Let’s start with the fundamental question: What is overtime? Overtime refers to any extra hours worked outside of an employee’s contracted hours. Working overtime is sometimes inevitable, especially when you’re approaching an important deadline, employees are absent or on annual leave, or you are simply approaching a busy period. But overtime pay and the laws and regulations surrounding it can understandably cause great confusion for UK employers.
This article will cover everything you need to know about overtime pay, laws, policies and benefits, plus an explanation of the new ruling on overtime and holiday pay in 2022.
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UK Overtime Laws: Pay and Rates
There is no statutory requirement for a UK employee to work overtime, just as there is no statutory requirement for an employer to offer additional hours.
There’s also no legal obligation to pay employees for working extra hours. However, you must ensure that the average pay for the total hours the employee works do not fall below the National Minimum Wage.
To avoid any legal issues or confusion, your employment contract should include essential details regarding overtime pay and calculations.
Additionally, there is no minimum statutory overtime amount that you must pay. Overtime rates depend on your company and industry. Whether you pay your employee for overtime or not depends on the contractual agreements that are in place.
In the US, they use a ‘time and a half’ system to calculate overtime pay. This means employees receive their standard rate plus half that rate for any additional hours worked. In the UK, this amount is usually called an overtime premium. Paying ‘time and a half’ is not a legal requirement here but employers often choose to follow this framework.
Remember, you cannot force your employee to work more than an average of 48 hours per week. This law is stated within the Work Time Directive 1998. Employees can agree to work longer, but there must be a signed written agreement.
For part-time workers, employers should pay overtime if they either:
- Work longer than full-time staff (and your full-time staff are paid more for these additional hours)
- Work anti-social hours (and your full-time staff are paid more for these anti-social hours)
Overtime Pay and Annual Leave
As we’ve mentioned, there’s also no legal obligation to pay employees for working extra hours. However, overtime does impact the holiday pay of employees who regularly receive overtime, commission or bonuses.
In 2017, a new ruling on overtime and holiday pay was implemented by the Employment Appeal Tribunal (EAT). The decision means that, for workers who regularly work overtime, these hours must be included when you calculate their compensation and holiday pay.
Citizen’s Advice defines a ‘regular’ overtime worker as anyone that has worked overtime in 5 out of the last 8 weeks.
Legally, employers must incorporate overtime into a minimum of 4 weeks of their annual leave pay. Employers can then decide whether to include this additional salary into the remaining 1.6 weeks of statutory annual leave, or to pay their basic rate. That part is up to you!
It might be more difficult to calculate overtime holiday pay if an employees’ overtime hours vary week to week. In these instances, use their average weekly pay from the last 52 weeks.
There’s one last thing to consider for part-time workers specifically. The new ruling on overtime and holiday pay (2022) means the overtime entitlement is now based on the past 52 weeks worked. Before this legislation, it was based on 12 weeks. Also, you are legally required to apply the same overtime pay policy to part-time employees as those working full-time.
In summary, holiday pay should always match up to an employees’ usual earnings and for some, overtime constitutes a substantial part of this.
Time Off in Lieu (TOIL)
Time off in lieu (TOIL), also referred to as “banked hours“, is the agreement that you’ll reimburse your employees for any extra hours with paid time off work.
Essentially, this means the employee agrees to bank their extra hours in order to use them for annual leave in the future. With banked hours, employees must be paid time-and-a-half for every hour of overtime worked.
But bear in mind that if you decide to incorporate TOIL into your organisation, you will need to confirm this type of agreement in writing, signed by your employee.
Compulsory Overtime and Company Policy
Legally, an employee is only required to work overtime if their contract states they must. Similarly, employers can deny overtime requests unless it is contractually agreed.
In any case, employers cannot make staff work over 48 hours each week. Employees can do so voluntarily but this must be documented and signed by both parties.
Whatever your company’s regulations, overtime policy must be consistent across the entire workforce. Allowing one employee to work overtime means allowing all employees to work overtime.
Your overtime policy should also take into consideration the laws regarding days off. All UK workers over the age of 18 are entitled to one day off a week. These days off can be averaged over two weeks, which means your employees are entitled to two days off a fortnight. Adult workers are entitled to a rest break of 20 minutes if they have to work more than six hours at a time. Alternatively, young workers cannot usually be made to work over 8 hours a day or 40 hours a week.
Advantages of Working Overtime
Overtime can be considerably beneficial for both the employee and the business. It can:
- Promote a more flexible workforce
- Eliminate the need to recruit extra staff during employee absences or busy periods
- Give the employee the opportunity to get paid more or bank hours (if written within the contract)
- Help business maintenance easier for the employer, and keep their staff secure
Disadvantages of Working Overtime
Although overtime can be beneficial for employers, there are limits. When overtime becomes more frequent and is extended over a long period of time, there are some disadvantages, including:
- Health and safety issues
- Increased expenses
- Higher levels of absenteeism
- Lower productivity and work quality
Manage Overtime with Factorial’s Time Tracking and Payroll Management Software
With a time-tracking app and clock-in/clock-out feature, you can create an hour bank to manage employee overtime. This technology will help you and your team to track the extra hours that they are working, and will let you approve or deny overtime requests in seconds.
Our payroll management software then automates and centralises your payroll process, taking into account any approved overtime hours. You can schedule periodic compensations per employee, such as overtime, bonuses, commissions…whatever you need! Set these to fixed or variable so that, when payday comes, we can do the work for you.
The best news is that you can do this all in one place with our integrated, digital software.
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