UK needs to rethink overtime, claims the Resolution Foundation

Only half of those working overtime received a premium for it, claims the Resolution Foundation
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One in 10 workers did paid overtime in the UK in the past year but only a fifth received “time and half” or more for working those hours.

Paid overtime plays a key role in the labour market, yet it barely features in the public debate about employment, despite 2.6 milliion people working overtime in their jobs, three times as many as are on zero-hours contracts.

Research from the Resolution Foundation think tank found that the share of employees doing paid overtime has fallen in recent decades, from 17% in 1997 to 10% last year.

Overtime pay has also fallen. Just half of those doing paid overtime enjoyed a premium of at least 10%, down from 61% 20 years ago. Only 20% of those doing overtime received “time and a half”, down from 25 per cent.

Conor D’Arcy, senior policy analyst at the Resolution Foundation, said: “Paid overtime is a massive workplace issue for millions of workers, and yet it enjoys a fraction of the attention given to more niche areas like the gig economy.”

He suggests this could be because it is more prevalent outside London, and in more traditional sectors such as manufacturing and agriculture.

The importance of overtime varies greatly across sectors and occupations. It is much more common in transport, where 17% of employees work paid overtime, and manufacturing (14%) than education (4%). The East Midlands has the highest share of employees doing overtime (11%), while London has the lowest (7%).

The research found that workers in hospitality enjoy the highest typical overtime premium at 34%. In contrast, more than half of retail staff working paid overtime now receive no premium at all. Workers in Scotland enjoyed the highest typical overtime premiums at 19%, followed by the North East (17%), while in London it was zero.

“While paid overtime is popular, it’s far less lucrative than it used to be. Only a minority of workers still enjoy the traditional ‘time and a half’ pay premium,” said D’Arcy.

“The Taylor Review has rightly suggested addressing this for workers on the minimum wage. When the Government responds in the New Year, it should go even further and trial minimum overtime premium rates for other low paid workers.

“Minimum premium rates for overtime already operate effectively in countries like the US. Looking at such options here in Britain could bring a much needed income boost at a time when workers are in the midst of a 20-year pay downturn.”

The Resolution Foundation said the sheer scale of paid overtime means it deserves a more prominent role in the debate about reforming Britain’s labour market.

Its report welcomes Matthew Taylor’s proposals in his Review of Modern Working Practices for a new minimum wage premium for non-guaranteed hours.

The think tank recommends that, when the Government responds to the review in the New Year, it should examine not just Mathew Taylor’s minimum wage policy suggestion, but also what other countries do by considering the rights of workers further up the pay scale as well.

The report – Time for Time and Half? – notes that other countries have adopted a range of overtime policies, including:

  • A maximum number of hours permissible (Spain);
  • The right to refuse extra hours without detriment (New Zealand);
  • Minimising ‘surprise scheduling’ (New York, USA);
  • Premium for any overtime hours worked (Austria);
  • Premium for workers with non-guaranteed hours (Australia).

The Resolution Foundation believes the Government should pilot an overtime pay premium that applies not just to those on the minimum wage but to a wider range of low and middle earners. This would help discourage firms from using contracts that do not reflect the actual hours individuals work, and provide an income boost to workers who do paid overtime to top up their contracted hours.

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