagement periods that are overlooked.

It is important to note that Casual Loading does not cover all entitlements - namely that Casual Loading does not remove an employer’s requirement to pay Casual employees penalty rates, overtime and allowances should this be applicable based on the employee’s hours of work or work conditions/tasks which attract allowances.

Fair Work pay slip requirements state that Casual Loading needs to be stated as a separate line item on payslips, aiding transparency in pay slip reporting.

Penalty rates

It is important for employers to understand the application of penalty rates, including Award-specific rules around the calculation of penalty rates.

A common misinterpretation of penalty rates is that penalty rates apply only to an employee’s base ordinary hourly rate of pay. Employers must ensure that any shift loadings are also factored into employee hourly rate of pay, to which a penalty rate is applied (unless an Award states that shift loadings are non-compounding with penalty rates).

Employers must also take into consideration that there are Award-specific rules pertaining to penalty rates. For example, some Awards may cite a penalty rate that is already inclusive of Casual Loading, whereas other Awards may cite a penalty rate that requires the 25% Casual Loading to be added in.

As an extension of the above, we also see that employers struggle with superannuation guarantee compliance for penalty rates. A common misconception is that a penalty rate means overtime – this is not the case. For example, if an employee works on a weekend and therefore receives time and a half or double time, and this is their usual shift, these hours worked will be considered ordinary time earnings (or ‘qualifying earnings’ for the purposes of payday super).

Another way employers underpay superannuation on penalty rates arises where certain penalty rate codes are not separated from overtime codes in the payroll system. For example, if the only double time code is an overtime code, which would usually not attract superannuation, then on the occasion an employee is entitled to double time on their ordinary hours, the payment may accidentally be transacted using the overtime code, and superannuation won’t be paid.  

Ordinary hours

Under Modern Awards, there are multiple components to ‘Ordinary hours’. Modern Awards commonly cite maximum ordinary hours per week for employees, which is dependent on their employment type (e.g. Full Time or Part Time). In addition, an Award may also cite maximum ordinary hours able to be worked by an employee (for example, maximum of 8 ordinary hours per day). Should these ordinary hours be exceeded, the employee will be eligible for Overtime rates of pay accordingly.

Another component to an employee’s ‘Ordinary hours’ is an employee’s ordinary span of hours. Where employees work outside their ordinary span of hours (for example, 9am-5pm Monday -Friday), the employee will be eligible for Overtime rates of pay accordingly.

A common misinterpretation by employers is that if an employee works their maximum hours per week (e.g. 38 hours) that all 38 hours are ordinary hours. For example, where an employee has worked outside their ordinary span of hours, a portion of these hours may already be overtime hours despite the employee not working in excess of 38 hours a week, as an example.

Many Awards also require Part-Time employees to agree upon a schedule of work. This commonly encompasses the hours to be worked each day, days of the week employee will work and the times at which the employee will start and finish work each day. Where Part-Time employees work outside of this schedule, this constitutes undertaking work outside of their ordinary span of hours and as such, are likely to be considered overtime hours.

Minimum engagement periods

Many Modern Awards cite minimum engagement periods for employees, either by employment type (e.g. Casual) or on certain days (e.g. Weekends or Public Holidays). It is important for employers to note that they are required to either roster the employee to work for at least the minimum engagement period, or alternatively if the employee is not rostered for/does not work the duration of the minimum engagement period that the employer is still required to pay them for at least the minimum engagement period outlined in the relevant Award.

In our experience we often find non-compliance with these obligations arise where employees are required to complete training on a separate day, or when they are called back to work (such as certain on call arrangements). 
Should you wish to learn more about how RSM may be able to assist your organisation with Wage Compliance matters, including Modern Awards or if you have any other questions, please contact your local RSM Global Employer Services representative.