Is Overtime Calculated Into My Redundancy Pay?

How Redundancy Pay Is Calculated

The traditional nine to five working pattern is no longer the norm for many employees in the UK. Shift work, variable hours and regular overtime mean that weekly earnings can fluctuate significantly from one pay packet to the next.

This raises a practical question when redundancy comes around: does your redundancy pay reflect the hours you actually work, or just your basic contracted wage?

Statutory redundancy pay is based on what the law calls a "week's pay". For employees with fixed hours and steady earnings, this is straightforward. For those whose income varies due to overtime, commission or irregular shifts, the calculation may become more complex.

Your entitlement depends on three factors: your age, your length of service, and your weekly pay. The formula works as follows:

• Half a week's pay for each full year of service while you were under 22
• One week's pay for each full year of service while you were aged 22 to 40
• One and a half weeks' pay for each full year of service while you were 41 or older

There's a limit to how much weekly pay can be considered in this calculation, and the maximum number of years that count is 20. Both figures are updated annually, so always check GOV.UK for the current limits before making any assumptions about your entitlement.

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When Overtime Counts Towards Your Pay

Whether overtime is included depends on the nature of your contract and working pattern. The key distinction is between guaranteed overtime and voluntary overtime.

If your contract requires your employer to offer overtime and requires you to work it when asked, this is usually treated as guaranteed overtime. Under the Employment Rights Act 1996, contractual overtime that has been agreed between you and your employer should generally be included in redundancy calculations, even where the hours themselves are not guaranteed week to week.

Voluntary overtime is different. If you are free to turn down extra shifts and your employer is not obliged to offer them, this type of overtime may not be included. However, the reality can be more nuanced. Where voluntary overtime has been worked regularly over a sustained period, it may still be taken into account when calculating average earnings.

For employees with variable pay, the law requires an average to be taken. This is usually calculated over the 12 weeks before the date your redundancy notice is given. If any of those weeks had no pay, earlier weeks are included to complete the 12 week reference period. Those who were furloughed or on reduced hours may find that special rules apply to their calculation, so it is worth checking the current guidance.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Bonuses and Other Variable Payments

Similar principles may also apply to bonuses. A contractual bonus that you are entitled to receive may form part of your week's pay. A discretionary bonus, which your employer can choose whether or not to award, is less likely to be included.

Commission payments are often treated as part of normal earnings if they are a regular feature of your pay. Evidence of consistent payments over time, such as historical payslips showing regular commission, can help establish this pattern. Again, an average will be calculated where earnings fluctuate.

The distinction between what is contractual and what is discretionary is not always obvious. If you are unsure, your contract of employment and any written bonus scheme documents will usually provide the answer. In cases of genuine uncertainty, seeking advice from ACAS or a solicitor can help clarify your position.

What To Do If You Think Your Pay Has Been Miscalculated

Employers do sometimes get redundancy calculations wrong, particularly where overtime or variable pay is involved. If you believe your payment is lower than it should be, start by asking your employer to explain how they arrived at the figure.

Request a breakdown showing the weekly pay amount used, the years of service counted and any caps that have been applied. Compare this against your payslips and contract.

If there is a discrepancy you cannot resolve informally, you can raise a formal grievance. Should that not lead to a satisfactory outcome, you may be able to bring a claim to an employment tribunal. There are strict time limits for tribunal claims, usually three months less one day from the relevant date, so do not delay if you intend to pursue this route.

ACAS provides free guidance on redundancy rights and can assist with early conciliation before any tribunal claim proceeds. You can contact them through their website or helpline. GOV.UK also has a redundancy pay calculator that can help you estimate your statutory entitlement based on your own circumstances.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Redundancy Pay Calculator lets you find out how much statutory redundancy pay you could be entitled to. Enter your details and get an estimate in less than a minute. Try it now →