Most employees have a fixed number of hours they are contracted to each week, with the standard office working week being 37.5 hours. However, there are times when businesses will need employees to work a few extra hours, either because they need them to cover another employees’ shift, or they are behind on a big project that needs finishing.

Whatever the reason, employees working extra hours is not something new and can be a real positive for businesses.

For those looking for a more in-depth understanding of what overtime is, how it works, and other areas of overtime, we have created an in-depth guide on everything you need to know about overtime.

Overtime calculation

 

What is overtime?

Overtime is defined as extra time worked in addition to an employees’ normal contracted hours. For example, if an employee is contracted to work 8 hours a day, and they work 9 hours, then this would mean they have done 1 hour of overtime.

How many hours overtime can an employee do?

There is no maximum number of hours overtime an employee can work, so long as their average total hours worked, calculated over a 17-week period, doesn’t exceed 48 hours.

There are a few stipulations around hours worked in a week that you can read here.

What is the standard overtime rate?

There are no standard overtime rates, it is purely based on what the business wants to pay, which can be nothing if the business so chooses. That’s right, businesses are not required to pay employees for the overtime they do. This, of course, is not something we advise as you will more than likely find employees saying no to any overtime requests.

Most businesses that do offer overtime will pay their employees for it. They tend to keep it simple by offering a few overtime rates; normal time, time and a quarter, time and a half, double time, triple time.

How to calculate overtime

Calculating overtime depends on what the business decides they are willing to pay employees. If they use one of the examples above, then it is a straightforward calculation. You will first need to work out the hourly rate of each employee, then multiply this by the overtime rate, then multiply that sum by the total hour of overtime worked.

Example overtime calculation

Yearly salary: £20,000
Contracted hours per week: 37.5
Contracted hours per year calculation: 37.5 x 52 = 1,950
Hourly rate calculation: 20,000 ÷ 1,950 = 10.26
Hourly rate: £10.26

Now you have the hourly rate for this employee, you can work out how much the employee should be paid for the overtime they do.

Overtime rate: Time and a half
Overtime worked: 5 hours
Overtime calculation: 5 x (10.26 x 1.5) = 76.95
Overtime pay: £76.95

So, because this employee has worked 5 hours extra and the overtime rate is time and a half, they would then need to be paid an extra £76.95.

Is overtime taxable?

Unfortunately, overtime is taxable and depending on how much overtime you do and how much you get paid, if this pushes you into a higher tax bracket, you will then be required to pay more tax on your earnings.

The pros and cons of paid overtime

There are many positives and negatives to offering employees overtime, with many businesses seeing it as a no brainer, whilst others not offering it at all.

Pros

Help to cover shifts: If employees are off sick or on holiday, then by offering overtime, the business isn’t required to hire more people and can just ask staff to do extra hours to cover those who are off.

Help employees with money issues: For those who are struggling financially, it can be a real benefit if a business offering paid overtime. The business itself not only benefits from employees working overtime through extra work, but it also offers the options for employees to earn additional income to help feel financially secure, allowing them to fully focus on their work.

Cons

Increased cost to the business: The more hours an employee does, then the more the business would need to pay them.

Employee burnout: If an employee looks to do too much overtime, then the employee in question could become tired, which could result in underperformance.

What should go in an overtime policy

To ensure your overtime processes are standardised and efficient, there are some strict rules you should implement in your overtime policy, to not only protect the business, but the employee as well.

Set maximum overtime hours: By setting a maximum number of overtime hours an employee can work each week, employees can’t then abuse this by working a huge amount of overtime, which would ultimately cost the business both in terms of finance and employee productivity.

Set standard pay rates: As a business, you will need to be 100% clear on how much an employee gets paid for their overtime. This may change depending on when the overtime is being done, like on weekends or nights, where you may set a slightly higher overtime rate than overtime worked during the day or weekdays.

Manager approval: You need to make sure that employees have written approval from their managers before any overtime can be completed. This way there are no issues when a dispute arises between a manager and employee about approved overtime.

 

If you would like to see how e-days can help you manage and track overtime, book a demo with our software consultants now or call us on +44 (0)333 300 3403 and we can answer any questions you may have surrounding overtime.

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