How overtime pay works in the UK (and how to calculate it)

Overtime is one of the most misunderstood parts of paying people. Many employees assume there is a legal right to time and a half. Many small employers assume there are no rules at all. Neither is quite true. This guide explains the position in plain English and shows the arithmetic. It is general information, not legal advice; your contracts and the guidance on gov.uk and Acas are the authority.

What the law actually says

There is no legal right to extra pay for overtime. The law does not set an overtime rate. Whether overtime is paid at the normal rate, at time and a half, at double time, or taken back as time off is decided by the employment contract.

What the law does require:

• Average pay must not fall below the National Minimum Wage. Add up everything paid for the pay period and divide it by all the hours worked, including the overtime. If unpaid or low-paid overtime drags the average below the minimum wage for that worker's age, that is unlawful. The current rates are on gov.uk and change every April.
• The 48-hour week. Workers cannot be made to work more than 48 hours a week on average, normally averaged over 17 weeks, unless they have opted out in writing. They can cancel an opt-out by giving notice.
• Rest. Adults are entitled to 11 hours' rest between working days, a day off each week (or two a fortnight), and a 20-minute break in a shift of more than six hours.
• Holiday pay. If someone regularly works overtime, their holiday pay for the statutory weeks should reflect it, not just their basic hours.

A contract can say overtime is compulsory, but it cannot override these limits.

What "overtime" means in your business

It is whatever your contracts say it is. The common patterns are:

Write down which one you use. "We have always done it that way" is where disputes start.

The arithmetic

Time and a half is the hourly rate multiplied by 1.5. Double time is the rate multiplied by 2.

Take someone on £14.00 an hour, contracted for 40 hours, who works 46 hours in a week, with overtime at time and a half:

With a daily threshold the answer can be different for the same week. If the same person worked four ten-hour days and one six-hour day, a rule of "over 8 hours a day" gives 8 overtime hours (two on each long day), not 6. When a business has both a daily and a weekly rule, decide which applies first and make sure no hour is counted twice.

Three details that change the answer:

• Unpaid breaks come off the hours before anything else. A 9-hour shift with a 30-minute unpaid break is 8.5 hours.
• Shifts past midnight belong to the day the shift started, unless your contract says otherwise.
• Salaried staff: work out an hourly rate first. Annual salary ÷ 52 ÷ contracted weekly hours is the usual method.

Time off in lieu

Instead of paying for overtime, some employers give the time back, known as TOIL. It needs to be agreed, recorded, and taken within a sensible period. The minimum wage check still applies to the pay period in which the hours were worked.

Mistakes small employers make

• Forgetting the minimum wage check for lower-paid staff who do unpaid overtime. This is the expensive one.
• Treating part-timers differently by accident. Paying a premium only past full-time hours is normal; paying part-timers a lower overtime rate than full-timers for the same hours is not.
• No record of hours. You need records to show you are complying with the working time and minimum wage rules. A timesheet is enough.
• Leaving overtime out of holiday pay for people who work it regularly.
• Rounding. Decide whether you pay to the minute or to the quarter hour, and apply it the same way for everyone.

A simple routine

1. Put the overtime rule in every contract: the threshold, the rate, and whether it needs approving in advance.
2. Record hours every shift, with breaks.
3. Work out regular and overtime hours the same way each pay period. A calculator or a timesheet that applies your rule removes the arguments.
4. Once a quarter, check the averages: hours per week against 48, and pay per hour against the minimum wage.

If every employee has the same rule, a calculator is all you need. Once different people have different rules (a supervisor on double time for Sundays, a part-timer with a different threshold) a timesheet that holds each person's own rule saves hours of checking.