- 18 minute read
- Last updated: 15th November 2019
In this guide for employers, we look at the rules relating to voluntary overtime pay, including how voluntary overtime differs to compulsory overtime, who is entitled to be paid for voluntarily working additional hours and whether voluntary overtime pay should be factored into holiday pay entitlement.
This article covers:
- What is voluntary overtime pay?
- What are the rules relating to voluntary overtime?
- What are the rules relating to compulsory overtime?
- What are the rules relating to working time?
- Who is entitled to voluntary overtime pay?
- Should part-time workers receive voluntary overtime pay?
- Should voluntary overtime pay be included when calculating holiday pay?
- What contractual provisions should be made for overtime?
Voluntary overtime is typically defined as any hours worked by an employee, on an agreed or voluntary basis, in addition to their normal fixed or contractual working hours, whereby voluntary overtime pay is the rate of pay, enhanced or otherwise, for undertaking these additional hours.
There may be various reasons as to why an employee is asked to work overtime, for example, due to sickness-related staff shortages or to enable an employer to cope with an increase in customer demand.
The requirement for an employee to work additional hours over and above their normal fixed or contractual working hours will depend on their employment contract. Overtime can be either voluntary or compulsory.
Voluntary overtime is where there is no contractual obligation on an employer to offer additional hours, nor is there any obligation on the employee to work these hours if offered. In other words, there is nothing in the contract of employment requiring the employee to work extra hours.
Further, in circumstances where overtime is voluntary, an employee should not be subject to any detriment for refusing to work any more hours than they are contractually required to do.
There are two types of compulsory overtime, namely guaranteed and non-guaranteed. Guaranteed compulsory overtime is overtime that an employer is contractually obliged to offer and, equally, an employee is obliged to accept.
This could be, for example, where employees are scheduled to work overtime on the last Friday of every month to fulfil a regular order for a particular customer over a certain period.
Non-guaranteed compulsory overtime, on the other hand, is where the employer is not obliged to offer the employee any additional hours although, where it is offered, the employee is contractually bound to undertake this extra work.
By way of example, this could be where an employer anticipates the need for employees to work extra hours during busier times of the year, but doesn’t know exactly how much overtime will be required in advance.
As an employer, it is important to remember that all working hours, including overtime, are governed by the Working Time Regulations 1998. The regulations limit the number of hours that employees can work each week, albeit on an average basis.
By law an employee cannot work more than 48 hours a week on average, unless they decide to work more by opting out of the 48-hour weekly limit or, alternatively, they do a job not covered by the regulations on working hours.
In broad terms, “working hours” will include any time that an employee is at the employer’s disposal, in other words, doing things they have been asked to do for the purposes of their job. This can include, for example, job-related training, any travel time between client or customer appointments or even working lunches.
Working time can also include paid overtime, as well as unpaid overtime that the employee has been asked to do and the employee has agreed to. It does not, however, include unpaid overtime that the employee has simply volunteered for, such as staying late to finish something off or to help out once in a while.
When calculating an employee’s working hours for the purposes of the regulations, these are normally averaged out over a period of 17 weeks. Unless the employee has opted out of the 48-hour week, these must not exceed an average of 48 hours weekly over this period.
As such, an employer can ask an employee to work more than 48 hours in a single week, and an employee can agree to do so, as long as the employee’s hours are reduced within the relevant timeframe so as to even out their average weekly hours.
To opt-out of the 48-hour time limit, this must be done voluntarily by the employee and in writing. Further, an employee who is asked to opt-out must not be sacked or treated unfairly for refusing to do so. However, certain workers are not permitted to opt-out by law, for example, those in charge of operating vehicles or those under the age of 18.
In practice, the use of paid overtime is more common with hourly paid employees than salaried staff, although salaried employees can still receive overtime pay. However, in either case, there is no automatic right to receive any additional payment or to be paid at a higher rate for any voluntary overtime worked. In other words, there is no minimum statutory level of overtime pay.
Whether or not an employee has a contractual right to voluntary overtime pay, and at what rate, will depend on what has been agreed, either verbally or in writing, for example, within an employment contract or staff handbook.
Where some form of contractual provision is 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 for staff to work the additional time, although this is by no means mandatory.
By way of alternative to paid overtime, many employers offer time off in lieu to employees who are willing to work above their contracted hours. Time off in lieu means that any voluntary overtime hours worked can be taken off from work at a later date, in addition to any annual leave.
However, an employer must ensure that where an employee agrees to work additional hours on the basis that this time can be taken back at a later date, this does not take the employee below the national minimum wage for that particular pay reference period. In other words, the average pay for the total hours worked must not fall below the rates set out below.
