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Overtime Payroll in the UK: A Guide for Overseas Employers

Hiring employees overseas means that you need to familiarize yourself with host country employment and payroll laws, because your home country rules will not apply in foreign countries.  This holds true for both expats and local resident employees.

If you have employees in the UK, you may find this guide to overtime payroll helpful, so that you are calculating and paying overtime in accord with UK rules.  Working hours in the UK (including Scotland) are governed by statute, the Working Time Regulations 1998 (WTR), which apply to both full-time and part-time employees.

Statutory Working Hours in the UK

Under the WTR the statutory working hours in the UK are 9am – 5pm, Monday to Friday, which equals 40 hours per week.  Any time worked beyond that is technically overtime, which the employer can elect to pay or not since it is not mandated by statute.

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Rate Per Hour in the UK

If you are going to pay overtime, then you will need to use a rate per hour.  One question that comes is how to calculate the rate per hour for salaried employees.  The formula takes the annual salary divided by 52 weeks, and that weekly amount is divided by 40 hours.

Overtime Hours in the UK

Overtime is based on time worked beyond the statutory or contractual normal working hours per week.

Maximum working hours in a week in the UK

Under the WTR, workers in the UK cant be asked to work more than an average of 48 hours per week, whether paid as overtime or not.

Calculating Average hours in the UK

The average for maximum allowable hours is calculated using a statutory 17 week period, which includes work-related training, travel, and working lunches.  However, it does not include commuting time, lunch breaks, and off-site or evening classes.  The average may be calculated over a longer period if there is collective agreement, up to a maximum of 52 weeks.

Opting Out

By signing a written agreement, most workers can agree to work longer than the 48-hour limit. They can cancel this opt-out agreement whenever they want as long as they give their employer at least seven days’ notice.

Case Example: How and When to Pay Overtime in the Payroll

We have a client with employees in the UK, and they wanted to know how and when to pay overtime in the payroll.

Can overtime be paid in arrears the following month?

If you choose to pay overtime (its not required) and it has been authorized, it can be paid in arrears with the following payslip (i.e. June overtime included in July payslip).

How is the overtime amount and rate calculated? Is it 1.5 times the salary and only for hours over 40 per week?

The overtime is hours worked beyond 40 per week, and the rate is the basic hourly salary rate (no excess multiple).  We also let them know that the overtime can be taken as time off in lieu of payment.

The Shield GEO Solution

This example illustrates how something as simple as paying overtime for overseas employees can turn into a confusing and frustrating task.  This is the type of issue that Shield GEO assists our clients with, by running payroll through our local employer of record, who can advise on and calculate every aspect of compensation for employees.  This way, you will know that your employees are being paid accurately and in compliance with local regulations.

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