Overtime Pay: A Guide For Employers

Clare Parkinson

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28 Feb 2019

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Many businesses are still confused about the rules surrounding overtime pay. Confusion relates to employees’ entitlement to it as well as the company’s overtime holiday pay and more.

While there’s no statutory requirement to pay workers for overtime, there may be a contractual requirement. However, you’re required to keep employees pay above the national minimum wage.

A Court of Justice on the European Union (CJEU) decision created a change in how organisations interpret the legislation in relating to  overtime and holiday pay.

According to case law, you’re required to include overtime in holiday pay when calculating an employee’s statutory holiday entitlement.

What is overtime pay?

It’s the time worked in addition to an employee’s normal working hours that’s detailed in their employment contract.

Overtime pay is any pay derived from working outside of the normal working hours specified in an employee’s employment contract

Depending on your business practice, employment contracts should include information about the company’s stance on overtime. It should also include details of overtime payment rates (if any) and how it’s calculated.

Do employers have to pay overtime?

It depends on the terms and conditions detailed in the employment contract. Overtime can either be:

  • Voluntary: This is where you’re under no obligation to offer employees overtime and they’re under no obligation to accept it when offered.
  • Guaranteed: Overtime that you’re contractually obligated to offer and employees must accept.
  • Non-guaranteed: Doesn’t have to be offer to your employees, however, when offered, they must accept and work it.

It’s important to include details about the type of overtime practiced within your business, the conditions and remuneration if any related with all forms of overtime work.

What are the rules on overtime pay?

There’s no legal obligation to pay employees for working extra hours and there’s no minimum statutory levels of overtime pay. Overtime rates vary depending employer and industry. While some employers will pay for working extra time, others won’t.

How much is overtime pay in the UK?

Employees should be able to refer to their contract of employment to determine if they’re entitled to overtime pay or not. If they are, you should also provide information on the overtime pay rates and how to calculate said pay.

Who is entitled to overtime pay?

Unless otherwise stated within the employment contract, you should offer the same overtime to all employees. You can’t stop certain employees from working overtime while allowing others to do so.

This may construe discrimination and could open you up for a discrimination claim.

Can you get fired for refusing to work overtime?

The first point of call for an answer this question is an employee’s contract of employment. This contract should include details of the specific working days and hours you expect your employees to work as well as the expected remuneration.

In some cases, the employment contract may also include an additional clause that requires workers to work extra hours for no pay to fulfil duties or to meet deadlines.

Employees only have to work overtime if their employment contacts states that they must.

However, it’s worth noting you cannot force employees to work more than an average of 48 hours a week over a 17-week period. With the ‘opt out agreement’, your employees may choose to work more than 48 hours a week if they’re over 18 although there’re some limitations to this.

How do you calculate overtime pay?

Measure the overtime pay rate and multiple by hours worked.

Final note

While you’re not required to pay for overtime, you must pay holiday pay based on regular overtime.

For example, an employee’s contract may require them to work 30 hours a week but they end up working 35 hours a week. The law states that you must pay annual leave based on the hours actually worked which is 35 hours per week.

Expert advice

Contact Croner today for more information about employee pay and creating a company policy that works for you. Call us free on 01455 858 132.

About the Author

Clare Parkinson has over 20 years’ experience in the Croner Reward business. As Business Manager, Clare leads a team of Reward Consultants who specialise in the delivery of pay and grading related advice, including tailored pay benchmarking and gender pay reports.

Over the years, Clare has contributed to various industry publications on topics such as gender pay, executive remuneration and market pay trends.

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