How to Calculate Overtime Pay in the UK: Complete 2026 Guide

Overtime pay in the UK is one of the most commonly misunderstood areas of payroll compliance. Unlike some countries, the UK has no statutory requirement to pay a premium rate for overtime — but there are critical rules you must follow to stay compliant.

This guide walks you through everything you need to know about calculating overtime pay correctly.

What the law actually says about overtime

The key legal requirement is straightforward: when you average out an employee's total pay (including overtime hours), their hourly rate must not fall below the National Minimum Wage. This catches out more employers than you might expect.

Step-by-step: Calculating overtime pay

Step 1: Determine the employee's base hourly rate

Divide their annual salary by their contracted annual hours. For a standard 37.5-hour week:

£25,000 ÷ (37.5 × 52) = £12.82 per hour

Step 2: Check your employment contract

Your employee's contract should specify whether overtime is paid, and at what rate. Common arrangements include:

Step 3: Verify minimum wage compliance

Add up total hours worked (contracted + overtime) in the pay reference period, then divide total pay by total hours. The result must meet or exceed the current National Minimum Wage rate.

Step 4: Apply correct tax treatment

Overtime pay is subject to Income Tax and National Insurance in the same way as regular pay. It should be processed through your normal payroll run.

Frequently asked questions

Next steps

Key takeaways

Overtime pay compliance comes down to three things: making sure your contracts are clear, ensuring average hourly pay stays above minimum wage, and processing overtime through payroll correctly. Get those right and you avoid the most common pitfalls.

If you are unsure about your current setup, run the numbers through our Payroll Tax Calculator and review your employment contracts. Five minutes of checking now can save thousands in tribunal costs later.