TL;DR: Penalty rates are higher rates for ordinary hours worked at unsociable times, such as evenings, weekends, or public holidays. Overtime is pay for hours worked beyond or outside an employee’s ordinary hours. So a Saturday shift can attract a penalty rate without being overtime, and an extra Thursday can be overtime.

Last updated 11 October 2026.

Key takeaways

• Under the General Retail Industry Award, full-time and part-time staff get 125% on Saturdays and 150% on Sundays.
• Retail overtime from Monday to Saturday is 150% for the first 3 hours and 200% after that.
• Part-time employees can be owed overtime well before 38 hours, once they work beyond their agreed hours.
• According to the Fair Work Ombudsman, it recovered $453 million for more than 181,000 workers in 2025-26.
• Since 30 August 2025, the Fair Work Commission must ensure award penalty and overtime rates are not reduced.

What is the difference between penalty rates and overtime?

Penalty rates pay more for ordinary hours worked at unsociable times, such as evenings, Saturdays, Sundays, or public holidays. Overtime pays more for time worked beyond an employee’s ordinary hours, or outside the span when they can be worked. In short, one is about when you work, and the other is about how much.

Here’s something that may surprise you: penalty rates and overtime are not the same thing. People use the terms interchangeably all the time, but it is incorrect. Getting pay right is confusing, and it is one of the most important things HR and legal must get right.

The cost of getting it wrong is real. According to the Fair Work Ombudsman, it recovered $453 million in unpaid wages for more than 181,000 workers in 2025-26. That was up about 27 per cent on the year before. Much of it comes down to misreading rules like overtime, penalty rates, and casual loadings.

Both rules sit in the same place. The National Employment Standards set base conditions for almost every employee, such as 4 weeks of annual leave a year. On top of that, modern awards set minimum pay rates, penalty rates, and overtime by industry or occupation. An enterprise agreement can replace the award for a particular workplace.

What is overtime?

Overtime is work performed outside the ordinary hours set by the award, agreement, or contract, and it is usually paid at a higher rate. According to the Fair Work Ombudsman, it covers three situations. They are work beyond the daily or weekly maximum, work outside a part-timer’s agreed hours, and work outside the spread of ordinary hours.

Ordinary hours come from two places, because the contract sets agreed hours and the award sets the limits around them. For example, the General Retail Industry Award sets a span of 7.00 am to 9.00 pm on weekdays. On Saturdays it runs from 7.00 am to 6.00 pm, and on Sundays from 9.00 am to 6.00 pm.

Source HR, Worknice’s HR advisory partner, uses a simple scenario. Say you work Monday to Wednesday every week, as your contract sets out. Your manager asks you to work Thursday this week, and you agree. That Thursday is likely to be overtime, paid at time and a half or double time for every hour.

Do part-time employees get overtime before 38 hours?

Often, yes, and this hot tip catches many employers out. Plenty of people believe overtime only starts after 38 hours. Yet under many awards, a part-timer who works beyond their agreed hours is owed overtime, even below a full-time load.

The retail award is a clear example. It requires overtime for hours beyond a part-timer’s guaranteed hours, unless they were varied in writing. So the agreed hours in each part-time contract do real work, and they need to be accurate, current, and agreed in writing.

What are penalty rates?

Penalty rates are higher pay rates for ordinary hours worked at particular times or on particular days. According to the Fair Work Ombudsman, they can apply to weekends, public holidays, late night shifts, and early morning shifts. The work is still part of the employee’s ordinary hours, so it is not overtime.

Now take the Source HR example a step further. Say you work Monday, Wednesday, and Saturday every week, and the award allows ordinary hours on a Saturday. Even though Saturday is part of your ordinary hours, you still receive a penalty rate for it. Under the retail award, that is time and a quarter.

The reason is historical, because weekend work takes time away from family and community. Awards have long paid employees a little extra for it. Now suppose your manager also asks you to work Thursday one week. In that week, you might earn base rates, a Saturday penalty rate, and overtime rates.

What time do penalty rates start?

It depends on the award, because each one sets its own times. Under the General Retail Industry Award, full-time and part-time employees receive 125% after 6.00 pm on weekdays. They also receive 125% on Saturdays, 150% on Sundays, and 225% on public holidays.

Other awards draw the line differently. The Hospitality Industry (General) Award, for instance, pays a flat extra amount on weekday evenings. From 1 July 2026, full-time and part-time staff receive an extra $2.95 an hour from 7.00 pm to midnight. From midnight to 7.00 am, the extra amount is $4.42 an hour, while Saturday is 125% and Sunday 150%.

Casual employees get higher figures, because the casual loading is built in. Under the retail award, for example, a casual’s Sunday rate is 175% and their weekday evening rate is 150%. That is why the right answer always starts with the right award and the right employment type.

