Mandatory premium overtime pay ‘will help’ tackle Britain’s labour market challenges

Panel event hears government is expected to reform overtime rules to combat low pay

With 2.6 million employees working paid overtime – totalling one billion hours a year – three times that number on zero-hours contracts and rising income insecurity, the problems of poorly paid and inadequately regulated overtime in the UK must be faced to tackle a national crisis in living standards, according to the Resolution Foundation think tank.

Who bears the risk of insecurity within Britain’s labour market was a key question debated by a panel of experts at an event hosted this week by the foundation, based on its new research on the impact of a higher minimum wage premium for overtime workers in Britain.

The panel, led by MP Ed Miliband, heard that many workers depend on overtime as an important component of their weekly wages, raising concerns about living standards. One in 10 employees regularly worked overtime and, in April 2016, overtime pay typically represented at least 12 per cent of the total earnings of employees working overtime.

The pay premium associated with overtime working has declined – just half of employees doing overtime in 2016 were paid at least 10 per cent more than their standard hourly wage – while the number of employees paid for overtime has also fallen in recent decades.

A lack of focus on overtime has left the UK at odds internationally. Whereas other countries restricted how much overtime can be worked, protected their affected employees or required certain employees to be guaranteed a minimum pay premium above their regular wage when undertaking overtime, Britain lacked any of these restrictions, the Resolution Foundation argued.

Advocating for major change, former Labour leader Miliband told the panel there was a crisis in the country over people’s living standards because workers were bearing the riskier elements of the economy: “We can either tweak it around a bit, or make major change. The starting point is the crisis we face in wages.” Although Britain’s work problems were dressed up as a productivity debate, that was not the real issue, he said.

Panellists – including Matthew Taylor, RSA chief executive, Liz Banks, director of communications and research at the Recruitment & Employment Confederation, Sarah O’Connor, employment correspondent at the Financial Times and Conor D’Arcy, Resolution Foundation’s senior policy analyst – debated whether an overtime boost would really help solve the current labour market problems.

Premium pay (time and half or a boost on top of hourly rates), or a higher minimum wage for non-guaranteed hours for overtime, were among the ideas Taylor proposed in his government-commissioned report, Good Work: The Taylor Review of Modern Working Practices, earlier this year. A limit on overtime was “not right for the UK’s labour market” but greater protection would be welcomed, it said.

Miliband pointed out that Austria, Belgium, France, Norway, France, the Netherlands, Poland, Sweden, the US and China all have rules on overtime, but the UK did not. Mostly, these countries offered a 50 per cent premium for overtime.

Miliband said he would support the introduction of an overtime premium “generally applied across the economy”, phased in over five years by the Low Pay Commission.

The real problem, Miliband said, was that inequality in the labour market meant many people on low wages and zero-hours contracts were exploited. “The post-war bargain was that risk was shared between the government, the employer and the employee. That risk is increasing as the burden has shifted to the employee – which has created insecurity,” and other problems, he said.

“I would get rid of zero-hours contracts altogether – I don’t think they should exist,” he added. It was impossible to plan life on a four-hour contract: “If it’s not good enough for us, it’s not good enough for anyone else either.

"There is a brutality to the labour market that we can’t ignore; it is the day-to-day reality for lots of people. We shouldn’t dress it up as ‘flexibility’ when it is really exploitation for many people."

Miliband and O’Connor agreed that overtime pay was not the only solution to many problems workers currently face. Banks, which represented agency workers, argued that it would be better to simply raise the minimum wage rather than boost overtime.

Another solution was the US model, which involves a fixed percentage paid above the standard rate. As to zero-hours work, US law requires employers to fix schedules and inform workers at least a fortnight in advance about any later change, which would require a compensation payment.

The panelists agreed, however, that a major problem was that some employers tended to always find ways around any new legislation or rule designed to alleviate exploitation. One large organisation had, for example, dealt with the laws introduced to assist workers doing night shifts by redefining ‘night’ to start at 12am rather than 10pm, avoiding paying workers more, said O’Connor.

O’Connor said the question of work insecurity was the core issue. It was “really pressing” that “you can have a job and have no idea what hours you do each week”, or be texted the night before about a shift.

The key was to make employers think more carefully about when they transfer risk and how they pay for it.

Taylor said he was confident that the government would soon implement at least a ‘pilot’ scheme on overtime pay premiums, following his report.