How to prevent employees from doing unpaid overtime

Australian employees are working an average of 5.4 hours of unpaid overtime each week, according to a recent report from The Australia Institute. It’s an increase from 4.3 hours of overtime reported last year.

This ‘time theft’ translates to more than 280 hours of unpaid overtime or a loss of $11,055 a year, the report, Short Changed: Unsatisfactory working hours and unpaid overtime, said.

“The frequent incidence of unpaid overtime means that workers are losing substantial amounts of income,” it said. “This is particularly concerning when worker’s share of national income remains at a historically low level, wage growth is not keeping up with inflation, and the cost of living is rising.”

Unpaid overtime was more prevalent among full-time workers, who worked an average of 6.2 hours of unpaid overtime a week, compared to those who are self-employed (4.7 hours), part-time (4.1 hours) and casual workers (3.9 hours).

With Australia moving to criminalise wage theft, what can employers do to protect against unpaid overtime?

Unpaid overtime

Linda Mackinlay, partner at law firm Bartier Perry, highlighted an uptick in cases related to unpaid overtime.

“We have seen an increase in claims being brought against employers for unreasonable additional hours in breaches of section 62,” she told HRD Australia. “So it is definitely on the radar [for] people.”

Under the National Employment Standards – section 62 of the Fair Work Act – employers cannot request or require full time employees to work more than 38 hours per week, unless the additional hours are reasonable.

“Correspondingly, employees could also refuse to work, if they’re requested to work by their employer, if they think those additional hours are unreasonable,” Mackinlay said.

She added that there are also employees who are covered by modern awards or enterprise agreements with provisions that discuss overtime. If those employees work over a certain amount of time, then that's when those overtime provisions will kick in.

“Where we often find there is this contention is what is reasonable or what is unreasonable when it comes to overtime,” Mackinlay said.

Reasonable unpaid overtime

To help determine whether additional hours are reasonable, lawyers get guidance from section 62 of the Fair Work Act, Mackinlay said. And that is where they can point to the certain factors that employers need to take into account.

“There's health and safety risks to employees working additional hours, so they need to take those into account when they're asking or when they're requiring staff to work more than their reasonable, maximum weekly hours,” Mackinlay said.

“They also need to look at their employees’ personal circumstances including whether they've got family responsibilities. There's the needs of the workplace and the standards and the patterns of work within an industry. For example if you're running a manufacturing business that's a 24-hour operation, it's a very different workplace and expectation of hours than, say, a florist in a retail setting.”

Other factors to take into consideration are overtime payments for employees who are covered by industrial instruments like modern awards and enterprise agreements; what the usual patterns of work are in an industry; and what type of role the employee has, Mackinlay said.

“Are they in a particularly senior role? What’s the type of responsibility? Because that will also have some bearing upon what's considered reasonable additional hours,” she said. “If you've got someone who is a very senior member of staff, who's very highly remunerated, there is an expectation that because they’re receiving higher remuneration, that they're also available for more additional hours than someone who's not in a senior position.”

Unpaid overtime and worker safety

An important factor for HR teams to consider when looking to prevent unpaid overtime, is to understand their work, health and safety obligations, Mackinlay said.

“If you've got staff that are working unreasonable additional hours or unreasonable overtime, then there's these added risks that can occur like psychosocial hazards, potential increased risk in illness or injury, and sometimes fatigue or burnout,” she said.

Another issue is the potential for wage theft.

The Australian government introduced legislation that will make it a criminal offence to deliberately underpay employees. Under the Closing Loopholes Bill, employers who deliberately underpay employees will receive a maximum penalty of 10 years imprisonment and maximum fines of up to $7.8 million.

“Most of the matters that we have seen have been framed in that work, health and safety (WHS) but there's definitely the concept of wage theft now and also underpayment claims because people are just working for free,” Mackinlay said. “That's definitely something that's now on everyone's radar.

“And you want to ensure that you are not putting your business in a situation where staff are working additional hours, it's unreasonable and they're unpaid, because then what will happen is they will seek to recover those unpaid entitlements which they’re rightfully entitled to.”

Preventing unpaid overtime

Mackinlay pinpointed areas HR teams can look at to reduce the instances of employees doing unpaid overtime. These include understanding the obligations that apply to staff, educating managers and supervisors, and having policies with provisions around overtime.

“You need to think about what systems you should have in place or whether it's necessary to have systems in place that you can track or monitor or record hours of work for employees,” Mackinlay added. “Because often it's difficult – there's un-rostered overtime or people working overtime where it hasn't been agreed or approved beforehand and you might not be aware of it.”

Mackinlay also suggested consulting with employees who work remotely.

“Remote working comes hand in hand with flexibility,” she said. “I think it's just important that you consult with your employees [that] there is an expectation, there is an understanding that if they are working additional hours that they advise you because it might be around workload. And that's where you have these risks that can potentially come in.”