Calculating overtime pay and holiday entitlement can quickly become complicated for employers.
In this overtime pay guide, we will help you understand employees’ rights and your obligations relating to UK overtime laws.
What counts as overtime?
Typically, an employee will be contractually required to work a fixed number of hours per week in return for a set salary. These normal working hours and pay will usually be set out within the employee’s contract of employment or written statement of employment particulars.
As such, overtime can be defined as any time worked over and above these normal hours, where an employee can be asked to work overtime for all sorts of different reasons, for example, due to sickness-related staff shortages or to enable an employer to cope with an increase in customer or client demand.
Is overtime compulsory?
There is no statutory obligation on an employee to undertake additional hours of work, nor indeed any obligation on an employer to offer overtime. In other words, the requirement for an employee to work extra hours, or the right to be given guaranteed additional hours, will all depend on the employment contract.
In some cases, the contract of employment will provide for overtime to be undertaken on a purely voluntary basis, whilst in other cases there may be contractual provision for compulsory overtime.
Voluntary overtime is essentially where there is no contractual obligation on an employer to offer additional hours, nor any obligation on the employee to work extra hours if offered. In respect of compulsory overtime, there are two different types here, namely, guaranteed and non-guaranteed.
Guaranteed overtime is overtime that an employer is contractually obliged to offer and, equally, an employee is obliged to accept, whereas non-guaranteed overtime is where the employer is not obliged to offer the employee any additional hours although, when offered, the employee is contractually bound to undertake this extra work.
Guaranteed overtime is typically used by employers to make advance provision for staff to cover a particular customer or client order over a specified period of time, whilst non-guaranteed overtime is to make provision for anticipated business needs during busier times of the year in circumstances where the employer is unsure as to the extent of any staff coverage required.
Who is entitled to overtime pay?
In the same way that there is no legal obligation on an employee to work overtime, save except where the contract provides otherwise, employers are not necessarily obliged to pay an employee for any additional hours worked over and above their normal working hours.
The employees’ entitlement to overtime pay, if any, will usually be provided for within the employment contract. In other words, there is no statutory obligation on an employer to pay an employee for working overtime, but rather this is a matter of agreement between the parties.
As such, if there is no express contractual provision for overtime pay, the employee will not be entitled to be paid more than their set salary. In some cases, the employment contract may even include a clause that requires employees to work extra hours for no pay to fulfil duties or to meet deadlines.
How is overtime pay calculated?
In circumstances where there is express contractual provision for overtime pay within the employee’s contract of employment, the rate at which this is paid and the manner in which it is calculated will depend on the terms of the contract.
In some instances, the contract may make provision for overtime only to be paid at the normal rate of pay although, in many cases, employers will offer an enhanced rate of pay, for example, time and a half, as an incentive for employees to work the additional hours required.
However, there is no automatic right to overtime pay, or to be paid overtime at a higher rate. In other words, there is no minimum statutory level of overtime pay. This is, again, a matter of agreement between the parties.
Time off in lieu or overtime?
By way of alternative to offering paid overtime, it is also open to an employer to offer an employee time off in lieu, where extra hours worked can be taken back at a later date, in addition to any annual leave.
That said, in so doing, the employee’s average pay for the total number of hours worked must not fall below the National Minimum Wage (NMW). By law, almost all workers in the UK are entitled to be paid a minimum pay per hour, although the rate will vary depending on age or whether the person is an apprentice.
An apprentice will be entitled to the apprentice rate if they are either under 19, or 19 or over and in the first year of their apprenticeship. An apprentice over 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 must not fall below the relevant NMW rate for the individual’s pay reference period. This period is usually set by how often a person is paid, for example, one week or one month, although this cannot be longer than 31 days.
Overtime rules for part-time workers
As with all employees, whether or not a part-time worker is eligible for overtime, or paid overtime, will depend on their contract of employment.
However, it is a legal requirement that part-time employees must not be treated less favourably than full-time workers. As such, 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.
That said, unless the employment contract provides otherwise, there is no legal obligation on an employer to pay a part-time employee an enhanced overtime rate until they have worked the same number of hours as their full-time counterpart.
A part-time employee may also be entitled to an enhanced rate if they have undertaken work during unsocial times, for example, late at night or at weekends, where any full-time member of staff would get more pay in these circumstances.
Should holiday entitlement include overtime?
