How does overtime pay work in the UK (2026)?

Overtime pay in the UK is not governed by a single statutory rate, but employers must still comply with minimum wage and working time regulations.

Employers must perform a National Minimum Wage (NMW) check every pay reference period to ensure average hourly pay, including unpaid overtime, meets the £12.71 statutory rate (GOV.UK). Falling below the NMW can trigger penalties of up to 200% of arrears, capped at £20,000 per worker, plus public naming on GOV.UK.

Understanding how overtime works is essential for ensuring compliance, avoiding penalties, and maintaining accurate payroll processes.

What is overtime pay in the UK?

Overtime pay refers to any pay received for hours worked beyond an employee's normal working hours. In the UK, overtime can be paid at a higher rate (for example, time and a half), paid at the normal hourly rate, or unpaid if permitted under the employment contract. Overtime arrangements can also play a role in attracting and retaining employees.

💡 Good to know: There is no statutory right to overtime pay, but employers must still comply with National Minimum Wage regulations.

Is overtime pay mandatory in the UK?

Overtime pay is not legally required in the UK, but employers must follow the terms set out in the employment contract. If the contract states that additional hours are compulsory, employers can require employees to work beyond their usual schedule.

In practice:

• employers can choose whether to offer overtime pay;

• overtime rates must be clearly stated in contracts;

• employees cannot be forced to work excessive hours under Working Time Regulations (unless they opt out).

What is the maximum overtime employees can work?

Weekly working hours are capped at 48, calculated over a 17-week reference period, unless a valid written opt-out agreement is on file. Employees can voluntarily choose to work more than 48 hours by signing a written opt-out agreement. However, this must be a free choice: workers have the statutory right to cancel their opt-out at any time (usually by giving 7 days' notice) and are legally protected from unfair treatment or dismissal if they refuse to sign.

What are the different types of overtime?

Overtime can usually be grouped into a few common arrangements.

• Voluntary overtime: Employees choose to work additional hours at their own discretion, with no obligation from the employer. It is typically offered during busy periods and agreed on a case-by-case basis.

• Mandatory overtime: Employees are contractually required to work beyond their standard hours when the employer requests it. The obligation, and any associated pay rate, must be clearly set out in the employment contract.

• Time off in lieu (TOIL): Instead of receiving extra pay, employees accrue equivalent paid leave. TOIL can offer flexibility for both parties, particularly during peak periods, but requires a clear policy on how it is earned, approved, and when it must be taken.

• Holiday or bank holiday overtime: Some employers apply enhanced rates on bank holidays or offer an alternative day off in lieu, in line with their holiday pay and entitlement policy. The arrangement must be defined in the contract and applied consistently across comparable employees.

What do common overtime arrangements look like in practice?

The table below outlines common overtime pay types in the UK:

👉 To note: Regardless of the overtime type, employers must ensure that total pay does not fall below the National Living Wage of £12.71 per hour (from April 2026).

How does overtime pay work with annual leave?

Regular overtime can affect holiday pay. 

A key ruling by the Employment Appeal Tribunal confirmed that overtime may need to be included when calculating holiday pay in some cases. In practice, if someone regularly earns additional hours, their leave pay may need to reflect their average earnings (not only basic salary). 

Keeping accurate records of hours worked is essential: from 6 April 2026, the Employment Rights Act 2025 requires employers to retain overtime and holiday pay records for at least 6 years. Failure to do so can be prosecuted as a criminal offence (Crossland Solicitors).

What is time off in lieu (TOIL)?

TOIL (time off in lieu) is an agreement where, instead of receiving extra pay, workers get equivalent paid leave.

It can be a flexible option for both employer and employees, especially in busy periods. The key requirement is clarity: define how TOIL is accrued, how it is approved, and by when it must be taken, otherwise TOIL balances can become difficult to manage over time.

What are the rules for overtime and minimum wage?

Employers must ensure that an employee's average pay, including overtime, does not fall below the legal minimum wage. As of April 2026, the statutory rates are:

👉 To note: Even if overtime is unpaid or paid at a lower rate, the employee's average hourly pay across the pay reference period must not fall below the applicable minimum wage rate.

What happens if employers do not meet minimum wage requirements?

Failing to meet minimum wage requirements can result in significant financial penalties.

Employers may face:

• Penalties of up to 200% of arrears, capped at £20,000 per employee 

• Repayment of unpaid wages to employees 

• Public naming by HMRC 

⚠️ Warning: These penalties apply even if underpayment is unintentional. There is no general exemption for first offences, although HMRC does have discretion to reduce penalties where an employer cooperates fully with the investigation and corrects the underpayment promptly. Employers who self-report are also more likely to receive a reduced penalty. Proactive auditing of payroll records is therefore strongly recommended.

How should overtime be calculated in payroll?

Overtime should be calculated based on the employee's contract and total hours worked within a pay period. Employers should clearly define overtime rates in contracts, accurately track all hours worked, and ensure total pay complies with minimum wage rules. Using payroll software to automate calculations reduces the risk of underpayment and compliance issues.

Regular overtime must also be factored into holiday pay calculations. Holiday pay should reflect an employee's normal remuneration, which means regular or contractual overtime should be included, while occasional or irregular overtime may not need to be. Keeping accurate records of all hours worked is therefore essential for both payroll and holiday pay compliance.

What are the record-keeping requirements for overtime and holiday pay?

Employers must keep accurate records of working hours, overtime and holiday pay to comply with UK employment law.

From 6 April 2026, under the Employment Rights Act 2025, employers are legally required to:

• Keep payroll, overtime and holiday pay records for at least 6 years 

• Ensure records are accurate and accessible 

• Provide records if requested during inspections or disputes 

⚠️ Warning: Failing to keep these records can be prosecuted as a criminal offence, with unlimited fines in the most serious cases.

Can overtime be unpaid in the UK?

Overtime can be unpaid if this is clearly stated in the employment contract and the employee has agreed to those terms. Working time limits under the Working Time Regulations must also continue to be respected regardless of whether overtime is paid or unpaid.

⚠️ Warning: Unpaid overtime does not exempt employers from minimum wage obligations. Total pay across all hours worked, including unpaid overtime, must still average at or above the applicable NMW rate for that pay reference period.

How can employers manage overtime effectively?

Employers can manage overtime effectively by implementing clear processes and ensuring compliance with legal requirements.

Best practices include:

• Defining overtime policies in contracts 

• Monitoring working hours regularly 

• Using payroll software to automate calculations 

• Keeping accurate and compliant records