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Important HR considerations when staff work overtime

Important HR considerations when staff work overtime
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Peninsula Team, Peninsula Team

(Last updated )

Employees that work overtime might be really helping the business out, particularly when it is going through a busy patch. But there are many points to consider when it comes to overtime.

First, an employer should decide whether overtime is going to be voluntary or compulsory. This will likely be a decision based on how much overtime is likely to be needed in the organisation and the necessity of having a workforce ready to carry it out when required. 

However, it can have wider implications given that the calculation of holiday pay and whether overtime is part of this or not, depends on the type of overtime completed.

If an employee does not have normal working hours, then to work out the rate of holiday pay, the employer would look back over the previous 52 weeks and take an average. 

If an employee does have normal working hours, they will generally only receive holiday pay based on the pay for working those normal hours. But what constitutes ‘normal hours’ is more widely defined than you might think. Guaranteed overtime is regarded as part of normal working hours so will be included. Also, pay for non-guaranteed overtime and voluntary overtime, so long as the payments are sufficiently regular and paid over a sufficient period, are also regarded as part of normal working hours. Currently this only applies to the four weeks of annual leave which derives from EU legislation, and not the remaining 1.6 of UK derived leave or any contractual annual leave given on top of this. However, it is worth noting that there is currently consultation on whether the four- weeks of EU derived leave, and the 1.6 weeks of UK-leave, should be merged and treated in the same way.

Whether or not overtime will be paid, and at what level of pay, will also be a key decision for the business.

If the employee is paid National Minimum or Living Wage, or close to it, care will need to be taken to ensure that these additional hours do not cause their pay to fall below the statutory minimum.

An enhanced rate may be offered to employees as an incentive to carry out overtime. Interestingly, part-time employees are not considered to be treated less favourably in respect of overtime if they only receive any such enhanced rate after they have worked the same total number of hours that a full-time employee would have to work to receive the enhanced rate.

But if employees are required to work a certain number of hours over their normal working hours without pay, before they qualify for any extra pay, this may be indirectly discriminatory against women. This is because such a requirement could place a greater burden on those who work part-time, which may be more likely women.

If an employee is carrying out overtime, consider why they are doing this. It could be because otherwise the work wouldn’t be done, due to low staffing levels, or that there are misconduct or performance issues, either on their own part or their colleagues. If this is the case, employers will need to take action to resolve these issues as soon as possible as they could be having, or have the potential to have, a serious impact on the business.

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