The average UK worker will work over 9,000 hours of unpaid overtime over the course of their career, or four hours each week - that's a whopping £150,000 worth of work.
Overtime is an inescapable part of working life for the majority of UK employees. Whether paid or unpaid, employees are accustomed to frequently staying late (whether a few minutes or a few hours) at work to finish tasks, help out during a busy period, or simply to try and impress the boss.
We're not here to judge whether this work culture is healthy or practical. That all depends on individual company culture and how overtime is managed at your business.
In general, however, there are definitely some advantages and disadvantages for employers utilising overtime. Let's take a look.
Benefits of overtime
- Prevent bottlenecks during busy periods. In businesses with seasonal variation, making use of overtime when things are busiest makes perfect sense. It helps reduce your reliance on seasonal staff, too.
- Finish tasks that can't easily be shared. It's impossible to switch delivery drivers or train guards at the end of their shift if they're running late and aren't back onsite.
- Complete tasks that would otherwise be disruptive normal business hours. Moving servers, performing maintenance on equipment and systems, or making changes to the shop's layout all cause disruption if they're carried out when everyone's at work or the store's open. Staying late or starting early is the best way to minimise problems with these tasks.
- Keep employees happy. Many employees will welcome the chance to earn extra pay. Depending on the overtime system you use, it can be a real selling point for candidates during recruitment.
Overtime is undoubtedly a useful tool for businesses, but it's not all good news.
Problems with overtime
- Employee fatigue. In most instances, overtime isn't evenly shared between employees, with a handful of staff shouldering most of the burden. While they might be pleased with their paychecks, working long shifts frequently will cause fatigue, stress and burnout. This isn't good for your employees or your business.
- Cost. If your overtime policy offers extra pay for workers exceeding their normal hours, the cost soon adds up.
- Loss of productivity. No employee is as alert at the end of a ten-hour shift as they were at the start. Reduced performance carries costs. Some employees might also work sluggishly so that they need to take overtime, netting them more pay for doing the same amount of work.
- Employee expectations and reliance. If you ever decide to adjust your overtime policies, you'll face a backlash from employees. They might be reliant on the extra pay and unable to sustain their lifestyle if you make overtime changes.
Thankfully, a smart overtime policy can reduce (if not eliminate) many of these downsides. An overtime policy may be overkill for salaried office workers whose overtime amounts to leaving at 5.10 instead of 5 each day, but it's practically essential for businesses where overtime routinely adds up to hours, not minutes.
How can you create or improve an overtime policy?
Overtime health check
First off, review your current approach to overtime. Here, you need to seek feedback from managers and employees alike.
Ask managers and supervisors some or all of these questions.
- Do you think the costs of overtime are sustainable?
- Are we risking the health of our employees through too much overtime?
- Would we be better off hiring more temporary or permanent staff instead of relying on overtime?
- Are certain roles a problem? Can we train other employees to work these roles?
- Is it 'normal' for staff to work overtime?
- Are you fully aware of the details of our overtime policy? Are employees aware?
- Do you think the current policy is too generous or too mean?
- What changes would you make to the system, and why?
Your goal here is to understand the perspectives of managers across the company, who may well see different sides of the overtime policy in action.
Your overtime system must work for employees, too - so find out what they want from it.
- What do you like and dislike about our current overtime system?
- Do you have a copy (or access to a copy) of our overtime policy?
- Do you think the policy is applied fairly?
- What changes would you make to the system, and why?
Another aspect of your overtime 'health check' is data. Try to quantify the cost of your current policy. The direct costs will be easy enough to figure out, but hidden costs such as higher stress levels and lower efficiency are more difficult to assign a figure to. Estimates will do.
It's also wise to estimate the cost of hiring employees for particular roles, whether part-time or full-time, permanent or temporary. If the recruitment cost for certain roles is less than overtime is costing you in that role, you should probably look at adding another employee to your team.
Given the difficulty of estimating the indirect costs and benefits of a particular overtime set up, it's best not to base your decision solely on your figures. Always take staff feedback into account.
You're never going to please everyone with your overtime system, but by listening to employees and managers you can draw up a policy that'll work for your business without causing too many staff complaints!
Before going ahead and drafting your new system, check that your plans won't break any laws! We're focusing on the UK in this article, so if you're based elsewhere, check local laws.
Is unpaid overtime illegal?
No. There's no legal requirement for employers to pay staff for working beyond their contracted hours.
However, these extra hours (and their pay rate) are used to calculate overall pay rate. This figure must be equal to or above the national minimum wage.
Is there a maximum amount of overtime employees can work?
Yes - but employees can opt out of this. 48 hours a week on average (across 17 weeks) is the legal maximum an employee can work for, but employees can 'opt out' of the 48-hour working week in writing.
Can employees be forced to work overtime?
Yes - but only if their contract states that overtime is compulsory. Employees also can't be forced to work beyond 48 hours a week unless they've opted out.
Can specific employees be prevented from working overtime?
