Penalty Calculations

Cumulative versus Compounding

When we apply penalties or loadings to a rate of pay we can apply different approaches.  These can be either cumulative or compounding.

A cumulative approach involves adding a penalty or loading to a base rate of pay when doing payroll calculations.

A compounding approach involves adding a penalty or loading on the sum of an already loaded rate of pay.

In 2017 the Fair Work Commission attempted to address the ambiguity in some awards. Not all modern awards follow the same approach. An example of these differing approaches can be found below and help illustrate how to pay a casual when doing payroll calcualtions.

See below for examples:

Cumulative approach for a casual:

> Base rate of pay            = $20.00

> Public Holiday Penalty = $20.00 x 275% =$55.00

> Thus, rate of pay used = $55.00


Compounding approach for a casual:

> Base rate of pay            = $20.00

> Casual loading               = $20.00 + 25% = $25.00

> Public Holiday Penalty = $25.00 x 250% = $62.50

> Thus, rate of pay used = $62.50

Wage compliance

Wage compliance in this area is tricky to navigate and there is additional importance placed on businesses to ensure they understand the wording and application of these calculations in their applicable award.  The penalties for noncompliance can be excessive.

You are not alone.

Our dedicated and experienced team can assist you in reviewing and providing advice so as to ensure your business remains protected from adverse action.

Use the bottom below to find out more or you can book a Wage Compliance Discovery call.