When Salary Does Not Cover Extra Hours In Australia

When you’re running a small business, overtime can feel like part of the engine that keeps everything moving. A big client deadline lands, a staff member is away, or your busiest season arrives - and suddenly your salaried team is doing “just a bit extra” most evenings.

The tricky part is that “a bit extra” can quietly turn into a pattern. And that’s where many small businesses start asking the same question: what is a reasonable amount of overtime for salaried employees in Australia?

In Australia, being on a salary doesn’t automatically mean an employee can work unlimited hours. Employers still need to think about whether additional hours are reasonable, whether the employee is properly compensated (even if indirectly through a higher salary), and whether your practices line up with the Fair Work Act, any applicable modern award or enterprise agreement, and workplace health and safety expectations.

Below is a practical, employer-focused guide to help you assess what “reasonable overtime on salary” can look like, set expectations clearly, and reduce the risk of underpayment issues or disputes down the track.

What Does “Reasonable Overtime” Mean For Salaried Employees?

In Australia, the concept you’ll hear most often is not “overtime” itself, but reasonable additional hours.

Many employees (including salaried employees) are protected by the National Employment Standards (NES) in the Fair Work Act 2009 (Cth). One of those standards is that an employer can request an employee to work additional hours only if the additional hours are reasonable.

This matters for small businesses because the “salary” label doesn’t remove the legal framework. If your employee is award-covered, the award may also contain overtime rates, span of hours rules, penalty rates, rostering requirements, and record-keeping expectations - all of which can apply even when you pay an annual salary.

So, when someone asks about reasonable overtime on salary, the more accurate employer question is:

• Are the extra hours you’re requiring reasonable in the circumstances?
• Are you meeting minimum entitlements under the relevant award/agreement and the NES?
• Have you made the arrangement clear in writing (including how you handle extra hours)?

Is There A Set Number Of Hours That’s “Reasonable”?

There isn’t a universal “magic number” (for example, “10 hours per week is fine”). Reasonableness is assessed case-by-case.

That said, from a risk and compliance perspective, the longer the hours, the more frequent the overtime, and the more it becomes “business as usual”, the harder it is to argue it’s reasonable - especially if you’re not adjusting pay, duties, staffing, or time off to account for it.

The Practical Factors That Determine What Is A Reasonable Amount Of Overtime

To work out what is a reasonable amount of overtime in your business, you’ll usually need to weigh a set of legal and practical factors (rather than relying on workplace culture or assumptions).

These are some of the key considerations that commonly matter when assessing reasonableness:

1) Health, Safety And Fatigue Risk

Even where an employee is willing to work long hours, you still need to think about fatigue, stress, and safety. This is particularly important in roles involving:

• driving or operating machinery
• physical labour
• high-pressure decision-making
• customer-facing work where mistakes can cause harm

Reasonableness isn’t just a legal technicality - if extended hours create foreseeable health and safety risks, that’s a serious red flag.

2) The Employee’s Pay Level And Seniority

Overtime expectations for a senior manager on a high salary may look very different to a junior employee on a modest salary.

If your salaried employee is paid well above the applicable minimum rates, it may be more realistic to expect occasional additional hours during peak periods - but that still doesn’t justify unlimited overtime or permanent overwork.

This is also where your documentation matters. A properly drafted Employment Contract can set clear expectations about reasonable additional hours and how compensation is handled.

3) Notice And Predictability

Overtime is more likely to be reasonable when:

• it’s planned (for example, known busy season)
• the employee receives notice
• it’s genuinely occasional rather than constant

Regular last-minute requests can increase risk - especially if the employee has caring responsibilities or other constraints.

4) The Role’s Nature And What The Employee Signed Up For

Some roles inherently involve some level of flexibility (for example, client delivery roles, project-based work, or leadership roles).

But “flexible” doesn’t mean “always on”. If the business model relies on sustained overtime to function, that’s usually a resourcing issue (headcount, workflow, deadlines, or scope) rather than a “reasonable overtime” expectation.

5) Compensation Or Time Off In Exchange

For many small businesses, the most practical way to keep additional hours reasonable is to ensure employees are compensated either through:

• award overtime payments (where applicable)
• an annual salary that is demonstrably sufficient to cover additional hours and entitlements
• time off in lieu (TOIL) only where it’s allowed under the applicable award or enterprise agreement (or otherwise lawfully agreed), and properly documented and managed

Time off in lieu arrangements can be a practical option, but the rules can be strict and vary depending on the award or enterprise agreement (including when TOIL can be taken, how it accrues, and how it must be recorded). Even if your arrangement is informal, it can still create expectations and potential disputes. If TOIL is something you want to use consistently, it’s worth getting advice on setting it up properly - and aligning it with award rules (if an award applies).

It also helps to understand how overtime is generally handled across Australia, including the employer-facing issues covered in Australian overtime laws.

Salary Doesn’t Automatically Cancel Overtime: Award Coverage And Underpayment Risk

A common trap for small businesses is assuming that paying a salary means you can avoid overtime obligations altogether.

