# Overtime Pay: How It's Worked Out and Why the Tax Looks Higher

> When extra hours count as overtime, how overtime rates like time and a half are worked out, and why a pay with overtime has a bigger share taken out in tax.

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- Author: Marnix
- Published: 2026-09-28



You stayed back for a long Saturday, did the sums in your head and pictured a noticeably bigger pay. Then the payslip arrives, the overtime is there, and a surprising chunk of it has gone in tax.

A larger tax deduction doesn't necessarily mean a mistake. Your award or agreement sets the overtime rate, and tax follows the same rules as the rest of your pay. Seeing how both work makes the payslip easier to check, and the extra easier to plan.

## When extra hours count as overtime

**Overtime** is work beyond ordinary hours. An **award** sets minimum conditions for an industry or job; a **workplace agreement** can set different conditions. Under most awards, overtime starts past a daily or weekly maximum, usually 38 hours a week for full-time employees. It can also mean hours a part-time employee works beyond their agreed hours, or work outside the span of the day when ordinary hours can be worked, such as late at night.

The details differ by award and agreement, so the first step is finding yours. Fair Work's [Pay and Conditions Tool](https://calculate.fairwork.gov.au/) works out overtime rates for your award, and our [award rates guide](/blog/award-rates) helps you find yours.

An employer can ask for reasonable overtime, and you can refuse overtime that's unreasonable. Your safety, your family responsibilities and how much notice you were given all count towards what's reasonable.

## How overtime rates are worked out

**Time and a half** is 150% of the rate your award or agreement uses. **Double time** is 200%. Many awards pay time and a half for the first two or three hours and double time after that, with higher rates on Sundays and public holidays.

Under the [General Retail Industry Award](https://awards.fairwork.gov.au/MA000004.html), for example, full-time and part-time overtime from Monday to Saturday is 150% for the first three hours and 200% after that. It's counted day by day, so the first three hours of each day's overtime start at time and a half again.

Kai, who's made up, is 22 and works full time at a hardware store covered by that award. Kai earns $30 an hour for a 38-hour week, and the employer works out overtime from that rate. One Saturday, after a full week, Kai works a five-hour stocktake.

| Kai's Saturday overtime | Hours | Rate (AUD) | Pay (AUD) |
| --- | ---: | ---: | ---: |
| First 3 hours, time and a half | 3 | $45 an hour | $135 |
| After 3 hours, double time | 2 | $60 an hour | $120 |
| **The shift, before tax** | **5** | | **$255** |

Each overtime hour is Kai's usual $30 plus the overtime extra: $15 at time and a half, $30 at double time. Kai is made up. Award percentages for permanent employees, Monday to Saturday, applied to the agreed $30 rate.

Five overtime hours pay more than eight ordinary hours would. Your payslip has to show amounts like overtime that sit apart from your ordinary rate, so you can check the hours and rate against your own record. Our [payslip guide](/blog/payslip-explained) shows where to look.

## Why more tax comes out of an overtime pay

Kai is paid fortnightly. An ordinary fortnight of $2,280 has $366 withheld, taken out by payroll and sent to the tax office towards Kai's income tax. The fortnight with the stocktake comes to $2,535, and $448 is withheld: $82 more, from $255 of overtime.

| Out of every $100 | Lands (AUD) | Withheld (AUD) |
| --- | ---: | ---: |
| Kai's ordinary pay | $84 | $16 |
| The stocktake overtime | $68 | $32 |

2026–27 withholding on Kai's $2,280 and $2,535 fortnights, rounded to whole dollars.

Income tax is worked out in brackets, slices of the year's income each taxed at its own rate, and Kai's usual pay already reaches the slice taxed at 30 cents in the dollar, plus the 2% Medicare levy. The extra also slightly reduces Kai's low income tax offset, a reduction in income tax for lower earners. The pay as a whole averages less tax because its first dollars sit in lower slices. Our guide to [tax brackets](/blog/tax-brackets) shows each slice.

