New guidance concerning overtime produced by ACAS

ACAS has recently issued new guidance in relation to overtime.

What is overtime?

Overtime is defined as any additional hours worked beyond a worker’s fixed contractual working time or hours worked outside of regular full-time requirement of the business. It often occurs when there is a higher than normal demand for goods or services, such as large customer orders or seasonal market demands.

It is good practice for details of whether there is a requirement for a worker to work overtime included in the contract of employment or employee handbook. It should be noted that the Working Time Regulations apply to overtime as well as a worker's normal hours.

Types of overtime

Overtime can be classified into three categories:

• Voluntary – where no employer obligation exists whether to offer overtime, nor for the worker to accept it.
• Compulsory and guaranteed – where the employer is contractually obliged to offer overtime and the worker has to accept it.
• Compulsory but not guaranteed – where the employer is not contractually obliged to offer overtime, but the worker must accept it.

Overtime payment

There is no legal obligation on the employer to pay a higher rate for overtime than the worker's standard hourly rate, however, it might be offered as in incentive. Again, it is good practice for any information in relation to the amount paid for overtime should be outlined in terms and conditions of a worker’s contract. It is important to note that although overtime can be worked for no additional pay, the hourly rate of a worker cannot fall below the National Minimum Wage.

Alternatively, a worker might be offered time off in lieu in return for additional hours worked. Time off in lieu is any overtime hours worked by the worker they can take off from work, in addition to their annual leave entitlement. However, employers need to be mindful that by doing so, the worker’s hourly rate does not fall below the National Minimum Wage for that Pay Reference Period as this will result in an NMW breach.

Effect of overtime on holiday pay

Recent Employment Tribunal cases have brought to light that all overtime worked should be included when calculating a worker's statutory holiday pay entitlement, with the exception of occasional and infrequent overtime.

More information on calculating holiday pay can be found in our previous news items:

Aspire's guide to calculating holiday pay

Voluntary overtime to be included in holiday pay calculation

European Court of Justice rules worker can claim for 13 years of holiday pay

If you are concerned about your workers’ terms and conditions of employment or need advice on calculating holiday pay and National Minimum Wage compliance, do get in touch with Aspire to discuss how we can help prevent financial risks to your business.