Overtime Income
Pay received for hours worked beyond a standard contract, usually at a penalty rate above base hourly pay.
In detail
Overtime is variable income by nature, so lenders shade it for serviceability. Shading percentages vary but a common range is 60 to 80 per cent of the overtime component. Some industries with consistent overtime patterns, such as police, paramedics, nursing, and emergency services, can have overtime accepted at higher rates or even 100 per cent at specific lenders.
Lenders usually need two pay cycles plus a YTD figure that confirms overtime is consistent and not a one off. Large irregular lumps are treated more cautiously than smaller regular amounts. Overtime from a second employer is often excluded entirely unless the borrower can demonstrate a long history of holding multiple roles.
Why it matters for brokers
Overtime can make or break a serviceability calculation. Brokers who know which lenders accept which types of overtime at which shading rates can find capacity on files that would otherwise decline.
Example in practice
A paramedic earns $95,000 base salary plus $22,000 in overtime consistently over the past two years. At a generalist lender shading overtime at 60 per cent, only $13,200 of the overtime is assessable. At a lender with an essential services policy accepting overtime at 100 per cent for paramedics, the full $22,000 flows through to serviceability.
Related terms
Base Salary
The fixed regular component of a PAYG employee income, excluding overtime, bonuses, commissions, and allowances.
Year to Date (YTD) Income
The cumulative gross income an employee has earned since the start of the financial year, shown on each payslip.
Casual Employee Income
Income earned by an employee engaged on a casual basis, typically with no guaranteed hours and a casual loading on the hourly rate.
PAYG Income
Income received as a Pay As You Go employee where tax is withheld by the employer before the wage is paid.
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