How should overtime pay be calculated?

How should overtime pay be calculated?


As an employer, you should make it clear in your Contract of Employment if a worker is entitled to receive pay for any overtime worked and if so at what rate this will be calculated.

Typically, overtime rates apply for hourly paid workers whereas salaried employees may be expected to work overtime with no additional pay in order to fulfil their duties – either way this should be made clear to avoid any confusion. Were overtime is not paid, the employees’ hourly rate must not fall below the current National Minimum Wage.

As an employer you may want to consider whether you offer an incentive of a higher rate of pay for overtime to encourage your staff to work the overtime you may need. This is often the case when overtime may be in unsociable hours such as evenings or weekends.

You may want to consider alternatives to offering overtime pay such as time off in lieu. This means that an employee ‘banks’ the additional overtime hours they work and can take these as leave at a later time. For this to work effectively it is essential that you are able to keep accurate records of lieu time as it is accrued and taken by employees. Ideally any arrangements for time off in lieu should be clearly documented so that both employer / employee understand issues such as:

  • when leave can be taken
  • any maximum limits you want to impose
  • the authorisation process for booking the leave
  • what happens if the contract ends before all accrued overtime is used.

What about part time workers?

Unless your contract says differently, there is no obligation on an employer to pay a part time worker an overtime rate until they have worked the same amount of hours as their full time counterpart. When they have worked a total of the full time equivalent in hours then you must apply the same rates as a full time worker if these are enhanced rates.

If you have any questions or concerns relating to working hours or overtime then call one of our HR Experts on 0844 87972886

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