Yes - unless the employee's contract states that overtime is guaranteed. Make sure you aren't discriminating against certain employees by restricting overtime. You must also treat part-time and full-time staff equally.
Does overtime count towards holiday pay?
In some instances. Guaranteed overtime must be included in holiday pay calculations.
Also, following a recent ruling, non-guaranteed compulsory overtime must now be taken into account - but note that this only applies to the EU's required four weeks of statutory annual leave, and not the UK's 5.3 weeks.
The role of voluntary overtime is less clear-cut. Some rulings suggest that it should be taken into account when calculating holiday pay, but only when the use of voluntary overtime is regular enough that it counts as a 'normal' part of an employee's pay.
However, in most instances, voluntary overtime is not included in holiday calculations.
How to write an overtime policy
Now that you've looked at the current health of your overtime system, plus your legal obligations, you can start to write (or amend) your overtime policy.
You should include an overtime clause in employee contracts and more info on your overtime policy in an employee handbook or elsewhere.
We're not lawyers, so we can't advise you on specific language - but we can share some tips on what to include.
- Whether overtime is guaranteed, non-guaranteed, and/or voluntary.
- Whether overtime is paid or unpaid, and thresholds for overtime payments.
- Whether employees are entitled to time off in lieu (TOIL), and any limits on when TOIL can be taken.
- Information on current overtime rates, and how they vary on weekends and bank holidays.
- Whether there are caps on the amount of overtime an employee can take per week, month or year.
- Whether overtime needs to be approved, and who is involved in the approval process.
- Information on rates and caps for shift workers.
- Information on how changes to the overtime system and rates are made and communicated.
Try to keep the language as clear you can - this'll prevent disputes and confusion later.
Remember: any changes you want to make to an employee's contract must be agreed by both parties.
Solving your overtime problems
Having a clear overtime policy that works for your company is only half the battle. Enforcing the policy, managing the system and evaluating it are all just as important if you're to avoid overtime woes.
Problem: Our employees are dependent on the extra income from overtime.
There is no easy answer to overtime dependency. Your staff will take a big hit however you limit overtime: whether through an arbitrary cap, hiring more employees, or reducing overtime pay rates.
However, by sticking with the same system, your business will start to attract more employees who want to take copious amounts of overtime. This isn't good for your employees' health and stress levels - or your business.
If you've started to notice overtime dependency becoming a real problem at your business, it's best to act sooner rather than later. Stop incentivizing long hours. Hire a part-time staff member to provide extra cover. Ensure your managers aren't pressuring staff to work extra hours on a regular basis.
Overtime-dependent employees won't be happy with these changes, but it's better for all involved if you change your overtime culture as soon as you can.
Problem: Our employees exaggerate hours on their timesheets to benefit from our paid overtime system.
There are two problems here: first, that employees exaggerate hours to benefit from generous overtime pay, and second - the timesheet and overtime approval process isn't stringent enough.
Solving the first issue requires a more reliable time tracking approach. We recommend using an electronic clocking in and out system to generate timesheets automatically. This significantly reduces 'time theft'.
You could also pay nothing for the first half an hour of overtime to discourage employees from staying late on a regular basis to boost their pay.
The second issue is a little more difficult to target. You could only allow pre-approved paid overtime (via a specific form), for example. Alternatively, use a time and attendance system to automatically flag timesheet records when there's a certain discrepancy between planned and actual hours worked.
Problem: Our business can't function without employees taking plenty of regular overtime - we're beginning to think this isn't sustainable.
When a business is reliant on staff regularly working through the evenings or over the weekend, it suggests that something isn't quite right. Sure, during seasonal peaks you may ask more from your staff, but if you resort to this tactic more often than not, you probably need to look at employee workload.
If you're reluctant to hire more staff, consider training staff so that they can fill multiple roles at your business. This can help you plug gaps in areas that typically struggle with workload.
Problem: We're overstaffed on some days, and understaffed on others.
You've got the staff in the roles to fulfil their workload, but they're not in the right place at the right time. This means that you're essentially paying overtime unnecessarily.
This dilemma is a result of poor employee scheduling.
Sure, you can't predict exactly when your workload will be highest, but if you're not anticipating seasonal demand (or lack of demand) and adjusting your schedule appropriately, you're placing needless stress on your staff.
If you aren't sure which shifts tend to be busiest, speak to your employees and ask them which days (or times of day) they feel most stretched. By planning your rota in advance and making seasonal adjustments as necessary, you can better spread your resources.
Time off in lieu can also help reduce the impact of seasonal variation in workload. It's important to place limits on TOIL accrual and when it can be taken, so that system can't be abused.
Overtime, whether paid or unpaid, voluntary or guaranteed, is a powerful force for businesses which manage it effectively. Mismanaged overtime, however, causes more problems than it solves. Managers must ensure that neither employees nor the business becomes reliant on regular overtime, as well as recognising when the system needs adjusting.
Formalising your approach to overtime protects you from disputes and reduces staff confusion. Given that most companies already have some kind of informal overtime policy in place, putting it on paper shouldn't be too taxing!
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