Special offer 

Jumpstart your hiring with a £100 credit to sponsor your first job.*

Sponsored Jobs deliver 85% more applicants on average than non-sponsored jobs.**
  • Attract the talent you’re looking for
  • Get more visibility in search results
  • Appear to more candidates longer

How to Calculate Overtime Pay

You may choose to pay your employees overtime pay when they work extra hours. Employers are not usually required to pay employees for the overtime hours they work above the average weekly maximum of 48 hours averaged over 17 weeks unless it’s contractually agreed. As an employer, it’s important to know how to calculate overtime pay if there is a need for your employees to work extra hours.

Post a Job

What is overtime pay?

Overtime pay is money paid to an employee who works over 48 hours per week averaged over a period of 17 weeks. An employer is not obligated to pay employees who work overtime unless it’s in their contract in the UK. However, if they work overtime, the average pay rate per hour should not fall below the national minimum wage.

Purpose of overtime pay

Both the employer and employees benefit from overtime. An employer keeps the business running past the regular working hours or during busy seasons, and can meet the customers’ demand. The employees make extra money which motivates and keeps them attached to the company. Overtime ensures you don’t incur extra costs hiring new employees when workload increases.

Who is eligible for overtime pay?

Employees are eligible for overtime pay if they exceed their scheduled working hours and the company offers overtime pay. The hourly amount you pay employees working overtime can be higher than regular pay so that it motivates them to work the extra hours and compensates them for their extra commitment. When the job requires an employee to work overtime, ensure you ask the candidate when hiring if they are okay with that since they are not obligated to work overtime.

Employees working as Emergency Responders, Doctors, Nurses, Fishermen, Seafarers, Watchmen, Military or other professions with unpredictable schedules are often eligible for overtime pay.

What is considered compensable working time?

To calculate overtime pay, you have to first understand what is compensable working time according to UK regulations. Working time is the regular time an employee has to work whether they are on or off the job site, handling work-related duties for the company. Compensable working time can include hours beyond the regular time, but contractually agreed upon by the employer and an employee. Job-related travels to meet clients is considered compensable work time and can be subject to overtime pay. Other time considered as working time includes:

  • Job related training
  • Business lunches
  • Time spent working abroad
  • Time spent on call at the workplace
  • Paid overtime
  • Time considered as working time in contract that is outside normal time

Types of overtime

Below are the types of overtime. Each of these overtime types is subject to an employer giving approval to the employee:

  • Voluntary overtime: An employee is not contractually required to work overtime but can work if the employer allows it. This can happen if an employee has to fill in for an absent colleague.
  • Non-guaranteed overtime: As an employer, you don’t have to offer overtime but when you do, the employee is contractually bound to accept it. This is suited for times when a company has to serve many customers like during the holiday festivities.
  • Guaranteed overtime: An employer is contractually required to offer paid overtime and the employee has to accept it. This suits businesses that have to serve customers at odd times like one day every month.

How to calculate overtime pay

Follow these steps to calculate overtime pay:

  1. First, calculate the number of hours that the employee has worked above their contracted working hours for a period of time.
  2. Then multiply the number of hours by their overtime pay rate to get the overtime pay for that period.
  3. The overtime pay may be the same as their usual hourly rate, or you may have agreed on a different rate to compensate for the extra working hours.

Tips for managing overtime more effectively

Below are ways to manage overtime according to the law, so that employees utilise the time effectively and within budget, to the company’s benefit:

  • Communicate. Constantly communicate with your employees so that they know in advance when they will be expected to work overtime.
  • Train. Have your teams trained to handle multiple roles so that they can handle multiple projects and processes. That improves employees’ efficiency and minimises the need for them to work overtime.
  • Track working hours. Monitor your employees working hours to ensure they work efficiently in line with their hourly overtime pay rate.
Post a Job

Ready to get started?

Post a Job

*Indeed provides this information as a courtesy to users of this site. Please note that we are not your recruiting or legal advisor, we are not responsible for the content of your job descriptions, and none of the information provided herein guarantees performance.