There may be occasions when you need an employee to work extra hours beyond their normal schedule. This can be down to an increase in demand or absences.
There are different ways to manage this, and they all come with their own rules. So as an employer, you must understand which one is best to offer your staff. Failure to get it right can lead to claims being raised against you, with heavy financial damages to pay.
In this guide, we'll discuss what overtime is, how much you must pay your employees, and the advantages it brings.
What is overtime?
This form of work is usually more common with hourly paid staff than salaried. For example, people working in hospitality.
When would you use overtime?
The main reason is to get more work completed quickly or efficiently. But other reasons include:
- Having to fulfill a large customer order.
- Having to carry out a stock take.
- During a period of staff shortages.
- During a busy period.
As an employer, you must understand the different types of overtime you can offer your employees.
Different types of overtime
There are three different forms of overtime that you can offer to your employees. So, as an employer it's crucial you understand them.
Voluntary overtime is when the employer has no obligation to offer overtime, and the employee has no obligation to accept it. If overtime is offered, it is up to the employee to decide if they want to work extra hours.
This is typically offered during busy periods. For example, in a toy shop leading up to Christmas.
Guaranteed overtime is when the employer is obliged to offer overtime, and the employee is obliged to accept it. Usually, an express term is included in the employee's contract stating overtime is required each month at a certain time.
For example, if your company works to a monthly deadline. Overtime will be needed at the end of each month when the deadline is looming.
Non-guaranteed overtime is when the employee might or might not offer overtime, but if they do the employee must accept it. This should be included within their contract and signed at the start of employment.
This type of overtime is used when the business is likely to be busier at certain times of year, but the employer is unsure how much and when.
As an employer, there is no statutory requirement to provide your staff with additional hours of work.
If you're offering overtime to your employees, you must provide written terms (in a written statement) to all your staff. This should include which hours are classed as overtime, and what their rate of pay is. Remember you have to provide written terms of employment to all employees.
Overtime pay rates in the UK
In the UK, employers do not have to pay workers for overtime hours. However, the average pay an employee receives, for the total hours worked, in the pay reference period must not be below the national minimum wage.
To avoid any confusion regarding overtime hours or pay, include details within an employment contract.
Some employers choose to pay employees with a higher rate of pay than their normal working hours. This is completely up to you, but doing so could make your company more attractive to employees.
How much can you pay your employees for working extra hours?
Standard overtime rates in the UK tend to be ‘time-and-a-half’ (1.5 times their normal rate) or ‘double time’ (two times their normal rate). Before making changes to overtime pay, ensure you speak with your employees first. It can be breach of contract to change the working conditions of an agreement without both parties signing it off.
Overtime rates typically differ between different companies and industries. So, it is beneficial to undertake industry research before deciding on your pay model.
Overtime pay for part-time workers
Like full-time staff, there is no legal requirement to provide your part-time workers with overtime pay.
However, you may choose to pay for overtime if they work the following:
- More than the normal hours of full-time workers.
- Longer hours than are included within their employment contract.
- Any unsocial hours when a full-time employee would get more pay.
It's against employment law to treat part-time workers differently than full-time. This can less favourable treatment and could lead to a claim being raised against you.
As an option, you can provide all your staff with time off in lieu (TOIL) instead of paying them for the extra hours they have worked.
What is time off in lieu (TOIL)?
TOIL is time off instead of pay for working overtime (in addition to their annual leave). For example, if an employee works five extra hours you can allow them to finish five hours early on a future day. If you choose to take this option, it should be included in the employment contract.
Should overtime be included in an employee's holiday pay?
Guaranteed overtime is always included. However non-guaranteed and voluntary should be included within the first four weeks of leave.
Is there a limit to how much overtime an employee can work?
There is no legal limit to how much overtime an employee can work in a week. But remember, an employee cannot work more than 48 hours per week on average (as per the Work Time Regulations 1998).
Making an employee work longer is against employment law. This could lead to a claim being raised against you by your employees.
What are the advantages of overtime?
Overtime can bring benefits for both the business and the employee. The advantages of overtime include:
- Helps to create and promote a more flexible workforce.
- Removes the need to hire extra staff during busy periods (you may not need to hire anyone).
- Gives employees the chance to earn more money by working extra time/hours.
- Helps to make employees feel secure in their job knowing there are extra hours if they choose.
As well as the advantages of overtime, you must also understand the disadvantages.
What are the disadvantages of overtime?
Choosing to use overtime in your business for an extended period of time could lead to disadvantages. The disadvantages if overtime include:
- Potential employee health & safety issues.
- Increased wage expenses for the employer.
- Higher rates of absenteeism if employees feel overworked.
- Lower productivity, work quality, and employee morale.
Can an employee refuse to work overtime?
If you're offering voluntary overtime, then the employer is well within their right to refuse it. You should never pressure an employee to accept extra work. And, you should never treat an employee differently for not wanting to work overtime.
However, if you have a guaranteed or non-guaranteed express term in their contract, they are obliged or legally must accept the requirement.
Get expert guidance on overtime with Peninsula
As an employer, how you manage overtime is vitally important. You cannot pressurise an employee to work extra hours unless they are required to accept any overtime in their contract.
To manage it correctly, you need to understand the different forms of overtime and which one will work for your business. Overtime comes with a range of benefits.
Peninsula offers expert guidance on overtime. Our team offers 24-hour HR advice which is available 365 days a year. Our HR department also provides advice through multi-lingual support and fully trained counsellors who are ready to help with any personal injury claims.
Want to find out more? Book a free chat with one of our HR consultants. For further information, call 0800 028 2420.