Paying Salaried Employees for Extra Hours in Australia

In a small business, “extra hours” can creep in quickly. A client deadline moves, a staff member calls in sick, or a project takes longer than expected - and suddenly your salaried team is staying back, logging in on weekends, or answering emails late at night.

If you’re employing staff on a salary, it’s easy to assume salary means “set pay, flexible hours”. But in Australia, the legal position is more nuanced. The core question is whether your salaried employee is being paid at least the minimum they’re entitled to under the Fair Work Act and any applicable modern award or enterprise agreement for the hours they actually work (including things like penalty rates, overtime, allowances and leave loading, where applicable).

This article explains what Australian employers need to know about employees working extra hours on salary, how to reduce underpayment risk, and what practical systems you can put in place to stay compliant while still running a productive workplace.

Note: This article is general information only and isn’t legal advice. Your obligations depend on the employee’s role, contract terms and whether a modern award or enterprise agreement applies.

What Does “Working Extra Hours on Salary” Actually Mean?

When people talk about “working extra hours on salary”, they usually mean an employee is paid a fixed annual amount (salary) but regularly works more than their contracted hours (often 38 hours per week, or the “ordinary hours” set by their award).

From an employer perspective, there are a few common scenarios:

• Occasional extra hours: for example, staying back once a fortnight to close up or finish a task.
• Seasonal peaks: retail, hospitality, events, professional services and eCommerce can have predictable busy periods.
• Role-based flexibility: managers or professionals may have variable workloads with some longer weeks.
• Persistent overwork: “just for now” becomes the norm and the employee is consistently working above ordinary hours.

The legal risk usually doesn’t come from one late night. It comes from patterns - especially where a “reasonable additional hours” clause is treated like a blank cheque, or where you’re not tracking hours and can’t show the salary still covers minimum entitlements.

Is It Legal For Salaried Employees To Work Extra Hours In Australia?

Yes - in many cases it can be lawful for employees on salary to work extra hours.

But there are two key guardrails employers need to keep in mind:

1) “Reasonable Additional Hours” Still Has Limits

Under the Fair Work Act, an employer can request an employee to work additional hours if those hours are reasonable. An employee can refuse additional hours if they are unreasonable.

Whether additional hours are reasonable depends on factors like:

• any risk to the employee’s health and safety (including fatigue)
• the employee’s personal circumstances (like caring responsibilities)
• the needs of the workplace
• the employee’s role and level of responsibility
• whether the employee is compensated for the additional hours
• any applicable award, enterprise agreement, or employment contract terms

In practice, “reasonable additional hours” often supports flexibility for genuine peaks, not ongoing unpaid overtime every week.

2) Salary Doesn’t Remove Award/Agreement Minimums

This is where many small businesses get caught out. Paying a salary doesn’t automatically “override” the minimum entitlements in a modern award or enterprise agreement.

If the employee is award-covered, you generally need to ensure the salary is high enough that the employee still receives at least what they would have been entitled to under the award for the hours they work (including overtime, penalty rates, allowances, and leave loading where applicable). For employees covered by an enterprise agreement, you also need to comply with that agreement, and separate rules apply (including the “better off overall test” (BOOT) when enterprise agreements are made/approved).

If you’re not sure whether your employee is award-covered, or which award applies, it’s worth checking early - because award misclassification is a common cause of underpayments.

How Do Awards, Overtime And Penalty Rates Affect Salaried Staff?

For many small businesses, the most important compliance issue when employees work extra hours on salary is this: the more hours someone works beyond their ordinary hours, the more likely it is that award overtime and penalty rates are triggered.

Depending on the applicable award, overtime/penalties may apply when employees work:

• beyond a daily maximum (for example, more than 7.6 or 8 hours in a day)
• beyond a weekly maximum (often more than 38 hours)
• outside the span of hours (such as early mornings, late nights, weekends)
• on public holidays

Some awards also include specific rules about:

• minimum break between shifts
• roster changes and notice periods
• time off in lieu (TOIL) arrangements
• meal breaks and rest breaks

If your team is paid salary and regularly works late, weekends, or public holidays, you’ll want to be confident your salary arrangement is genuinely covering what the award would have required.

It’s also important to remember allowances. For example, some awards include allowances for:

• travel
• tools or uniforms
• first aid duties
• higher duties

Even where the salary is intended to “bundle” entitlements, you should be able to demonstrate the employee isn’t worse off than their minimum entitlements overall.

What Employers Should Put In The Employment Contract (And What To Avoid)

A well-drafted employment contract won’t solve every issue on its own, but it can significantly reduce confusion about expectations and pay.

At a minimum, your contract should clearly cover:

• the employee’s ordinary hours (for example, 38 hours per week)
• the salary amount and how it is paid
• whether the role is covered by an award (and which one, if known)
• how you’ll handle additional hours (and any limits or processes)
• any flexibility arrangements (like time off in lieu, if permitted)

Many businesses use a “reasonable additional hours” clause, but the key is to use it responsibly. A clause like this should not be treated as permission for ongoing unpaid overtime.

If you’re employing staff, having a tailored Employment Contract is one of the simplest ways to set expectations and reduce disputes later.

