Overtime

As an employer, you must include several terms of employment in an employee’s contract.

There may be occasions when an employee is asked to work beyond their regular schedule, known as overtime. This is a way to meet extra demand or resolve staff shortages.

Not following the rules could lead to burnout, which can result in your staff leaving your business, health & safety issues on-site, or expensive tribunal hearings.

This guide will explain what overtime is, how to calculate overtime pay, and when it becomes contractual.

What is Overtime?

Overtime refers to any work hours which exceed an employee’s contractual schedule.

There are regulations to say that most employees can’t be made to work more than 48 hours per week. Employees can agree to work longer hours if it’s agreed upon in writing and signed by them.

If you need to cope with an increase in demand for your products or services, you may offer overtime. For example, you may need to satisfy a large order.

What Are the Types of Overtime?

There are several different types of overtime.

This will depend on the terms and conditions of an employee’s contract. Working overtime needs to be defined as either:

Voluntary Overtime

There is no obligation for your employee to do overtime. Performing overtime will be the employee’s choice.

They shouldn’t be treated less favourably or even unfairly for rejecting overtime hours.

Compulsory and Guaranteed

This is where you’re required to offer overtime, and the employee is obliged to accept it.

If you know your employee has a certain deadline each month, you can introduce an express clause. This will explain that they must work extra time each month near a particular deadline.

Compulsory But Non-Guaranteed

An employer may or may not offer overtime to an employee. But if it’s offered to an employee, they must accept it.

When Does Overtime Become Contractual?

Overtime must always be contractually agreed to. Employees can’t be forced to work overtime if it’s not legally agreed to, through a written statement or contract.

All employment contracts should state whether overtime is compulsory or optional. This is in addition to detailing any relevant pay.

If there are no overtime agreements stated within an employee’s contract, you can’t force them to work beyond their scheduled hours.

Maximum Overtime Per Week

Under the Working Time Regulations 1998, employees aren’t legally required to work more than 13 hours per day.

Employees are also not required to work more than 48 hours a week, including overtime.

To work more than 48 hours per week, an employee will have to agree in writing.

Although the agreement is legally binding, an employee can withdraw at any time.

What is Overtime Pay?

Overtime pay is a normal rate of salary which can either be paid as basic pay or there can be a specific rate. This rate can be related to the extra hours an employee has worked.

Both types of pay should be outlined in your employee’s contract. As an employer, you should clearly state this.

Once a rate has been decided, it can only be changed after a discussion with your employee.

The most common type of pay is called overtime premium. This is the employee’s usual rate of pay, plus half of their rate again.

This means that for every hour your employee has worked, they can receive 1.5 of their regular hourly rate.

Here is an example of an equation to use for overtime pay:

Overtime Pay Rate x 1.5 x Number of Overtime hours = Overtime pay

Time Off in Lieu and National Minimum Wage

Time off in lieu can also be used as an alternative to overtime.

This is where extra hours can be taken back at a later date, in addition to annual leave.

But if your employee works more hours than their contract states, you must ensure the hourly rate doesn’t fall below the National Minimum Wage.

If the employee constantly works overtime, their pay may need to be included when calculating holiday pay.

How is Overtime Tax Paid?

If an employee earns overtime pay, it will be included as part of their pay for that week or month.

Follow the steps below to add up overtime tax.

1. Their pay is taxed at the standard rate of tax up to their rate band limit.
2. Any pay above their rate band limit is taxed at the higher rate of tax.
3. Add the two amounts together.
4. The amount is then reduced by their tax credits to give the amount of tax due.

Manage Overtime With BrightHR

When managing overtime, there’s a lot to keep in mind.

You need to clearly state whether your employee is entitled to overtime in their contract. By doing this, you’re following the legal principles.

Not paying overtime or forcing staff to agree to extra hours could result in tribunal hearings. This could cause damage and costly penalties for your business.

BrightHR can help you manage overtime with our BrightAdvice helpline. Don’t hesitate to call us if you need any help with overtime hours.

Book a free demo today or give us a call on 08007832806