A number of employers appear to be confused on the treatment of overtime and National Minimum Wage.
Some believing that overtime does not form part of any assessment of National Minimum Wage (NMW). This view is further confused by the Department for Business and Trade (DBT) online tool to check your wage.
This article and associated resources aims to help clarify the position.
Check your pay
The governments Check Your Pay web app adds to the confusion and may contain inaccuracies misleading employees and employers.
On the ‘How many hours do you work during the pay period’ it states “Do not include overtime…”.
And then on the question ‘How much do you get paid before tax in the pay period?’ It again states “Do not include payments for overtime…”.
This shows a fundamental misunderstanding of NMW regs which is also part of employer misunderstandings!
Both the time worked and the standard element of the rate paid do count towards NMW checking!
Is overtime work time for NMW purposes?
Absolutely it is, the exclusion by some employers and the web app ‘Check Your Pay’ potentially reflects a misunderstanding of regulations.
The relevant regulation applicable to overtime is set out in regulation 9 along with 10(j) which states:
Payments and benefits in kind which do not form part of a worker’s remuneration
10. The following payments and benefits in kind do not form part of a worker’s remuneration—
…
(j)payments paid by the employer to the worker as respects hours of time work or output work in the pay reference period if—
(i)there is a lower rate per hour which could be payable under the contract as respects that work (including if the work was done at a different time or in different circumstances), and
(ii)to the extent that such payments exceed the lowest rate;
…..
So what is that referring to?
Premiums rates
Overtime payments should be included in worker’s total remuneration when calculating National Minimum Wage pay.
However, for time workers, where payments are made at a premium rate above the worker’s lowest hourly rate in a particular pay reference period, adjustments must be made when calculating National Minimum Wage pay as the premium element is not included, but the base hourly rate is included as is the associated work time.
What does that mean?
So shift premiums don’t count as NMW earnings. And overtime premiums don’t count either.
So the single time payment and associated hours are used for NMW purposes (contrary to the Check Your Pay), however the addition plus part third, half or double pay do not.
The full amount paid is initially included in a worker’s total remuneration, but the value of the premium element of the pay is then reduced from the calculation of National Minimum Wage pay.
The premium rate reduction applies even where they only receive a premium rate and not their contractual standard rate. Case law has indicated that the worker’s entitlement to the National Minimum Wage applies to the worker’s standard contractual arrangement and should not rely on a worker having to work specific hours or times for which they receive some form of enhancement.
However, Where they are only entitled to be paid at a premium rate in a pay reference period, then there is no adjustment required to National Minimum Wage pay.
Confusing or what!
Must overtime hours be paid?
Employers do not have to pay workers for overtime worked. However, the average pay for the total hours worked (including unpaid work time) divided into the pay reference NMW earnings must not fall below the National Minimum Wage.
The employment contract will usually include details of any overtime pay rates and how they’re worked out.
Resources
For the resources associated with the contents of this article see:
PAYadvice.UK 17/6/2025