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Overtime can be a useful tool for businesses to tackle busy periods, meet upcoming deadlines and support understaffed teams. However, it’s a more complex topic than it may first appear, with many different factors governing when and how employees can work overtime. From understanding overtime pay rates to ensuring that your business is operating in line with UK labour laws, there’s a lot to get to grips with.
In this guide, we’re going to take a look at what exactly overtime is, the laws and regulations governing it, and how to manage it in your organisation.
What is overtime?
Overtime refers to additional hours worked by an employee outside of their standard hours. It may be necessary during busy periods for the business, to compensate for understaffing, or due to unforeseen circumstances. Depending on their contract and the nature of their role, some employees choose to work overtime voluntarily to top up their salary.
It’s important to make sure you understand UK overtime laws to maintain a fair and legal workplace environment. These laws are in place to protect workers’ rights regarding pay and working conditions, ensuring that they’re treated fairly. We’ll explore them in more detail later in this guide.
What are overtime pay rates?
As overtime covers hours beyond what an employee is contracted for, it’s usually compensated at a higher rate than the employee’s normal hours. Overtime pay rates are governed by UK employment law and can vary based on several factors, including:
- Employment contracts
- Industry standards
- Whether the employee is hourly or salaried
Let’s take a look at the most common types of overtime pay rates in the UK.
1. Basic rate
While employers often pay overtime at a higher rate, they can choose to pay additional hours at the same rate as the employees’ basic salary. This should be outlined in the employee contract. It’s a less common pay rate, as offering a higher rate shows goodwill to employees, and helps businesses to remain competitive compared to other employers.
There’s actually no legal obligation for employers to pay employees for working extra hours, so offering overtime pay is optional. However, you must make sure that the average pay for the employee’s total hours don’t fall below the National Minimum Wage.
2. Time and a half
Time-and-a-half is the most common overtime pay rate in the UK, where employees are paid 150% of their normal rate for overtime. For example, if an employee’s basic rate is £10/hour, they will be paid £15/hour for the additional hours worked.
Employees may be paid time-and-a-half for extra hours worked outside of their normal contracted hours, such as in the evenings or at weekends.
3. Double time
As the name suggests, double time is an overtime rate that is paid at twice the employee’s standard hourly rate. For example, if an employee’s basic rate is £10/hour, they will be paid £20/hour for the additional hours worked.
Double time is less common than time-and-a-half, but may be used as an additional incentive, such as to compensate for working anti-social hours, or on a bank holiday.
Overtime pay rates UK: overtime laws and regulations
Understanding the overtime laws in the UK is crucial for both employers and employees. Let’s look at some of the key regulations that you need to be aware of.
Statutory overtime requirements
There’s no statutory requirement for employees to work overtime, nor is there a statutory requirement for employers to offer extra hours. The employee contract must clearly state the conditions under which this time may be required and how it will be compensated. If the conditions aren’t outlined in the contract, the employee is not obliged to work overtime, nor is the employer obliged to approve any overtime requests. Where overtime is worked, it’s essential that you keep track of employee hours to accurately calculate pay rates and ensure compliance with working time regulations.
Overtime pay rates
When overtime is worked, it must adhere to National Minimum Wage (NMW) requirements. This means that the total pay for these additional hours, when combined with regular pay, must meet or exceed this rate for the hours worked. Employers should also be aware of industry-specific standards that might dictate higher overtime pay rates to ensure that employees are fairly compensated, and to avoid losing talent to competitors offering a more generous policy.
Working time regulations
As an employer, you must ensure that any overtime worked is in line with working time regulations in the UK. These regulations are in place to protect the health and wellbeing of employees, and will affect the number of additional hours an employee can work. For example, the 1998 Working Time Regulations Law caps the number of hours that employees can legally work at an average of 48 hours per week, unless the employee has opted out of this limit.
Time off in lieu (TOIL)
Time off in lieu, commonly referred to as TOIL, is a type of paid leave that employees can take instead of overtime pay. For example, if an employee works 5 extra hours over the weekend, taking this as TOIL would mean that they’re entitled to take 5 hours of paid leave on a future date. TOIL is in addition to statutory leave.
