What is overtime?
Overtime refers to any hours an employee works beyond their normal contractual working hours. For example, if an employee's contract states their working week is 35 hours, any time they work over this amount is considered overtime. There's no legal obligation for an employer to pay employees for overtime. However, an employer’s policy on overtime should be clearly set out in the employee's Employment contract or a dedicated overtime policy. The contract or policy should specify whether overtime is paid and, if so, at what rate. If overtime is not mentioned, the employer isn't required to pay for the extra hours, but the employee's average pay for the total hours worked must not fall below the national minimum wage.
When is overtime used?
Businesses often need employees to work overtime to manage fluctuating workloads and unexpected demands. Common situations include:
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handling seasonal peaks in business (eg Christmas for retailers)
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covering for staff who are absent due to sickness or holiday
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completing an urgent project with a tight deadline
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managing unexpected large orders or spikes in customer demand
Do I have to pay my employees for overtime?
Whether you need to pay for overtime depends on what's in the employment contract. Many employers choose to pay a higher rate for overtime work, often called time-and-a-half (1.5 times the normal hourly rate) or double time (twice the normal hourly rate). This can be a good incentive for staff to work extra hours when needed. Alternatively, employers can offer time off in lieu.
What is time off in lieu (TOIL)?
Time off in lieu (TOIL) means that instead of getting paid for extra hours, employees get paid time off. For example, if an employee works an extra five hours, they can take five hours off at a later date. Whatever your policy is, it must be applied consistently to all employees and clearly stated in their contracts.
What are the different types of overtime?
Overtime isn't a one-size-fits-all concept. It generally falls into three main categories, which should be defined in an employee's contract or the employer’s overtime policy.
Voluntary overtime
This is the most common type. With voluntary overtime, the employer can offer extra hours, but the employee has no obligation to accept them. Likewise, the employer isn't obliged to offer these hours. If an employee agrees to work voluntary overtime, they should be paid for it unless their contract says otherwise or they agree to take TOIL.
Compulsory overtime
An employer can require an employee to work overtime if it's stated in their Employment contract. This is known as compulsory overtime. The contract clause should be clear that reasonable overtime may be required to meet business needs. Any request for compulsory overtime must be reasonable. If an employee refuses to work compulsory overtime that they are obliged to work, you may be able to view this as a breach of contract, which could become a disciplinary matter.
It's also important to remember that, unless overtime is guaranteed, you can stop employees from working it. However, you must apply this fairly and not discriminate against certain employees by, for example, only allowing some staff members the opportunity to work extra hours.
Non-guaranteed overtime
Non-guaranteed overtime is a type of compulsory overtime. Here, an employer may or may not offer extra hours, but when they do, the employee must accept. This is common where a business knows it's likely to be busier at certain times of the year, but can't predict exactly how much overtime will be needed. The employee’s contract will state that they must work the extra hours if needed. A typical contract clause might read, 'reasonable overtime may from time to time be required, in accordance with the needs of the business'.
Guaranteed overtime
Guaranteed overtime is a type of compulsory overtime where an employer guarantees, and is required to pay for, a certain number of overtime hours each week or month. For example, a contract might state a 35-hour week plus a guaranteed 5 hours of overtime. Because these overtime hours are guaranteed, they are treated as part of the employee’s normal pay.
What records should I keep for overtime?
You must keep accurate and up-to-date records of the hours worked by your employees to show you're complying with the rules on maximum weekly hours and the national minimum wage. These records should include:
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the total hours worked each week
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any overtime hours
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rates of pay for overtime
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approvals for overtime (if necessary)
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total pay (including overtime) for each pay period
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a copy of any opt-out agreements for the 48-hour week
These records must generally be kept for at least three years.
Is overtime included when calculating holiday pay?
Yes, in many cases it is. The law requires that holiday pay reflect what an employee is normally paid. For the first four weeks of statutory annual leave, you must include payments for overtime that an employee has been regularly working. This applies to:
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compulsory and non-guaranteed overtime
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guaranteed overtime
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voluntary overtime, if it's worked regularly and consistently over a period of time
This means you can't just pay an employee their basic contractual rate for their holiday. You must calculate their average pay over a 52-week reference period, including these overtime payments, to work out their correct holiday pay entitlement.
For more information, read Employees’ and workers’ holidays and How to calculate holiday entitlement.
Can an employee be forced to work overtime?
You can require an employee to work overtime if their employment contract includes a compulsory overtime clause. This clause should state that overtime may be required from time to time to meet business needs. However, any request for overtime must be reasonable. For example, asking an employee to work an extra hour to finish an urgent project is likely reasonable, but demanding they work every weekend without a break may not be. If there is no overtime clause in the contract, an employee can't be forced to work extra hours. They can volunteer to do so, and in that case, an agreement should be reached on payment or time off in lieu.
What about the 48-hour working week?
By law, most employees cannot be required to work more than an average of 48 hours a week, including overtime. This average is usually calculated over a 17-week period. Employees over 18 can choose to voluntarily opt out of the 48-hour work week. This must be in writing, and an employee can cancel their opt-out agreement at any time by giving the required amount of notice.
For more information, read How to opt-out staff from the 48-hour week.
What are the rules for part-time workers?
Under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, part-time workers have the right to be treated no less favourably than comparable full-time workers. This means you should have a consistent policy for overtime that applies to everyone. Usually, a part-time worker is only entitled to an enhanced overtime pay rate once they have worked more than the normal hours of a full-time employee. For example, if full-time staff work 37.5 hours per week, a part-time worker who works 20 hours a week would be paid their normal hourly rate for any extra hours up to 37.5. They would only receive the higher overtime rate for hours worked beyond 37.5, assuming that’s the employer’s policy for all staff.
If you need to set out your business's approach to overtime, a lawyer can help you draft a bespoke overtime policy. Do not hesitate to Ask a lawyer if you have any questions or concerns about overtime.
