Overtime pay & rules: employers’ guide

    overtime pay

    IN THIS ARTICLE

    Overtime is when someone works beyond their normal contracted hours.

    For managers, overtime can easily become difficult to manage, particularly when dealing with workers’ pay and holiday entitlement if they have worked additional hours over and above their contracted working time.

    In this overtime pay guide for employers, we will help you understand employees’ rights and your obligations under UK overtime laws.

    What is overtime?

    In most cases, an employee will be required to work a set number of hours per week in exchange for a fixed salary. These standard working hours and pay are usually specified in the employee’s written contract of employment or written statement of employment particulars.  The time worked outside of these hours is usually considered overtime.

    Employees may be required to work overtime for a variety of reasons, such as sickness-related staff shortages or to enable an employer to meet increased customer or client demand.

    How overtime is handled is determined by the specific contractual arrangements between the employer and the employee, or any subsequent agreement reached between the parties when the need arises.

    In some cases, the employment contract may specify what constitutes overtime, whether the employee is contractually obligated to work overtime, when an employer can request overtime or when an employee can refuse it, and how overtime pay will be calculated.

    Is overtime compulsary?

    There is no statutory requirement for an employee to work additional hours, and there is no statutory requirement for an employer to offer overtime.

    Whether an employee is required to work additional hours or has the right to be guaranteed additional hours will be determined by the employment contract.

    In some cases, the employment contract will allow for overtime to be worked purely on a voluntary basis, while for others, compulsory overtime may be a contractual requirement.

    Guaranteed and non-guaranteed overtime are the two types of compulsory overtime.

    Guaranteed overtime is where the employer is contractually obligated to offer additional working hours above the worker’s normal working hours. The employee is also contractually obligated to accept guaranteed overtime, whereas non-guaranteed overtime is overtime that the employer is not obligated to offer but that the employee is contractually obligated to accept when offered.

    In practice, guaranteed overtime is generally used by employers to plan ahead of time for staff to cover a specific customer or client order for a set period of time, whereas non-guaranteed overtime is used to plan ahead of time for anticipated business needs during busier times of the year when the employer is unsure of the extent of any staff coverage required.

    Voluntary overtime refers to when an employer has no contractual obligation to offer additional hours and where an employee has no contractual obligation to work those hours if they are offered.

    Who is entitled to overtime pay?

    Unless the contract states otherwise, employers are not required to pay employees for additional hours worked beyond their normal working hours, just as employees are not required to work.

    There is no statutory entitlement to overtime pay. If an employee is entitled to overtime pay, it should be a matter of mutual agreement between the parties and specified in the employment contract.

    If no express contractual provision for overtime pay exists, the employee will not be entitled to be paid more than their regular salary. Sometimes the employment contract may contain a clause requiring employees to work unpaid overtime to complete tasks or meet deadlines.

    How to calculate overtime pay

    The rate at which overtime is paid and the method by which it is calculated will be determined by the relevant contractual terms.

    In some cases, the contract may stipulate that overtime be paid at the regular rate, while other employers will offer an enhanced rate of pay, such as time and a half, to incentivise employees to work the extra hours required.

    There is, however, no automatic right to overtime pay at a higher rate. This is a matter of mutual agreement between the parties.

    Time off in lieu

    In addition to paid overtime, an employer can offer an employee time off in lieu (TOIL) of overtime, where extra hours worked can be taken back at a later date, in addition to any annual leave.

    However, when using TOIL, the employee’s average pay for the total number of hours worked for the individual’s usual pay reference period (eg weekly or monthly) cannot fall below the National Minimum Wage (NMW). Almost all workers in the United Kingdom are legally entitled to a minimum wage per hour. The minimum wage rate varies depending on age and whether the worker is an apprentice.

    The pay reference period is usually determined by how frequently a person is paid, such as one week or one month, but it cannot exceed 31 days.

    Overtime pay rules for part-time workers

    Part-time workers should also have their normal working hours specified in their employment contract.

    Whether the part-time worker is eligible for overtime, or paid at an enhanced overtime rate, should be stated within the contract of employment, as it is for all employees.

