The new Acas guidance on overtime explains the different types of overtime available; the relationship between overtime and pay (including holiday pay); and how overtime interacts with other legislation which protects part-time workers and working time. This is a useful summary for lots of organisations, but particularly SMEs who may not be familiar with some of the issues arising.
Categories of overtime
The guidance sets out three categories of overtime:
- Voluntary: where there is no contractual obligation for the employer to offer overtime or for the employee to accept it. This might arise if there is a sudden, unplanned staff shortage, for example;
- Compulsory and guaranteed: where the employer is contractually obliged to offer overtime and which the employee is contractually obliged to accept. This may be necessary where an employer knows it will need extra staff every quarter, for example, to cover a regular increase in orders from a client;
- Compulsory but non-guaranteed: where the employer may or may not offer overtime but if it does, the employee must accept it. For example, farm workers may need to put in extra hours over the summer but the exact timing of it will be dependent on the weather.
It is important to identify the type of overtime that is in place, and this should be clearly set out in the employment contract. This, in turn, will impact on how an employer can deal with an employee who refuses to work overtime. If overtime is purely voluntary then there's little an employer can do. However, if it is compulsory then disciplinary action may be justified.
The guidance reminds employers that when dealing with overtime they must be aware of limits under the Working Time Regulations, in relation to working hours and minimum rest periods. In addition, working overtime may also affect pay. The guidance explains there is no statutory right to be paid for overtime worked, although many employers offer enhanced pay (such as time and a half) as an incentive. Employers that do not pay for overtime at all should be careful that this is in line with their contracts of employment and that any additional hours do not take staff below the National Minimum Wage.
Working overtime may also affect holiday pay calculations. Recent court decisions have indicated that all overtime payments should be included when calculating the first four weeks of a worker's statutory holiday pay (basic entitlement). The only exception to this is voluntary overtime worked on a genuinely infrequent basis. Overtime payments also do not need to be included for additional statutory holiday entitlement (1.6 weeks) or for any contractual holiday taken in excess of the statutory 5.6 weeks unless the contract specifies otherwise.
The differences between the types of holiday can cause confusion, and Bear Scotland Ltd v Fulton suggested that it is for employers to choose which type of leave is taken and when. To minimise any confusion, employers may want to include a clause in their employment contracts stating that the first four weeks of basic statutory leave will always be taken first.
An alternative to paying staff for overtime worked would be to allow them to take time off in lieu instead. Employers should always check they have the contractual right to do so and while this avoids the issues surrounding holiday pay for some businesses, especially SMEs, this approach may not always be practicable. For example, it may be easier to pay five hours' overtime rather than try and find a convenient time for it to be taken as leave. In addition, for small businesses it might be difficult to manage competing requests for time off and to organise staff to ensure there is sufficient cover.
Working overtime involves trust and honesty on both sides, and employers need to be careful not to inadvertently breach legislation or employees’ contractual rights. Clear contracts and policies should be in place to minimise risk and if in any doubt, legal advice should be taken.
Vicky Schollar is an associate in the employment law team at Blake Morgan LLP