How To Calculate Overtime Pay For Your Employees

Overtime pay ensures that employees are paid fairly for their work, although it often causes quite a bit of confusion. Employees assume that they are entitled to more money if they work longer hours. However, employers might not always understand what the law requires. This leaves room for error and it’s easy to see where the lines get a bit blurred.

But according to a survey conducted by Ciphr, 49% of UK workers say they work overtime without being compensated for it. Since this is almost half of the working population, it’s a concerning statistic.

So in the UK specifically, what are the laws around overtime pay? Who qualifies? And how does it get calculated? Let’s get into it.

Companies that offer payroll software in the UK include:

1. Rippling
2. Pento
3. Deel

 

What Is Overtime Pay?

 

Overtime pay is the additional money that employees may be eligible to receive when they work extra hours outside of their normal, contracted working times.

It could also refer to time off in lieu where employees are given paid time off as their compensation rather than earning extra money. For example, if an employee worked six hours overtime, they may be given six hours off but still paid. If this is the case, it needs to be agreed in writing to avoid hassles down the line.

When it comes to UK law, employers are not automatically required to pay their employees for overtime. If, and how much is paid, is largely dependent on what the employment contract says. Naturally, this will differ from company to company.

 

 

When Would Employees Qualify For Overtime Pay?

 

It’s assumed that every additional hour counts as overtime pay, but this isn’t necessarily always the case. For some employees, they may not even be entitled to it at all.

Some employee contracts will clearly define overtime pay and what that would look like. If your contract doesn’t mention it, then you most likely won’t be eligible for it but as a UK employee, you should still be receiving the National Minimum Wage.

According to the Working Time Regulations 1998, employees shouldn’t be working more than 48 hours per week on average. Keep in mind that this does include overtime so it falls on the employer to monitor the number of hours worked.

 

The Different Types Of Overtime Pay

 

Overtime pay may not be required by law, but it’s common for businesses to use it as a form of incentive. It’s a way to motivate employees to be more productive and work extra hours, although this shouldn’t come at the cost of burnout and exhaustion.

It also doesn’t look the same for every employee or every company. But in most cases, these are the types of overtime pay that businesses use.

Standard rate: Employees are paid at the same hourly rate as their normal working hours.

Time and a half: When paid for overtime, employees earn 1.5 times their usual hourly rate.

Double time: Overtime pay is twice the normal hourly rate.

In some cases, companies may pay their employees more for working on weekends, seasonal holidays like Christmas or bank holidays.

 

 

How To Calculate Overtime Pay

 

If you, as a business, do offer overtime pay or you are an employee with overtime offered in your contract, here is a step-by-step guide on how it could be calculated.

 

Consider The Standard Hourly Rate

 

If an employee is paid hourly then this will be the hourly wage so it’s simple to determine. However, if the employee has a salary, it will need to be broken down.

You can work it out by taking the annual salary ÷ weeks in the year (52) ÷ weekly hours to give you the hourly rate.

 

Calculate The Number Of Overtime Hours

 

Every company should keep a timesheet that will allow you to calculate how many hours over the contracted amount have been worked.

You can subtract the contracted number of hours from the total number of hours worked to determine hours worked overtime.

 

Apply The Overtime Rate

 

The last step is to multiply the hours of overtime by the overtime pay rate. This will either be the standard rate, time and a half or double time.

Again, this will differ from company to company and should be clearly outlined in the employee contract.

 

Does Overtime Apply To Part-Time Workers?

 

Generally, if a part-time worker ends up working more than their contracted hours but not more than full-time hours, which is often 40 per week, hours are paid at their normal rate.

If their hours end up exceeding the full-time hours, then only may they be eligible for overtime pay but this should be stated in their contract.

The main takeaway for both part-time and full-time workers is that contractual agreements need to be clear right from the start. This avoids any disputes and ensures both the employee and employer are on the same page regarding overtime pay.