Articles > Employment

When do I have to pay employee penalty rates?

June 24, 2023   Fatima RazaPhilip Evangelou

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    In Australia, employees may be entitled to higher rates and extra allowances if they are covered by an award, registered agreement or enterprise agreement. These penalty rates were introduced in 1947 as it was encouraged that employees deserve a higher rate when working outside of normal hours. Fair work consistently amends penalty rates to work alongside societal expectations. Therefore, it is important that employers keep up with the changes and amend their pay rates to satisfy Fair Work guidelines.

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    Award types

    Awards are the legal documents for employees and employers that lay out the guidelines for employee minimum pay rates and conditions. Awards depend on the industry and the job itself. Employers need to understand which award applies to their industry and employees in order to pay the right penalty rates. It is also important to remember an employer can be covered by multiple awards depending on the jobs the employees do. 

    Alternative agreements 

    Alternative agreements are when an employer wants to put an agreement in place that is different from the award present. They can only be used where you wish to provide your employees with different benefits but not to give them less than what is outlined in the award. It is only used if your employee will benefit more from this agreement than the award. An employer can choose between:

    Fairwork does assess all agreements and only approves those that meet the requirements under Fair Work Act 2009. 

    What are the penalty rates? 

    Employees receive penalty rates when working: 

    • Overtime. 
    • Public holidays. 
    • Weekends.
    • Late nights.
    • Early mornings.


    Overtime differs from penalty rates as it is in regard to an employee working more than their usual hours whilst penalty rates are to compensate them during a specific time. Overtime is when your employee is subject to a higher hourly rate as they have worked over 38 hours per week or more than the hours agreed in their contract, award or enterprise. Usually overtime applies when they have worked more than the usual 9-5, or over the general 8 hours.

    Time off instead of overtime pay 

    “Time in lieu” or “time off in lieu” is when an employee can take time off instead of getting paid overtime, this depends on the awards and registered agreements they are under. 

    Public holidays

    Entitlements given on public holidays can include: 

    • Extra pay (public holiday rates such as double pay for casuals in retail). 
    • Extra day off or an extra annual leave.
    • Agreeing to substitute a public holiday for another day. 
    • Minimum shift lengths.

    Requesting and refusing to work on a public holiday

    Employee’s don’t need to work on a public holiday however, employers can request them to do so if it is a reasonable request. Employers can also reject the request if they have reasonable grounds to do so. When an employee requests for an employee to work on a public holiday they must consider relevant circumstances such as the employee’s personal circumstances, penalty rates, how much notice was given etc. 


    Weekend penalty rates are higher rates for employees that work on the weekends. It is to compensate employees that are working outside their normal weekdays. The usual weekend rate is time and half (150%) of their base rate on Saturdays and double pay (200%) on a Sunday. However, weekend penalty rates don’t always apply and depend on the awards of the workplace, hence why understanding your awards is important. 

    Late night/early mornings

    These rates also depend on how the shift is defined in the award or agreement. An example of these rates are the provisions made by Fairwork in regards to restaurant and fast food awards where working between midnight to 6am incur an additional 15% payment.


    Allowances are extra payments for employees for performing certain tasks such as: 

    • Using a special skill. 
    • Working in unpleasant or hazardous environments. 
    • Using their own tools at work.
    • Incurring expenses for doing their job.

    Allowances may include:

    • Tools and equipment. 
    • Costs of travel and fares.
    • First aid. 
    • Uniforms and special clothing. 
    • Industry of employment.
    • Car and phone.
    • Leading hand or supervisor.
    • Meal allowances.
    • Laundry or cleaning costs.

    Penalties for underpaying staff 

    Underpaying your staff is a serious offence that can incur heavy penalties. If an employer is sued by the Fair Work Ombudsman Australia to have been underpaying their staff they will have to not only pay back the back pay but also incur extra penalties. Fair work can also apply additional penalties such as $63,000 for breaching your award. Fairwork can also take individual employees to court if found directly contributing to the business’ violation. 

    Tips for employers 

    Employers should: 

    • Understand their relevant award and apply to guidelines necessary. 
    • Keep up and review any employment law changes that apply to their award. 
    • Understand the various dates where relevant employment laws will be put in place and change.
    • Review employment contracts to make sure they fit the guidelines of their award and whether any clauses affect the employer’s ability to vary wages. 
    • Review current pay rates and make sure they comply with relevant awards.
    • Notify employees if there are any adjustments to their pay.

    Key Takeaway 

    Penalty rates are subject to the different awards and therefore it is necessary for an employer to understand their award and what penalty rates apply to their employees. Employer’s should ensure that they are aware of relevant employment laws in order to provide the right penalty rates for their employees as failure to do so can result in serious penalties. For more information or help with penalty rates, get in touch with our team via the contact form or by calling 1300 937 574.

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    About Fatima Raza

    Fatima RazaFatima is a legal intern at Openlegal and is currently in her third year studying Law and Media and communications at Macquarie University. Her interests are commercial, property and international law.

    About Philip Evangelou

    phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.

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