overtime pay

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Overtime can offer employers critical flexibility in staffing, while employees can benefit from additional payment for the additional time worked. But while overtime is commonly used across the economy, in practice it’s not always clear who is entitled to overtime pay and how this should be calculated. When employers are not clear about their overtime rules with their workforce, misunderstandings and disputes can often arise.

In this guide, we look at the rules on overtime pay to help employers understand the nature of overtime, as well as any legal obligation to pay for this work and how pay for overtime works in practice. We also look at how overtime pay compares to time off in lieu, plus the importance of agreeing in advance how staff will be compensated for working overtime.

 

What is overtime?

Most employees will be contractually required to work a certain number of hours each week in return for a fixed hourly rate or annual salary. These normal working hours and pay will usually be set out within a written contract of employment or statement of employment particulars. A statement of employment particulars is not a contract, but still sets out in writing the main conditions of employment, including working hours and pay, in this way providing evidence of what has been agreed between the employer and employee.

If an employee has normal working hours, overtime usually means any time that they work in excess of those hours. This could be where they stay late or work longer hours on any given day, perhaps to meet a deadline or to catch up on any backlog. It could also be where the employee works an additional shift or extra days which they would not ordinarily work, perhaps to cover staff shortages or to meet an increase in customer or client demand.

However, there is no strict legal requirement in the UK for employees to work more than their normal working hours. For an employee to be required to work overtime, this must be agreed in advance, either verbally or stipulated under the terms of their employment contract. Equally, there is no legal obligation on an employer to offer overtime, where again there must be a contractual agreement guaranteeing the employee additional hours.

In broad terms, there are two types of overtime: voluntary and compulsory. There are also two types of compulsory overtime: guaranteed and non-guaranteed. Voluntary overtime is where there is no contractual obligation, either for the employee to work overtime, nor for the employer to offer it. Guaranteed overtime is where an employer has to offer overtime and the employee has to accept it, while non-guaranteed overtime is where the employer is not obligated to offer the employee any additional hours although, when offered, the employee is contractually bound to work those hours.

 

What is overtime pay?

If employees are required or agree to work overtime, either on a voluntary or compulsory basis, this begs the question how much they are entitled to be paid for this.

As a matter of law, there is again no strict legal entitlement for employees to be paid for any overtime worked, nor to be paid a higher rate, where overtime pay is a matter of agreement between the parties. As such, when it comes to establishing any obligation to pay for overtime, and at what rate, this will come down to what has been previously agreed in the context of an employee working more than their normal hours, either verbally or in writing. In some cases, the issue of overtime pay and rate of pay will be set out within the employment contract or staff handbook. In other cases, the employer and employee may have verbally discussed whether the employee will be paid and how much.

However, in those cases where prior agreement has not been reached between the parties, confusion can often arise. If an employee is paid an hourly rate and they are asked to work extra hours, there is likely to be a reasonable expectation that they will be paid at least the same rate for extra hours worked, which most employers will and should honour.

However, where an employee is salaried, and they are asked to work late, the position is far less clear. In these circumstances, absent any written or verbal agreement as to overtime pay, the employee has no contractual right to be paid extra for this work. In fact, many employers will often expect their staff to occasionally stay late where the demands of the job require this. Still, where overtime is required on a regular, rather than an ad hoc basis, some agreement should ideally be reached, either as to overtime pay or time off in lieu.

 

How is overtime pay calculated and paid?

In circumstances where contractual provision has been made for overtime pay within the employee’s contract of employment or staff handbook, the rate at which this is paid and how this is calculated will depend on the terms of the contract. Matters set out within a staff handbook will often be incorporated into the terms of the employment contract.

In some cases, the contract may make provision for overtime to be paid at the normal rate of pay. However, where contractual provision has been made for overtime pay, it is open to an employer to offer a higher rate of pay than for normal working hours as an incentive. An enhanced overtime rate of pay, such as time and a half, is by no means mandatory, but where overtime is voluntary, the uptake may be low unless the rate of pay is attractive.

The way in which overtime pay is paid, for example, in the employee’s weekly pay packet or to be added to their monthly salary, is again a matter of agreement. In most cases, the employer will include any overtime pay in the pay reference period in which the additional work was undertaken or at the end of the following weekly or monthly period.

 

Can TOIL be used instead of overtime pay?

By way of alternative to overtime pay, especially where an employee is salaried rather than being paid an hourly rate, many employers will offer time off in lieu to employees who are willing to work over and above their contracted hours. Time off in lieu, more commonly referred to in UK workplaces as TOIL, means that any voluntary overtime hours worked can be taken off from work at a later date, in addition to annual leave entitlement.

A TOIL arrangement will often provide employees with sufficient incentive to work the extra hours needed by their employer, where this time can be taken in lieu during less busy or demanding periods. In this way, there is no contractual obligation around overtime pay, where the employer is simply managing the employee’s hours in a more cost effective way.

However, clear agreement will need to be reached as to TOIL terms, including how many days can be accrued and when the time off should be taken by. Additionally, employers must bear in mind the rules around minimum wage and maximum weekly working hours, although these rules are also applicable to paid overtime arrangements.