Be Careful With “All-Inclusive Salary” Wording

It’s common to include wording that the salary compensates for “all entitlements” (like overtime and penalties). Sometimes that can work, but it’s not a magic fix. If the numbers don’t stack up against award minimums, you can still face underpayment claims.

A safer approach is to:

• define what the salary is intended to cover (ordinary hours plus a reasonable buffer of additional hours)
• include a process for reviewing salary if patterns change
• conduct periodic “salary vs award” checks

Practical Compliance Steps: How To Manage Extra Hours Without Underpaying

Running a small business means you need practical systems, not just legal theory. If salaried employees are working extra hours, here are steps that can meaningfully reduce risk.

Track Hours (Even For Salaried Staff)

One of the biggest mistakes employers make is not tracking hours for salaried employees at all. When a concern is raised later, you may not be able to show what hours were worked - or whether the salary was enough to cover award entitlements.

Tracking doesn’t need to be complicated. Many businesses use simple timesheets, roster systems, or sign-in/out processes for at least a sample period.

Run Regular “Salary vs Award” Reconciliation Checks

If an employee is award-covered and on salary, consider doing a periodic check (for example, quarterly or twice a year):

• Compare what they were paid (salary) against what they would have been paid under the award for the hours actually worked.
• Include overtime, penalty rates, allowances, leave loading and other relevant entitlements.
• Document the outcome and any changes you make.

This is especially important if your business has seasonal peaks, or if the employee’s role has changed.

Set Clear Approval Rules For Overtime-Like Hours

Even if the employee is on salary, it’s reasonable to set rules like:

• additional hours must be approved in advance by a manager (where practical)
• extra hours should be recorded
• if additional hours become frequent, the role will be reviewed (resourcing, salary, or structure)

This keeps the workload visible and helps you prevent “silent overtime” that becomes a compliance problem later.

Use Time Off In Lieu Carefully

Some awards allow time off in lieu (TOIL) arrangements instead of paying overtime, but the rules can be strict and award-specific. If you use TOIL informally without checking the award terms, you can accidentally underpay.

If you want to build a more flexible system, it’s worth getting the award interpretation right upfront and documenting how TOIL works in your policies and contracts.

Manage Fatigue And WHS Risk

Extra hours aren’t only a payroll issue. They can also become a work health and safety (WHS) issue if fatigue increases the risk of injury, mistakes, or mental health concerns.

Even in office-based roles, long hours can create wellbeing risks. From a practical standpoint, it’s wise to monitor workloads and encourage breaks - not just for culture, but also because fatigue can trigger broader compliance issues.

Common Risk Areas For Small Businesses (And How To Avoid Them)

Here are the patterns we commonly see where employers run into trouble with employees working extra hours on salary.

Paying A Salary But Not Identifying The Award

If you don’t identify the correct modern award (or you assume “salaried = award doesn’t apply”), you can miss overtime rates, penalty rates, minimum classifications, and allowances.

Practical tip: get clarity on the role classification early, and update it when duties change.

Role Creep: The Employee’s Duties Expand, But Pay Doesn’t

In small businesses, roles evolve quickly. A junior admin might become a team lead, or a coordinator might take on managerial responsibilities. That can change the employee’s classification and entitlements.

If responsibilities increase and extra hours increase, it may be time to review salary, job description, and contract terms.

“Always On” Culture Without Realising It

After-hours emails, weekend calls, and constant Slack/Teams messages can add up. Even if no one is “clocking in”, the cumulative effect may mean the employee is regularly working beyond ordinary hours.

Practical tip: set boundaries (like no expectation to respond after 6pm unless urgent) and make sure managers model the behaviour.

No Documentation When Disputes Arise

If a dispute arises, the question often becomes: what were the hours, what did the award require, and what did you pay?

Without records, it becomes much harder to defend your position - even if you genuinely believed the salary was fair.

What Legal Documents And Policies Help You Manage Extra Hours?

Extra hours issues usually sit at the intersection of contracts, payroll, and workplace expectations. The right documentation helps you manage all three.

• Employment Contract: sets ordinary hours, salary, and expectations around additional hours (and helps reduce misunderstandings). An Employment Contract is a strong starting point.
• Workplace policy framework: covers practical expectations like time recording, overtime approval processes, TOIL (if applicable), and after-hours contact. A tailored Workplace policy can help you put this in writing.
• Staff handbook: brings key policies together so expectations are consistent across your team. Many businesses use a Staff Handbook to centralise these rules and update them as the business grows.

And if you’re reviewing pay practices more broadly (for example, you’ve grown quickly or you’ve changed rostering practices), it can be helpful to consider award alignment as part of an Award Compliance review.

Key Takeaways

• It can be lawful for employees to work extra hours on salary in Australia, but additional hours need to be reasonable and managed carefully.
• A salary does not automatically remove modern award or enterprise agreement obligations - especially overtime, penalties and allowances.
• Tracking hours (even for salaried employees) and doing periodic “salary vs award” checks are practical ways to reduce underpayment risk.
• Your employment contract and workplace policies should clearly set expectations around ordinary hours, additional hours, and approval/recording processes.
• If extra hours become the norm, it’s usually a sign to review resourcing, role scope, and pay - not just rely on a generic “reasonable additional hours” clause.

If you’d like help reviewing salary arrangements, overtime risk, or updating your employment documents, contact Sprintlaw on 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.