Overtime and overtime calculation


Most employees will have a fixed number of hours they are contracted to work – on their part-time or full-time contract. However, of course, there will be occasions where an employee will be working more than their contracted hours – this may be down to the request of the employer or the employee working more hours voluntarily to get a project finished or some work completed.

Overtime is thus defined as any time an employee works beyond the expectation – for example, an employee contracted five hours per day who works seven on one of those days will have accrued two hours overtime.

This article will discuss the pros and cons of overtime as well as potentially setting up an overtime policy. However, first of all, we will discuss how to calculate overtime for your employees.

 

Overtime calculation formula

OVERTIME x (HOURLY RATE x OVERTIME RATE) = OVERTIME PAY

 

Overtime rates

There is nothing in UK law regarding overtime rates – it is entirely down to the business to decide how much they pay for overtime in their company. Some companies choose to pay nothing for overtime (not a good idea for employee morale, employee turnover or making your company popular amongst stuff). Most, however, will pay normal time, normal time + one quarter (1.25), normal time + one half (1.5), double time (2.0), triple time (3.0) etc. etc. It is down to you to set your overtime rate.

 

Example overtime calculation

Using the formula: OVERTIME x (HOURLY RATE x OVERTIME RATE) = OVERTIME PAY

 

Firstly, you need to work out the hourly rate of your employee. If you do not know it already, this is how it works…

Yearly salary: £30,000

Contracted hours per week: 35

Contracted hours per year: 35 x 52 = 1820

Hourly rate: 30,000 divided by 1820 = £16.48

 

Now, using this, you can put the number into the formula…

Overtime rate (set by company): 1.5

Overtime worked: 3 hours

Overtime: 3 x (16.48 x 1.5) = £74.16

 

Just remember – overtime counts as part of your yearly salary so is taxable. Just be aware that if you get pushed into a higher tax bracket because of the overtime, you will pay tax on those wages.

 

Pros and cons of overtime

Pros

Assisting absent staff by covering shifts

If employees are off sick, on holiday or are taking any other scheduled or unscheduled leave, it is good to offer paid overtime to incentivise staff to cover shifts.

Helping employees earn more money if they need it

Whilst an employee will benefit from some extra cash, an employer will benefit from extra hours put into their business! Remember though – employee presenteeism and similar problems encountered with TOIL may occur (those being decreased quality of work due to overtime worked in the hope of a reward).

Cons

Increased costs to your company

Although overtime can be unpaid, an employer would be somewhat ignorant to think staff will embrace working more hours than contracted with no reward. You have to pay your staff and this costs.

Encouraging employee burnout

As suggested above, regarding a decreased quality of work, staff may also be at risk of burnout. To learn more about burnout and how to avoid it in your company (and identify it in individuals) read this article by my colleague on LeaveMonitor

 

Creating an overtime policy

You need an overtime policy to ensure that you are not taken advantage of as a company, that you stay within the legal limits an employee is allowed to work and that, for an employee, they do not encourage burnout or produce sloppy work which an employer has to pay for. Here are a few suggestions about what could go into an overtime policy.

Setting maximum overtime working hours

This stops an employer haemorrhaging money on a staff member using and abusing the system for cash or, in the case of TOIL, time off. It also stops an overly-dedicated employee from burning out!

Set your rates – clearly

It should be set in stone (thus, written in your policy) exactly what your rates are. You may choose one flat rate to offer your staff, or a number of rates. For example, if an employee works overtime on a weekend (for example, manning the phones at an IT Support Helpline), you may feel they deserve a higher rate of overtime than an employee working an extra hour of overtime, 5-6pm, on a Wednesday. But, of course, this choice is down to you.

Ensure overtime is approved by a manager

You do not want disputes on payday regarding overtime. Make sure a manager signs off any overtime requests and any uncertain figures are dealt with before payday comes.

 

Summing up overtime

In summary, once you get your head around the basic maths involved with calculating overtime, this is one of the simpler articles I have written for LeaveMonitor. There is nothing really about employee benefits of overtime or why a company should introduce overtime – it is a common, staple part of work in the UK and overseas.

However, if there is one thing to take from this article, it is this: although so commonplace, it is good to review your practise of common things such as overtime every so often. Checking your current policy up against this article will ensure you stick to proper practise and ensure the best working environment for your staff and secure the most efficient outcome for you – financially as well as in relation to your hard-working staff.