 

Minimum wage requirements

In the UK, an employee’s average pay for the total number of hours worked must not fall below the National Minimum Wage (NMW). By law, almost all UK workers are entitled to be paid a minimum rate of pay per hour, although the rate will vary depending on the individual’s age or status. This means that when asking employees to work overtime on the basis that this time can be taken back at a later date, employers must ensure that this does not take the employee’s average rate of pay below the rates for that pay reference period.

For 2023-24, the minimum hourly rates that most workers are entitled to are:

  • 23 and over: £10.42
  • 21 to 22: £10.18
  • 18 to 20: £7.49
  • Under 18: £5.28
  • Apprentice: £5.28.

An apprentice will be entitled to the apprentice rate if they are under 19, or over 19 and in the first year of their apprenticeship. An apprentice aged 19+ who has completed the first year of their apprenticeship will be entitled to the appropriate NMW rate for their age.

In calculating the minimum pay per hour, the average pay for the total hours worked by an employee must not fall below the relevant NMW rate for the relevant pay reference period. A pay reference period is either a month, or if the individual is paid by reference to a period shorter than a month, that period. For example, if an employee is paid fortnightly, their pay reference period will be 2 weeks, while an employee whose pay is calculated fortnightly but paid monthly, such as if they have a 2-week shift pattern, their pay reference period will be a month. However, a pay reference period can never be longer than one calendar month.

 

Maximum weekly working hours

All working hours in the UK, including overtime, are governed by the Working Time Regulations. These Regulations impose a limit on the number of hours that employees can work each week, calculated on an average basis. By law, an employee is not allowed to work more than an average of 48 hours per week, unless they do a job not covered by the Regulations or, if they are aged over 18, they opt out of the 48-hour weekly limit.

When calculating an employee’s working hours for the purposes of the Regulations, these will need to be averaged out over a period of 17 weeks. Working hours will include paid or unpaid overtime, excluding unpaid overtime that the employee has volunteered for, such as occasionally staying late. This means that where an employee is working overtime, even though employees can legally work more than 48 hours within a single week, unless agreement is reached to opt out of the 48-hour limit, the individual’s average working hours must be reduced to the statutory maximum within the relevant timeframe.

In circumstances where an employer is asking an employee to regularly undertake overtime over a number of weeks, where relevant and as permitted under the Working Time Regulations, a voluntary agreement must be reached between the parties in writing. This applies, regardless of whether the employee will receive overtime pay or time off in lieu.

 

How should overtime pay or TOIL be agreed?

As any right to overtime pay or TOIL is a matter of agreement between the employer and employee, there is nothing preventing the parties from reaching an agreement on an ad hoc basis. In fact, many employers may prefer not to make express contractual provision for overtime, such that there is nothing preventing them from asking staff to work late, as and when required, without any commitment to pay for this or provide time off in lieu. For salaried employees, this is often deemed an acceptable arrangement, where there is typically an expectation that these employees will put in a few extra hours if needed.

However, there are significant benefits to agreeing in advance how employees will be compensated for working overtime, not least to maintain a positive working relationship and safeguard an employee’s mental wellbeing. Any individual made to feel obligated to work additional hours, over and above their normal hours, and to do so without some form of compensation, is likely to feel overburdened. This, in turn, can lead to reduced employee engagement, employee burnout and even the loss of a valuable member of staff. At the very least, asking staff to stay late or work extra hours without overtime pay or TOIL is also likely to seriously damage the working relationship between the employer and employee.

Where overtime is required regularly, even if purely on a voluntary basis, it is important for employers to agree in advance as to how an employee will be compensated for this work. This could be expressly set out within the employee’s contract of employment, or any staff handbook, or within a separate workplace policy specifically designed to deal with overtime. Employers should also keep a clear record of how much overtime has been worked when it comes to meeting the rules around minimum wage and working hours. In this way, in the event of any issues, they can refer back to these records for proof.

 

Need assistance?

For specialist support and advice when dealing with overtime pay matters, contact us.

 

Overtime pay FAQs

Do you get paid for overtime UK?

There is no statutory obligation on an employer to pay an employee for staying late or working longer hours, where provisions as to overtime pay, or time off in lieu, should be set out in the employment contract.

How do you calculate overtime pay?

Where contractual provision has been made for overtime pay within the employee’s contract of employment or staff handbook, the rate at which this is paid and how this is calculated will depend on the terms of the contract.

What is the law on overtime in the UK?

There is no legal requirement in the UK for employees to work more than their normal working hours, unless there is specific provision within their contract of employment for overtime to be worked in certain circumstances.

When should overtime be paid?

When, and at what rate, overtime should be paid will depend on what has been agreed between the employer and employee in the contract of employment. In many cases, salaried employees may instead be offered time off in lieu.

Last updated: 20 February 2024

Author

Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.

She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.

Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals

About DavidsonMorris

As employer solutions lawyers, DavidsonMorris offers a complete and cost-effective capability to meet employers’ needs across UK immigration and employment law, HR and global mobility.

Led by Anne Morris, one of the UK’s preeminent immigration lawyers, and with rankings in The Legal 500 and Chambers & Partners, we’re a multi-disciplinary team helping organisations to meet their people objectives, while reducing legal risk and nurturing workforce relations.

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