Overtime Not Worth It?

[Deleted member 138580]

Hi All,

I run a busy plumbing business. Most of our staff work 37.5 hours a week.

The last few weeks we've had some of our guys working on Saturday or Sunday to help out.

When they've been paid (via our Xero Payroll software) they're netting about £20 for working all day on their day off because they end up paying so much more in tax.

My workforce is now reluctant to work beyond their 37.5 hours as it's just not worth their time (and I completely agree with them to be honest!)

Could this be a miscalculation our end with our payroll software or is this just how it is?

Cheers!

 

[Newchodge]

They will have used up all their tax free allowance so all overtime pay will be taxed at 20% (or more if they are higher rate tax payers) and 12% NI (or less if their earnings go over £962 per week). So losing 32% in deductions plus at least 5% pension contributions. There is nothing you can do about that. You could pay them premium rates but the deduction % will remain the same.

 

[Deleted member 138580]

OK thank you for the reply.

Could they have used up all of their Tax Free Allowance since April? (assuming it's worked from April to April?)

 

[Newchodge]

OK thank you for the reply.

Could they have used up all of their Tax Free Allowance since April? (assuming it's worked from April to April?)

The tax free allowance is cumulative, so an allowance of 12,000 is used at the rate of 1,000 per month. If they pay any tax on their standard monthly (or weekly) pay, they have used up that period's tax free allowance.

 

[MikeJ]

Even so, a 7 hour day means they're netting less than £3 per hour. They'd need to be losing over 50% if they're just getting minimum wage? That can't be right?

 

[Darren_Ssc]

I used to work for a shopfitting company,many moons ago, and overtime of 8 hours or more a day was standard. Some labourers were on the 40% threshold (this is over ten years ago) and it would be sometimes difficult to get them to work weekends because they thought they were losing it all in tax.

Trying to explain how PAYE worked and that it all balances itself over a year was a waste of time and effort.

 

[Mr D]

say 40 percent tax rate for the overtime and paying national insurance - for 20 pounds they would be earning just over 40 pounds for the day.

if they are not on 40 percent tax rate for the overtime then the figure look even more odd - earning just 30 quid for the day.

minimum wage for adult over 25 is 8 pounds 21 now - a 6 hour day at base rate would be almost 50 pounds, a full day would be over 65.

 

[Newchodge]

7 hours min wage = £57.47
Tax @ 20% = -11.50
NI @ 12% = - 6.90
Pension @ 5% = - 2.88

Nett = £36.19

Employee exaggeration = -16.19 - every employee will exaggerate how little they are left with after deductions.

 

[pentel]

I don't know of any plumbers earning minimum wage.

Most companies would pay either time and a quarter or time and a half for overtime.

We pay time and a half in the week. Time and half for first 4 hours on a Saturday. Double time after that and for any Sunday working.

Having said that we do try to organise our work so that not a lot of overtime is worked

 

[WaveJumper]

Plumbers on minimum wage that's got to be a first. Either general works need to be planned over the week better, and weekend working is for emergency call outs only. And any emergency call out I have ever known comes at a premium rate.

Either that or you need too have some sot of rota system in place so there's is always cover at weekends.

 

[Jeff FV]

7 hours min wage = £57.47
Tax @ 20% = -11.50
NI @ 12% = - 6.90
Pension @ 5% = - 2.88

Nett = £36.19

Employee exaggeration = -16.19 - every employee will exaggerate how little they are left with after deductions.

I hesitate to correct @Newchodge ’s figures, but I think they are better (for the employees) than those given above.

The pension contribution should be subtracted before the tax, thus reducing the taxable amount, therefore they will pay less than the £11.50 tax quoted above. I think they’ll take home an extra 50p or so based on the figures above.

 

[Newchodge]

I hesitate to correct @Newchodge ’s figures, but I think they are better (for the employees) than those given above.

The pension contribution should be subtracted before the tax, thus reducing the taxable amount, therefore they will pay less than the £11.50 tax quoted above. I think they’ll take home an extra 50p or so based on the figures above.

Yes, that's right, thanks.

 

[Deleted member 138580]

Thanks for the replies everyone.

Just to clarify, we do pay double time with a minimum of hour 1 hour pay for emergency call outs. We are talking here about project work, with the employees in question earning £12-13 per hour.

 

[WaveJumper]

Out of interest what part of the country are you working in

 

[Deleted member 138580]

South West

 

[Newchodge]

Thanks for the replies everyone.

Just to clarify, we do pay double time with a minimum of hour 1 hour pay for emergency call outs. We are talking here about project work, with the employees in question earning £12-13 per hour.

Then they must be higher rate tax payers, or the figures are wrong. Have you manually checked the payroll calculations for, for example, 2 or 3 of them, just to make sure there is no glitch?

 

[Chris Ashdown]

If they earn enough to have the standard of living they enjoy, maybe they value the free time higher that the overtime and just use the tax as a easy way to explain it rather than they just want to stay away from work, A happy whife and children is worth what in £

 

[Hash and Bash]

The figures do seem low.
I put the figures in an online pay calculator based on £13 ph, 37.5hours normal, 7.5 hours overtime per week and 5% pension contributions and it came out with:
Take home (no overtime) £384.72 per week
Take home (7.5 hours at 2x) £499.92 per week
That is an additional £115.20 per week (£15.36 per hour overtime worked).