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. Employees may receive additional earnings for extra hours, which some workplaces find can support engagement. In some situations, offering overtime may also help organisations manage fluctuating workloads without immediately increasing headcount.
Who is eligible for overtime pay?
Eligibility for overtime pay typically depends on what is outlined in an employee’s contract or workplace policy. Some organisations offer overtime rates when employees work beyond their usual scheduled hours. 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. Some employers choose to discuss overtime expectations during the hiring process so candidates understand any requirements associated with the role.
Roles with unpredictable schedules—such as emergency responders or certain medical or maritime professions—may have different working-time arrangements. Eligibility for overtime in these roles varies based on the organisation’s policies and contractual terms.
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.
Depending on the organisation’s policies and the terms of employment, certain activities—such as job-related training, business travel, or time spent on call at the workplace—may be treated as working time. Employers sometimes refer to government guidance for additional context on how working time is defined.
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.
- Overtime pay rates vary by organisation. Some employers use the standard hourly rate, while others outline a different rate in their contracts or policies.
Tips for managing overtime more effectively
Below are general practices some organisations use to help manage overtime effectively. These approaches can support communication, planning and budgeting:
- Communicate. Constantly communicate with your employees so that they know in advance when they will be expected to work overtime.
- Training. Some organisations offer cross-training so teams can support a wider range of tasks, which may help distribute workloads more evenly.
- Track working hours. Many workplaces use time-tracking tools to help monitor scheduling, ensure accurate payroll processing and maintain operational oversight.