The minimum hourly rates that most workers are currently entitled to for the year 2019-2020 are as follows:
- 25 and over – £8.21
- 21 to 24 – £7.70
- 18 to 20 – £6.15
- Under 18 – £4.35
- Apprentice – £3.90
The voluntary overtime pay to which a part-time worker is entitled will not only depend on their individual contract of employment but also what contractual entitlements have been given to full-time employees.
In circumstances where a full-time employee is contractually entitled to an enhanced rate of pay for working overtime, part-time employees should usually receive the same rate of pay for additional hours worked by them. It is a legal requirement that part-time employees must not be treated less favourably than full-time workers.
However, unless the contract provides otherwise, there is no obligation on an employer to pay a part-time employee an overtime rate until they have worked the same amount of hours as their full-time counterpart or, alternatively, where they have worked during unsocial times, for example, late at night, and any full-time staff would get more pay in these circumstances.
By law, employees are entitled to a week’s pay for each week of statutory leave that they take. Almost all workers are legally entitled to 5.6 weeks’ paid holiday per annum. However, the question is how this pay is calculated.
For an employee who always works fixed hours, without any overtime, the calculation should be straightforward. Their holiday pay entitlement will simply amount to their weekly normal remuneration.
In contrast, for employees whose working hours vary from week to week, the calculation becomes more complicated, whereby a week’s pay will be calculated based on the average pay the employee has earned in the past 12 weeks.
In the recent case of East of England Ambulance Service NHS Trust v Flowers and others  EWCA Civ 947, in the context of a claim for unlawful deduction of wages, much-needed clarity was given by the Court of Appeal as to how overtime fits into this calculation.
In particular, it was held that overtime worked of the employee’s own volition can be included when calculating statutory holiday pay entitlement, alongside any non-guaranteed and guaranteed overtime.
It matters not that there is no contractual requirement to undertake overtime, rather what matters is whether any pattern of work is regular enough to be considered part of an individual’s normal weekly remuneration.
As such, in circumstances where an employee works overtime that is sufficiently “regular and settled”, any calculation as to holiday pay entitlement must include voluntary overtime pay. In contrast, where overtime is worked on an occasional and infrequent basis, in other words, where it is “exceptional and unforeseeable”, this does not need to be factored in when calculating holiday pay.
In summary, the Court of Appeal decision is not authority for the proposition that all voluntary overtime must now be included in the calculation of holiday pay, but rather each calculation must be approached on a case-by-case basis.
As set out above, whether or not an employee is required to work overtime, and on what basis, will depend on their contract of employment.
For the employer looking to rely upon either guaranteed or non-guaranteed compulsory overtime to provide for any anticipated business needs, this should be clearly set out within the written terms and conditions under which your employees are required to work.
Further, given the mandatory nature of this type of overtime, clear guidance should also be given as to the potential consequences for failing to work additional hours when required to do so. This can either form part of an individual’s contract of employment or be contained within the staff handbook.
In particular, in circumstances where an employee is contractually obliged to work overtime, on either a guaranteed or non-guaranteed basis, but s/he refuses to work any additional hours as required, this may be viewed as a breach of the contract for which the employee can be subject to disciplinary action.
In contrast, for the employer looking to deal with staff shortages or increased customer demand on a more ad hoc basis, a system of voluntary overtime may suffice. This can either be agreed in advance with your employees or as and when the need arises.
That said, it is again always best to set out in writing the basis upon which overtime will be worked, albeit voluntarily, including any enhanced rate of pay or time off in lieu. In particular, where you are asking employees to work additional hours in lieu of time off from work to be taken at a later date, you should also seek to agree the following detail:
- When any accrued leave can be taken
- The authorisation process for booking this leave
- What if the contract ends before all accrued overtime is used and how the employee will be recompensed, if at all, for this unused time.
As an employer offering time off in lieu, you should always consider how much leave is allowed to accrue and how much time can be taken at once, as your business could be affected by when employees are looking to take this time back.
If you would prefer to deal with the amount and timing of any leave taken on an individual basis, you should ensure that employees are fully aware of this policy and only accept voluntary overtime having expressly agreed to this.
Further, regardless of whether the employee’s contract provides for either voluntary overtime pay or time off in lieu, you should keep an accurate and up-to-date record of how much overtime has been worked.
By having clear guidance as to how voluntary overtime will work, as well as a written record of what hours have been undertaken, this will help to minimise any disputes as to what is owed, either in terms of money or time, as well as how any holiday pay is to be calculated.
DavidsonMorris are experienced advisers to employers and HR departments on all aspects of employment law and human resources, including drafting and reviewing contract terms and policies. With a clear overtime policy in place and implemented correctly, issues relating to voluntary overtime pay can be minimised and managed.
If you have a question or need advice on any aspect of employment contract terms, contact us.