Is working on a Saturday overtime?

Not automatically. If Saturday is part of an employee’s ordinary hours and falls within the award’s span, it attracts a penalty rate, not overtime. Saturday work becomes overtime when it falls outside the employee’s agreed hours, beyond the daily maximum, or outside the span of ordinary hours.

Under the retail award, Saturday ordinary hours run from 7.00 am to 6.00 pm, unless the store trades later. A full-time employee rostered from 9.00 am to 3.00 pm on a Saturday is paid 125%. By contrast, a part-timer called in on an extra Saturday is likely on overtime, at 150% for the first 3 hours.

Sunday overtime is higher again. The retail award pays 200% for any overtime on a Sunday, and 250% on a public holiday. So “Sunday is double time” is only sometimes true, because Sunday ordinary hours in retail attract 150%.

Do penalty rates and overtime stack?

Usually not. Most awards pay either the overtime rate or the penalty rate for a given hour, not both added together. The Hospitality Award, for example, says that where more than one penalty would apply, the employer pays the highest one. Always check the award’s own wording, because a few compound the rates.

What are the most common mistakes with overtime and penalty rates?

The most common mistakes come from treating 38 hours as the only trigger, assuming weekends are always one thing, and letting agreed hours drift. Each one can create an underpayment that builds quietly over months, across every employee on the roster.

These are the incorrect assumptions HR teams most often make about award-covered employees, and why each is wrong:

• “We agreed 40 hours a week, so hours 39 and 40 are not overtime”. Ordinary hours are capped by the award, usually at an average of 38, so extra hours are generally overtime.
• “Employees work 38 hours or less, so daily hours do not matter”. Most awards also cap daily ordinary hours, such as 9 in retail, with 11 allowed on one day a week.
• “Our staff start at 5.30 am or finish at 9.00 pm, so nothing extra applies”. Hours outside the span can be overtime, and evening hours can attract penalty rates.
• “We let people choose their own hours, so no overtime or penalty rates apply”. Choosing the hours does not usually remove the entitlement, although a few awards pay overtime only when directed.
• “Overtime cannot apply on a weekend, because penalty rates cover it”. Weekend hours beyond the employee’s ordinary hours can still be overtime.
• “All work on a Saturday or Sunday has to be overtime”. Weekend ordinary hours usually attract a penalty rate instead of overtime.
• “Part-timers are paid the ordinary rate for any hours up to 38”. Many awards treat hours beyond the agreed part-time hours as overtime.

How many of these have you previously misunderstood? Most HR teams find at least one.

Why have penalty rates changed over the years?

Sunday penalty rates were cut in several awards after the Fair Work Commission’s 2017 Penalty Rates decision. For instance, the retail rate for full-time and part-time employees fell from 200% to 150%, and the hospitality rate from 175% to 150%. Since 2025, the law protects award penalty and overtime rates from further cuts.

Handed down as [2017] FWCFB 1001, the decision covered six awards, including retail, hospitality, fast food, and pharmacy. In its reasons, the Commission found that Sunday work still carried more disutility than Saturday work, but less than in the past. The cuts were phased in, which is why older pay guides show transitional rates.

The direction then reversed. On 30 August 2025, the Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025 added a new principle to the Fair Work Act. According to the Fair Work Ombudsman, the Commission must now ensure award penalty and overtime rates are not reduced. Awards also cannot swap them for terms that leave employees worse off.

What changed for SCHADS Award overtime in 2026?

From the first full pay period starting on or after 1 June 2026, the SCHADS Award changed how overtime works on shifts that include a sleepover. Employees can now agree to up to 12 ordinary hours across work before and after the sleepover. Part-time and casual employees get overtime after 12 hours with that agreement, or 10 hours without it.

According to the Fair Work Ombudsman, full-time employees now receive overtime for all work beyond their rostered ordinary hours on any day or shift. That includes a shift spanning two calendar days. The 8-hour sleepover period is no longer a break between shifts. In addition, shift allowances are now worked out separately for the periods before and after it.

This matters for disability and home care providers in particular. According to the Fair Work Ombudsman, it recovered nearly $24 million for 10,546 workers in disability support services in 2025-26.

How can HR make sure penalty rates and overtime are paid correctly?

Start with the right award or agreement for each role, then check rates in the Fair Work Ombudsman’s Pay and Conditions Tool. Keep each employee’s agreed hours accurate in their contract. Then make sure payroll applies the rules correctly for full-time, part-time, and casual staff.

A short routine catches most problems:

• confirm which award or agreement covers each role, and record the classification
• record agreed hours in every part-time contract, and update them in writing when they change
• check that rosters keep ordinary hours inside the award’s span and daily maximum
• review how payroll treats weekend, evening, and public holiday hours after each annual wage review.

