As a UK employer, you may rely on your team to work overtime during busy periods or to meet deadlines. However, you need to be aware of when overtime takes on a contractual nature, as this can impact your obligations around pay, leave entitlements and more.
Understanding the legalities will help you implement fair and compliant overtime policies.
Overtime refers to any hours worked by an employee beyond their normal contracted hours.
The key point is that overtime involves extra time worked, not just enhanced pay. For example, an employee on a 37.5-hour contract who works 40 hours has done 2.5 hours of overtime.
Overtime takes on a contractual nature when the extra hours become a regular and established part of an employee's role. This obligates the employee to work overtime when required.
The following examples can demonstrate a contractual expectation of overtime:
As an employer, contractual overtime requires you to pay enhanced overtime rates for the extra hours worked. You also cannot unreasonably remove overtime from an employee without consultation or compensation.
Under the Working Time Regulations, employees cannot legally be required to work more than an average of 48 hours per week over a 17-week period.
The only exception is if they have voluntarily signed an agreement opting out of the 48-hour limit.
This opt-out agreement must be done in writing for each new job. It can be for a fixed period or indefinite. However, employees can still revoke their opt-out by giving proper notice, normally between 7-30 days.
As an employer, you should not pressure staff into signing the opt-out. Doing so could potentially lead to claims of coercion.
It is also advisable to periodically review long-term opt-out agreements to ensure the employee still consents.
You should also take care that excessive overtime beyond 48 hours does not damage an employee's health or result in fatigue-related accidents.
Research shows that regularly working over 55 hours per week dramatically increases the risk of stroke, heart disease and depression.
While opt-outs provide flexibility, it is wise to develop an overtime culture that focuses on work-life balance and employee wellbeing. Some options include:
Getting opt-out agreements right is vital to stay on the right side of the law.
Consult with experts like our team to ensure your overtime policies balance employee rights with operational needs.
There is no fixed legal definition of what constitutes "reasonable" overtime. It depends on factors like the employee's role, personal circumstances, sector norms, and provisions in employment contracts.
As a rule of thumb, over time that leads to fatigue, burnout or work-life imbalance would likely be considered unreasonable. Seek HR guidance when setting overtime policies to ensure you establish expectations that are fair and realistic for your team.
Employees can generally refuse overtime that is not contractual. However, consistent refusal of voluntary overtime that colleagues undertake may damage perceptions of teamwork and reliability.
Have clear policies around voluntary overtime and address any issues through performance management. Ensure managers understand the policies to avoid unlawful disciplinary action.
It would be extremely rare and high risk for an employer to dismiss an employee solely for refusing non-contractual overtime.
This could potentially result in an unfair dismissal claim. Always follow proper disciplinary procedures and seek legal advice before considering dismissal. Understand the nature of the overtime and the reasons for refusal.
Employment contracts should specify overtime pay rates, which can match basic pay or be set at a higher premium rate.
Failure to pay correctly for overtime worked is a breach of contract and unlawful under National Minimum Wage laws. Seek payroll guidance when setting overtime pay policies to ensure compliance and fairness.
Requiring employees to do unpaid overtime is generally prohibited and high risk. Even salaried staff have minimum wage protections based on total hours worked.
Unpaid overtime should only ever be on a voluntary basis. Make sure managers understand they cannot demand unpaid overtime.
Guaranteed and regular contractual overtime must be included when calculating holiday pay, as established in cases like Bear Scotland v Fulton.
This applies to the full 5.6 weeks of statutory leave. Failing to account for overtime could open employers to claims of unlawful deduction of wages.
Whether overtime hours are pensionable depends on the rules of an employer's specific pension scheme. Often only basic pay is pensionable, excluding overtime.
However, some schemes may allow staff to make voluntary additional pension contributions from overtime earnings if they wish.
As an employer, you walk a fine line between making reasonable overtime requests and placing unlawful pressure on employees. Poorly managed overtime can easily lead to friction, burnout and legal issues.
To develop fair, compliant overtime policies:
With clear procedures understood by all, overtime can be managed effectively. Employees are more likely to cooperate when policies are transparent and fair. This minimises grievances, absences and turnover while protecting your reputation.
With decades of combined employment law and HR experience, Neathouse Partners can provide practical guidance on overtime issues and ensure that you get your overtime policies right.
We can review your approach and highlight any legal risks or improvements needed. Our HR consultants will also train your managers on implementing overtime procedures consistently across the business.
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