Almost all workers are legally entitled to 5.6 weeks’ paid holiday each year, where employees will be entitled to a week’s pay for each week of statutory leave that they take. However, the way in which this pay is calculated will depend on the hours of work regularly undertaken by the employee in question including, in some instances, how often they have worked paid overtime.
For an employee who usually works fixed hours for a set salary, without regular overtime, the rate of holiday pay will be based on their normal weekly pay. In contrast, for the employee whose working hours vary from week to week or, alternatively, has undertaken regular overtime, their holiday pay entitlement may need to be calculated on the basis of their average pay in the past 12 weeks. However, following the Court of Appeal decision in East of England Ambulance Service NHS Trust v Flowers and Others  EWCA Civ 947, there is no one-size-fits-all approach, where paid overtime will not always be included in the calculation of holiday pay.
The guidance from the court was such that, in addition to compulsory overtime, whether or not overtime undertaken of the employee’s own volition should be included in any holiday pay calculation, will depend on whether any pattern of work is regular enough to be considered part of an individual’s normal weekly remuneration. Accordingly, where any voluntary overtime worked has only been occasional or infrequent, this will not usually be taken into account.
Overtime pay in the UK that is compulsory does count towards the full 5.6 weeks.
Any non-guaranteed overtime that forms part of regular remuneration should also be included in at least 4 weeks of paid holiday.
Can overtime be capped?
All working hours, including overtime, are governed by the Working Time Regulations 1998. These regulations impose a limit on the number of hours that employees can work each week, albeit 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 over 18, they choose to work more by opting out of the 48-hour weekly limit.
When calculating an employee’s working hours for the purposes of the 1998 regulations, these are normally averaged out over a period of 17 weeks, where working hours will include paid or even unpaid overtime, excluding unpaid overtime the employee has volunteered for, such as occasionally staying late.
As such, where an employer is asking an employee to work overtime, although the employee can legally work more than 48 hours in a single week, unless agreement is reached to opt out of the 48-hour time limit, their 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 permitted by law, a voluntary agreement must be reached between the parties in writing.
Can overtime be refused?
Whether or not overtime can be refused gives rise to two separate issues, namely, whether an employer can prevent an employee from working overtime, as well as whether or not an employee can refuse to work overtime.
For the employer, unless the contract of employment guarantees overtime, an employee can be prevented from working any additional hours over and above those that they are contractually required to undertake.
That said, an employer should not stop certain employees from working overtime while allowing others to do so, as this could be construed as discriminatory, resulting in a claim before the employment tribunal.
For the employee, in circumstances where that individual is not contractually obliged to work overtime, they should not be subject to any detriment at work for refusing to work over and above their normal working hours. Further, an employee who has agreed to work some overtime but refused to opt-out of the 48-hour weekly limit must not be sacked or treated unfairly for refusing to do so.
In contrast, however, where overtime is compulsory under the terms of an employee’s contract of employment, on either a guaranteed or non-guaranteed basis, there may be serious consequences for an employee in failing to work any additional hours when required.
This, in short, would amount to a potential breach of contract for which the employee could face disciplinary sanctions, including dismissal.
To avoid any potential conflict, employers should always ensure that any provision for overtime, including the basis upon which this is to be worked and how this is to be paid, is clearly set out within the employee’s contract of employment. It can also be helpful to provide detailed guidance within any staff handbook or on the staff intranet site.
In circumstances where there is no advance contractual provision for overtime, it is open to the parties to agree the terms upon which any additional hours worked will be undertaken, although this should again be set down in writing to avoid any confusion or conflict.
In particular, where overtime is to be worked in lieu of time off work at a later date, clear agreement should be reached in advance as to how much leave can be accrued, when any accrued leave can be taken and how much time can be taken off work at once.
Both the employer and employee should also ensure that they keep a detailed record of how much overtime has been worked, and how much additional time off has been taken, not least where this is likely to impact on any holiday pay entitlement.
What is overtime work?
Overtime is any time spent working beyond their usual contracted or scheduled hours. normally scheduled working hours. Overtime pay rules can vary between organisations and work type.
Do you have to work overtime?
Employees are only required to work overtime if this is included in their employment contract. Where there is contractual provision, in most cases employees do not have to work more than 48 hours in a week, on average, unless you have agreed to do so.
Should you get paid more for overtime?
Your employment contract should specify if you are entitled to overtime pay and the rates for this work. Employers do not have to pay workers for overtime. However, your average pay for the total hours you work must not fall below the minimum wage level.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules 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 professional advice should be sought.