It’s a flexible option that allows employees to take time off work without using up any of their annual leave. They may choose to bank several hours or days to use all together, or keep them for unexpected circumstances. TOIL is also beneficial for businesses, as it rewards employees for their efforts while minimising payroll admin for employers.
Take a look at our guide to time off in lieu for a more detailed explanation of how it works, and how you can offer it for your employees.
Overtime pay and annual leave
Holiday pay can be a complicated subject, with various factors such as different types of leave and changes in legislation affecting calculations. Overtime is another factor that must be taken into account.
For employees who regularly work overtime, these additional hours must be included when calculating holiday pay. Citizens Advice defines ‘regular’ as anyone that has worked overtime in 5 out of the last 8 weeks.
Employers are also legally required to apply the same overtime pay policy to part-time workers as full-time workers. When calculating annual leave pay for part-time employees, the entitlement is based on the past 52 weeks worked.
Types of overtime
There are a couple of different types of overtime that employers need to be aware of.
1. Compulsory overtime
Compulsory overtime is when an employer requires employees to work extra hours beyond their normal working schedule. Employers might use compulsory overtime during busy periods, such as seasonal peaks in retail, to meet deadlines for large projects, or to handle unexpected increases in workload.
It’s important to be aware that employees are only required to work additional hours if this is stated in their contract. Overtime laws in the UK state that employees can’t be made to work for more than 48 hours in a week. However, they can choose to do so voluntarily. You must also take into consideration each employee’s statutory holiday entitlement.
2. Voluntary overtime
Voluntary overtime is when an employee chooses to work extra hours beyond their normal schedule without being required to do so by their employer. In the UK, this is not mandated by employment contracts but rather agreed upon by employees who are willing to take on additional work. However, employers must ensure that voluntary overtime is compensated fairly, and that an employee’s total working hours comply with legal limits.
Employees typically volunteer for extra hours to earn more money or to help out during busy periods. This provides an opportunity to boost their income without a long-term commitment. For employers, voluntary overtime offers flexibility in managing workloads without imposing extra hours on employees.
Advantages and disadvantages of working overtime
Overtime offers a variety of benefits for employers and employees alike.
1. Advantages of working overtime for employers
- More cost effective than hiring additional staff
- Additional support during busy periods
- Increased productivity without long-term commitments
2. Advantages of working overtime for employees
- Opportunity to increase income or earn time off in lieu
- Flexibility to choose when and how much additional work to take on
- Potential for career advancement through extra contributions
Disadvantages of overtime
Along with the advantages, there are a few downsides to overtime that employers and employees must consider.
Disadvantages of overtime for employers
- Too much overtime can increase employee turnover
- Increased administrative burden for calculating pay
- Higher risk of errors and reduced quality of work due to employee fatigue
Disadvantages of overtime for employees
- Too much overtime can lead to burnout
- Negative impact on work-life balance
- Potential for health issues due to extended work hours
Manage overtime with user-friendly payroll software
Overtime can help businesses to increase productivity, in turn giving employees the opportunity to boost their income. However, as we’ve seen in this article, there are many important factors to consider to ensure that employees are fairly compensated for their work, and that your business is operating in line with UK labour laws.
While employers aren’t legally required to pay employees for additional hours worked, offering voluntary or compulsory overtime at time-and-a-half or double time shows your appreciation and can help to increase employee morale. You also need to make sure that your employees aren’t working more than 48 hours per week, and that any overtime worked is taken into account when calculating holiday pay. All of this can be complex to manage, particularly alongside the wide range of HR responsibilities.
Implementing robust HR payroll software in place is a great way to keep track of overtime rates in the UK, as well as ensuring that your legal compliance needs are met. With powerful automation tools and an employee self-serve portal, it helps to improve the accuracy and efficiency of entering timesheets and calculating payroll. Download our brochure to find out more about how payroll software can support your business.