In practice, there are two big questions you should clarify early:

• Is the employee covered by a modern award or enterprise agreement?
• If yes, does the award/enterprise agreement contain overtime and penalty rules that still apply?

If your employee is award-covered, you generally need to ensure that their salary leaves them at least as well off as they would be under the award for the hours they actually work (including overtime/penalty rates, allowances, and loadings if relevant).

This is why accurate time recording matters, even for salaried employees. If you don’t know what hours are actually being worked, it becomes difficult to demonstrate that the salary is enough to cover the entitlements.

If you’re unsure about award coverage or how to set salary arrangements safely, Award Compliance support can help you map out minimum rates and common risk areas.

Annualised Salaries And “Set-Off” Clauses

Many businesses include a clause that says the salary compensates for reasonable additional hours and can be “set off” against award entitlements. This can be useful, but it’s not a magic shield.

At a practical level, you still need to ensure that:

• the employee is paid enough to cover what they would have earned under the award (for the hours actually worked), and
• your contract terms are clear, legally effective, and consistent with any award requirements (including any specific annualised salary rules, reconciliation obligations, or record-keeping requirements that apply).

It’s also important not to confuse “reasonable additional hours” with “unlimited additional hours.” If the overtime becomes excessive, it can still be unreasonable - even if your contract mentions it.

How To Set Clear Overtime Expectations Without Burning Out Your Team

Small business owners often want to do the right thing, but also need realistic options that won’t create admin overload. The best approach is usually to build a simple system that makes expectations clear and provides guardrails.

Step 1: Define What You Mean By “Reasonable” In Your Business

Instead of leaving it vague, document what “reasonable additional hours” might look like for the role. For example:

• Occasional extra hours during seasonal peaks
• Extra hours when urgent client issues arise
• Time-limited project delivery periods

What you’re trying to avoid is a situation where the employee believes “reasonable” means once in a while, but your business is expecting it several nights a week indefinitely.

Step 2: Use Written Contracts And Practical Policies

Your contract should reflect the reality of the role, including:

• ordinary hours (for example, 38 hours per week)
• how additional hours will be requested/approved
• whether overtime is paid, included in salary, or managed via TOIL (if permitted)

If you have a growing team, it can also help to capture expectations in a workplace policy (for example, approval processes and time recording). This reduces “case-by-case” confusion and helps you manage fairly across the team.

Step 3: Track Hours (Even If It’s Lightweight)

Time tracking doesn’t have to be complicated. Even a simple weekly timesheet or time-tracking app can help you:

• spot overtime patterns early
• check whether workloads are realistic
• confirm whether the salary is still appropriate
• reduce underpayment risk if questions arise later

Step 4: Manage Breaks, Recovery Time And Rostering

Overtime becomes much harder to justify as “reasonable” if your staff aren’t getting adequate breaks or recovery time.

Even for salaried employees, you should keep break rules in mind and ensure your culture supports taking breaks. If you need a refresher on break expectations, Fair Work breaks is a helpful reference point when thinking about what your roster patterns should look like in practice.

Common Scenarios Small Businesses Should Watch For

Reasonableness issues usually come up in patterns - and spotting them early can save you a lot of stress later.

“They’re On Salary, So They’re Always Available”

This is one of the fastest ways to end up with burnout, turnover, and potential legal disputes.

If your business relies on constant availability, consider whether you actually need:

• an on-call allowance arrangement (where applicable),
• additional headcount,
• revised KPIs and timelines, or
• a restructure of duties and priorities.

Regular Late Nights That Have Become “Normal”

Occasional overtime can often be reasonable. Overtime that happens most days is harder to defend - and it can indicate your staffing or project-scoping needs attention.

From a practical management perspective, it’s worth asking:

• Is the workload genuinely temporary, or is this ongoing?
• Can we reallocate tasks, automate, or reprioritise?
• Is the employee being rewarded for the sustained extra effort?

Termination And Overtime: Don’t Create A New Problem At The End

Overtime-related issues can also show up when employment ends - particularly if employees argue they were underpaid across the employment period.

Also keep in mind that end-of-employment payments can become complicated where there are disputes about hours worked, salary set-off clauses, or entitlements. If you’re managing exits, it’s worth understanding payment in lieu of notice and how it should be handled in a compliant way.

Key Takeaways

• There is no universal number that answers “what is a reasonable amount of overtime” - it depends on the circumstances, including the employee’s role, pay, health and safety impacts, and how predictable the extra hours are.
• Being on a salary does not automatically remove overtime obligations, especially where a modern award or enterprise agreement applies.
• Overtime is more likely to be reasonable when it’s occasional, time-limited, and managed with notice, proper compensation (or lawful TOIL), and adequate breaks and recovery time.
• Clear written contracts and consistent processes (like approval steps and lightweight time tracking) help you manage reasonable overtime expectations fairly and reduce underpayment risk.
• If overtime is becoming “business as usual”, it’s often a sign you need to revisit resourcing, workflows, pricing, or role design - not just rely on extra hours.

If you’d like a consultation on setting reasonable overtime expectations and salary arrangements for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.