Overtime
When I first started working in a full-time role, I noticed how quickly my hours could pile up during busy periods. Whether it was staying late to finish a project or coming in on weekends, the prospect of earning extra money through overtime seemed appealing. But it wasn't long before I realised there's more to overtime than just the extra pay—it's important to understand how it's taxed, how it's calculated, and whether it's worth your time.
In this post, I'll explain everything you need to know about overtime pay in the UK and help you decide whether those extra hours are worth it.
What Is Overtime?
Overtime refers to the additional hours you work beyond your contracted hours. Typically, full-time employees work 37.5 to 40 hours per week. Any hours you work above this threshold may be considered overtime.
- Standard Overtime Rate: This is often your regular hourly rate.
- Enhanced Overtime Rate: Some employers pay more for overtime, such as 1.5x (time and a half) or 2x (double time) your regular hourly wage.
Do Employers Have to Pay Overtime in the UK?
No, there's no legal requirement for employers to pay extra for overtime. However:
- If your average hourly rate falls below the National Minimum Wage when overtime is factored in, your employer must pay enough to meet the legal minimum.
- Some employers offer "time off in lieu" (TOIL) instead of paying overtime.
It's always a good idea to check your employment contract to see your employer's specific policy.
How Overtime Is Calculated
Here's a quick example to show how overtime pay might work:
- Regular hourly rate: £12
- Standard week: 40 hours
- Extra hours worked: 5
- Overtime rate: 1.5x regular rate
- Overtime calculation: 5 hours × (£12 × 1.5) = £90
Total weekly pay: £480 (regular) + £90 (overtime) = £570
How Is Overtime Taxed?
This is where it gets interesting. Many people assume overtime pay isn't taxed, but that's not true. Overtime is added to your gross salary and taxed at your marginal rate. Let's break it down:
1. Income Tax
Overtime earnings are taxed at the same rate as your regular income:
- 20% (Basic Rate) for earnings between £12,571 and £50,270
- 40% (Higher Rate) for earnings between £50,271 and £125,140
- 45% (Additional Rate) for earnings over £125,140
2. National Insurance (NI)
Class 1 NI contributions apply to overtime earnings:
- 12% for income between £12,570 and £50,270
- 2% for income above £50,270
How to Calculate Overtime After Tax
Example: £40,000 annual salary with 10 hours overtime at time and a half (£18/hour)
- Gross overtime pay: £180
- Income Tax (20%): -£36
- National Insurance (12%): -£21.60
- Net overtime pay: £122.40
Strategies to Make the Most of Overtime
1. Negotiate Enhanced Rates
If overtime is optional, try negotiating higher rates, especially if your skills are in demand.
2. Track Your Hours
Keep a record of your overtime hours to ensure you're being paid correctly.
3. Consider Tax-Free Alternatives
If you're consistently working overtime, discuss salary sacrifice options like increased pension contributions. These reduce taxable income.
4. Don't Burn Out
Earning extra money is great, but not at the expense of your health. Consider your long-term well-being before committing to excessive overtime.
When Is Overtime Worth It?
The decision to work overtime depends on your financial needs and personal priorities. If you have short-term financial goals like paying off debt, saving for a holiday, or building an emergency fund, overtime can be a great way to earn extra money quickly. However, if you're already in the higher tax bracket, a significant portion of your overtime pay will go to taxes, so it may not always feel worthwhile.
Conclusion
Overtime can be a fantastic opportunity to boost your earnings, but it's important to understand how it's calculated, taxed, and whether it aligns with your financial goals. Always check your employment contract for overtime policies and use tools like takehomecalculator.co.uk to see how much of your hard-earned overtime pay you'll actually take home. After all, your time is valuable—make sure you're using it wisely!