An employer’s guide to paying overtime

If any of your staff work outside their contracted hours, you might be wondering what the UK rules and regulations are around paying overtime. Are employers obligated to pay overtime? Are there limits to how many hours staff can work in a week? And do you need to declare employee overtime on payroll software?

The team at AMR Bookkeeping Solutions operate payroll schemes for businesses around the UK. Here, we provide our guide to calculating and paying overtime.

What is overtime?

Overtime refers to any hours worked beyond normal working hours. Normal working hours are those that are fixed by an employment contract.

Overtime can be voluntary or compulsory.

A guide to paying overtime

Voluntary overtime is when an employee chooses to work additional hours in a job, even with no contractual obligation for extra hours.

Compulsory overtime is when staff are required to work additional hours. The details of this requirement must be stipulated in the employee contract. These hours may be on a regular basis, or seasonal depending on the needs of the business.

By law, employees cannot be made to work more than 48 hours per week; however, they can volunteer to work longer. This agreement must be in writing and signed by the employee.

Overtime pay: what is the law?

Employers are not legally obligated to pay their employees for either voluntary or compulsory overtime.

However, it’s important that an employee’s average pay for the total number of hours worked does not fall below the National Minimum Wage.

Pay per hour is calculated by the annual gross pay (i.e. total pay before tax) ÷ annual total number of hours worked (including overtime). From April 2022, this figure must not fall below £9.50 per hour for an adult aged 23 or over.

Employers can opt to give staff time off in lieu rather than offering overtime pay.

Choosing to pay employees for overtime

If employers choose to pay staff for the overtime they work, whether that’s voluntary or compulsory overtime, the details of overtime rates and how they are calculated should be included in the employee contract.

The amount of pay can be different from the rates for normal working hours.

Declaring overtime pay on a payroll software

In each pay period, any overtime pay should be calculated separately from wage earnings. The number of overtime hours worked, and the pay received for these hours should be itemised and clearly presented on the employee’s payslip. This makes sure that employees can easily identify which pay has come from which hours.

If you need any further advice about calculating overtime pay, or have any other payroll concern, we’d love to hear from you. Our staff have been rigorously trained, and are fully accredited, in Sage and Xero payroll software, so you can be assured that we really know what we’re doing when it comes to handling your payroll queries.

To get in touch with the AMR Bookkeeping Solutions team, email, or give us a call on +44 (1892) 489668.

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