Payroll doesn't know the stocktake was a one-off. The [withholding tables](https://www.legislation.gov.au/F2026L00716/asmade/2026-06-12/text/original/epub/OEBPS/document_1/document_1.html) work from the total you're paid in each period, overtime included, and estimate tax as if every pay looked like this one. Our guide to [take-home pay](/blog/take-home-pay) explains withholding in more detail.

## Whether any of it comes back

For Kai, the $82 withheld is close to the extra annual tax, so this shift alone doesn't create a refund.

It's different when one big pay makes payroll assume a much bigger year than you have. If you usually earn little, a single fortnight of overtime can be withheld as though you earned that every fortnight. Your tax return later works out the tax on what you actually earned across the year, and anything withheld beyond that comes back as a refund. Our guide to [your first tax return](/blog/first-tax-return) walks through how that's settled.

## Choose where the extra goes

Kai takes home $173 from the stocktake. On payday, you can choose whether the extra goes towards a bill, a quieter fortnight or a goal.

Clova is a budgeting app for planning each pay across bills, spending and goals.

Clova is an Australian budgeting app. Join the waitlist and we’ll be in touch. [Join the waitlist](https://getclova.com/)

If your hours swing a lot from pay to pay, our guide to [budgeting on an irregular income](/blog/budgeting-irregular-income) shows how to plan around the quieter fortnights first.

## Checking your overtime is right

Keep your own record of the hours you work, including the start and finish of any overtime. If your payslip doesn't match it, payroll is the first place to ask, and the Fair Work Infoline on 13 13 94 can help if it isn't sorted out. Overtime is your time, and being paid properly for it is a reasonable thing to check.

## A note from us

An overtime pay can feel smaller than the effort that went into it. We are building Clova so you can plan where the extra take-home pay goes.

## Common questions

### Is overtime taxed at a higher rate?

No special overtime tax rate applies. The extra is added to your other pay, so more may be withheld.

### Do casuals get overtime?

Often, yes. Many awards pay casuals overtime beyond set hours. Under the General Retail Industry Award, Monday–Saturday overtime pays 175% for the first three hours and 225% after, calculated on the minimum base rate. Those percentages include casual loading.

### Is overtime double pay?

Sometimes. Many awards pay time and a half for the first two or three hours of overtime and double time after that, and Sundays and public holidays can be double time or more. Your award or agreement sets the exact rates.

### Can I take time off instead of overtime pay?

Some awards and agreements allow it, often called time off in lieu. Under the retail award it has to be agreed in writing and gives you the same value: two overtime hours at time and a half become three hours off, to be taken within six months.

### Can my employer make me work overtime?

Only if the extra hours are reasonable. You can refuse overtime that's unreasonable, and things like your health and safety, family responsibilities and how much notice you were given count towards what's reasonable.

## Sources

1. [Overtime pay](https://www.fairwork.gov.au/pay-and-wages/penalty-rates-allowances-and-other-payments/overtime-pay) · Fair Work Ombudsman
2. [When overtime applies](https://www.fairwork.gov.au/employment-conditions/hours-of-work-breaks-and-rosters/hours-of-work/when-overtime-applies) · Fair Work Ombudsman
3. [General Retail Industry Award 2020, clause 21 Overtime](https://awards.fairwork.gov.au/MA000004.html) · Fair Work Commission
4. [Pay slips](https://www.fairwork.gov.au/pay-and-wages/paying-wages/pay-slips) · Fair Work Ombudsman
5. [Tax rates for Australian residents, 2026–27](https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents) · Australian Taxation Office
6. [Low income tax offset](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/tax-offsets/low-income-tax-offset) · Australian Taxation Office
7. [Withholding Schedules Instrument 2026, Schedule 1](https://www.legislation.gov.au/F2026L00716/asmade/2026-06-12/text/original/epub/OEBPS/document_1/document_1.html) · Federal Register of Legislation

## Related reading

- [Your first payslip, explained line by line](https://getclova.com/blog/payslip-explained)
- [Take-Home Pay: What Lands in Your Account and Why](https://getclova.com/blog/take-home-pay)
- [Public Holiday Pay for Casual and Part-Time Workers](https://getclova.com/blog/public-holiday-pay)

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