    In most cases, employers only have to pay overtime if a part-time employee works more than the normal working hours of full-time workers and the full-time workers would get extra pay for working these hours, or they have worked unsocial times when full-time staff would get more pay. The general rule for employers is that part-time employees should not be treated less favourably than full-time employees.

    Part-time workers who work longer than their contracted hours should be paid for this overtime at their usual pay rate, unless their contract specifies an enhanced rate of pay.

    Limiting overtime

    The Working Time Regulations 1998 govern all working hours, including overtime. Employees are limited to a certain number of hours per week, calculated on an average basis, under these regulations.

    Employees are not permitted to work more than 48 hours per week unless they perform a job that is not covered by the regulations or, if they are over the age of 18, they can opt out of the 48-hour weekly limit by choice.

    Working hours are normally averaged out over a period of 17 weeks when calculating an employee’s working hours under the 1998 regulations, where working hours will include paid or even unpaid overtime, excluding unpaid overtime that the employee has volunteered for, such as staying late on occasion.

    As a result, if an employer asks an employee to work overtime, the employee’s average working hours have to be lowered to at least the statutory maximum within the relevant timeframe unless an agreement is reached with the employee to opt out of the 48-hour time limit.

    Where an employer requests that an employee work overtime on a regular basis over a period of weeks, the parties must reach a voluntary agreement in writing.

    Overtime & holiday entitlement

    Almost all workers are entitled to 5.6 weeks of paid time off work per year. The rate of pay for holiday is calculated using the employee’s regular hours of work, and in some cases, this may require including hours worked as paid overtime.

    The rate of holiday pay for workers who usually work fixed hours for a set salary without regular overtime will be based on their normal weekly pay.

    However, workers whose working hours vary week to week, or who work regular overtime, would need to calculate their holiday pay entitlement based on their average pay over the previous 12 weeks.

    However, as stated in the Court of Appeal decision in East of England Ambulance Service NHS Trust v Flowers and others [2019] there is no one-size-fits-all approach, and paid overtime will not always be considered when calculating holiday pay. The court’s guidance was that, in addition to mandatory overtime, whether or not voluntary overtime should be included in any holiday pay calculation depends on whether or not any pattern of work is regular enough to be considered part of an individual’s normal weekly remuneration. As a result, if any voluntary overtime has been worked only occasionally or infrequently, it will usually not be taken into account.

    Can an employee refuse overtime?

    If an employee is not contractually obligated to work overtime, they should not be penalised for refusing to work beyond their normal working hours. Furthermore, an employee who agreed to work some overtime but refused to opt out of the 48-hour weekly limit should not be dismissed or treated unfairly as a result of their refusal.

    However, if the employment contract requires the employee to undertake overtime, the employee’s failure to work additional hours when required would be a breach of contract and could result in disciplinary action against the employee.

    Can an employer refuse to offer overtime?

    In some cases, employees make look to work overtime – perhaps to earn as much money as they can – but the employer wants to prevent them from working additional hours to earn overtime pay – perhaps for cost reasons.

    Unless the overtime is guaranteed in the employment contract, an employee may be stopped from working any additional hours beyond those that are contractually required.

    However, an employer should not prohibit some employees from working overtime while allowing others to do so, as this could constitute unlawful discrimination and result in grievances or even tribunal claims.

    Managing overtime

    It is advisable for employers to include overtime provisions within contracts of employment, to provide clarity and certainty for both the employer and employee in relation to overtime pay and entitlement.

    Without contractual overtime terms, the parties may agree on the terms under which any additional hours worked will be performed, though it remains advisable to document this in writing to avoid any misunderstanding or conflict.

    It is also good practice to have an overtime policy in place to allow managers to handle overtime in a consistent and legally-compliant manner, and give clarity to employees as to their entitlements. This should also include how overtime worked in lieu of time, stating how much leave can be accrued, when any accrued leave can be taken, and how much time can be taken off at once.

    Both the employer and the employee should keep detailed records of how much overtime has been worked and how much additional time off has been taken.

    Overtime FAQs

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    Legal disclaimer

    The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

    Author

    Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

    Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.

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