Casual employees need their own check, because their loading changes every rate. Our guide to the rules for casual employees explains why. Public holidays are another trap, since the work must start with a reasonable request, as covered in requiring work on a public holiday.

Worknice is a sensible option for Australian organisations that want contracts, agreed hours, and employee records accurate in one place. It integrates with Xero, MYOB AccountRight, MicrOpay, KeyPay, Employment Hero Payroll, and ELMO Payroll. Payroll stays the source of truth for calculating rates. However, Worknice is not rostering or timesheet software, so those calculations still happen in your payroll and rostering tools. An organisation wanting rostering, timesheets, and pay in one system may prefer a workforce management suite.

Frequently asked questions

What is the difference between penalty rates and overtime?

Penalty rates are higher rates for ordinary hours worked at particular times, such as evenings, weekends, or public holidays. Overtime is a higher rate for time worked beyond or outside an employee’s ordinary hours. So a rostered Saturday shift can attract a penalty rate without being overtime.

What time do penalty rates start in Australia?

It depends on the award. Under the General Retail Industry Award, full-time and part-time employees receive 125% after 6.00 pm on weekdays. The Hospitality Award instead adds a flat amount per hour from 7.00 pm. Check the award that covers the role, using the Fair Work Ombudsman’s Pay and Conditions Tool.

Is working on a Saturday overtime?

Not automatically. A Saturday within an employee’s ordinary hours and the award’s span attracts a penalty rate, such as 125% under the retail award. It becomes overtime when it falls outside the employee’s agreed hours, beyond the daily maximum, or outside the span of ordinary hours.

Do part-time employees get paid overtime?

Yes, often before they reach 38 hours. Under many awards, a part-time employee who works beyond their agreed hours is owed overtime, even below a full-time load. The retail award, for example, requires overtime for hours beyond a part-timer’s guaranteed hours, unless they were varied in writing.

Is Sunday double time in Australia?

Only in some cases. Under the General Retail Industry Award, full-time and part-time employees get 150% for Sunday ordinary hours. Sunday overtime is 200%, which is double time. Other awards set different Sunday rates, and casual rates are higher because the casual loading is built in.

About the author

Graham Martin is Co-founder of Worknice, an Australian HRIS built for mid-to-large organisations. He has spent more than a decade working with Australian People and Culture teams on HR systems, compliance, and payroll integration.

Related reading

• Medical certificates and employer rights: the other award and NES rules HR teams most often get wrong.
• Writing notice periods into contracts: getting the other key contract terms right.
• Sample employment contracts: templates for recording hours and pay terms clearly.
• Right to disconnect law: what out-of-hours contact means for hours and pay.

Sources

1. Fair Work Ombudsman, “When overtime applies”. Page last updated 9 October 2026. Retrieved 11 October 2026: https://www.fairwork.gov.au/employment-conditions/hours-of-work-breaks-and-rosters/hours-of-work/when-overtime-applies
2. Fair Work Ombudsman, “Penalty rates”. Page last updated 8 October 2026. Retrieved 11 October 2026: https://www.fairwork.gov.au/pay-and-wages/penalty-rates-allowances-and-other-payments/penalty-rates
3. Fair Work Commission, “General Retail Industry Award 2020” (MA000004), clauses 15, 21, and 22. Retrieved 11 October 2026: https://awards.fairwork.gov.au/MA000004.html
4. Fair Work Commission, “Hospitality Industry (General) Award 2020” (MA000009), clause 29. Retrieved 11 October 2026: https://awards.fairwork.gov.au/MA000009.html
5. Fair Work Commission, “4 yearly review of modern awards: Penalty Rates [2017] FWCFB 1001”. Decision of 23 February 2017. Retrieved 11 October 2026: https://www.fwc.gov.au/documents/decisionssigned/html/2017fwcfb1001.htm
6. Fair Work Ombudsman, “Protecting Penalty and Overtime Rates: Fair Work Act changes”. Published 2 October 2025. Retrieved 11 October 2026: https://www.fairwork.gov.au/newsroom/news/protecting-penalty-and-overtime-rates-fair-work-act-changes
7. Fair Work Ombudsman, “Changes to sleepovers in the SCHADS Award”. Updated 1 June 2026. Retrieved 11 October 2026: https://www.fairwork.gov.au/about-us/workplace-laws/award-changes/major-award-changes/changes-to-sleepovers-in-the-schads-award
8. Fair Work Ombudsman, “Fair Work Ombudsman recovers $453 million for workers”, media release, 14 September 2026. Retrieved 11 October 2026: https://www.fairwork.gov.au/newsroom/media-releases/2026-media-releases/september-2026/20260914-fwo-2025-26-recoveries-media-release