What Are Employee Penalty Rates?

In Short

• Penalty rates are higher pay rates for employees working outside standard hours, such as weekends, public holidays or late nights.
• The specific rates and applicable times are determined by the relevant award or enterprise agreement.
• Employers must pay the correct penalty rates to avoid significant fines from the Fair Work Commission.

Tips for Businesses

Regularly review the awards or agreements relevant to your employees to ensure compliance with penalty rate obligations. Implement accurate timekeeping systems to track hours worked during penalty periods. Consult with employment law professionals to stay updated on any changes to penalty rate regulations.

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Table of Contents

• Understanding Penalty Rates
• Awards, Enterprise Agreements, and Employment Contracts
• Allowances
• What Happens If I Do Not Pay Penalty Rates Properly?
• Key Takeaways
• Frequently Asked Questions

If your employees work on the weekends or public holidays, they may be entitled to penalty rates. Penalty rates are higher rates of pay that you may have to pay your employees when they work:

• particular hours, such as evenings; or
• particular days, such as weekends or public holidays. 

Penalty rates vary depending on which award or enterprise agreement covers your employees. Regardless, you must pay your employees their correct rates, or risk hefty fines from the Fair Work Commission (FWC). To ensure that you pay your employees correctly, this article outlines some key considerations regarding penalty rates.

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Understanding Penalty Rates

You may owe some employees penalty rates, depending on their award or agreement. These will apply if your employee works during:

• weekends;
• public holidays; or
• early mornings and late nights.

The relevant award or agreement should outline the exact penalty rate payable. For example, under the General Retail Industry Award, casual employees are entitled to:

• time and a half for hours worked between Monday to Friday after 6 pm; and
• double time and a half for hours worked on public holidays.

In any event, you should consult the relevant award or agreement which specifies the penalty rate and when these penalties will apply.

Awards, Enterprise Agreements, and Employment Contracts

As mentioned above, awards can outline the amount you must pay your employees in penalties and when you must pay penalty rates. In addition, since awards are generally updated each financial year, you must ensure that you pay your employees in accordance with the changes.

Some employers only pay their employees strictly according to the relevant award (i.e. employers pay a minimum wage and penalty rates if and when they are due). However, you can elect to pay your employees over the minimum award rates.
For administrative simplicity, employers may pay an “all-inclusive” above award rate, which should compensate the employee for all award entitlements relating to their work.  These include:

• minimum wages; 
• penalty rates; and
• leave loading.

If you choose to pay your employees an “all-inclusive” rate, it is crucial to carefully document the arrangement through a well-drafted offset clause in an employment agreement. An offset clause is a clause in an employment agreement that enables employers to pay above the award rate to accommodate for the above-outlined factors. 

Allowances

In addition to penalty rates, you may owe your employees certain allowances. These involve extra payments when employees do certain tasks, work in certain locations, use a special skill, or incur an expense for doing their job. 

Some allowances that can apply in addition to penalty rates include:

• meal allowances;
• tool allowances;
• travel and fare allowances;
• first aid allowances; and
• leading hand/supervisor allowances.

To ensure that you pay your employees appropriately, you should consult the relevant:

• award;
• agreement; or
• contract which covers the conditions of their employment.

What Happens If I Do Not Pay Penalty Rates Properly?

If you do not pay your employees correctly, you will need to back pay employees. These back payments should include any unpaid penalties. The FWC can also apply an additional fine of up to $66,600 per breach of your modern award. If your breach constitutes a ‘serious contravention’ of the award, you could also face fines. A serious contravention is where you know you are contravening your legal obligations and do so systematically.

In this instance, the FWC might decide to take you or other employees to court if they were involved in the contravention. This can include company directors, human resources managers, and your business accountants.

Key Takeaways

Penalty rates are higher rates of pay that you may be obligated to pay when your employees work on the weekends, public holidays, early in the morning or late in the evening. The relevant pay rate will ultimately depend on the modern award, enterprise agreement, or employment contract that covers your employees. 

If you need help paying your employees’ penalty rates, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions