What is overtime pay?
Overtime pay refers to additional pay for hours worked beyond an employee’s usual schedule. The approach an organisation takes to overtime pay often depends on what the employment contract or workplace policy outlines. Employers can refer to government guidance for details on working time limits and pay considerations, including information on minimum wage rules.
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?
When workplaces calculate overtime, they often consider what counts as working time under their policies or employment agreements. This may include time spent on job-related activities, such as training, travel for client meetings or other duties outlined by the organisation. Employers can also refer to government guidance for more detail on working time expectations. 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
These terms are commonly used to describe how different workplaces approach overtime:
- Voluntary overtime: Employees can choose to work extra hours when offered.
- Non-guaranteed overtime: An employer may offer additional hours depending on business needs.
- Guaranteed overtime: Some workplaces outline regular extra hours within employment contracts.
How to calculate overtime pay
Follow these steps to calculate overtime pay:
- First, calculate the number of hours that the employee has worked above their contracted working hours for a period of time.
- Then multiply the number of hours by their overtime pay rate to get the overtime pay for that period.
- 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.
