The problem is stark. Despite the UK’s robust national minimum wage framework, millions of workers are effectively earning below the legal minimum through unpaid overtime. This hidden crisis threatens the very foundation of worker protection laws and demands urgent attention.
I have previously written about ‘Shadow Hours’, those hours worked by managers and senior managers undertaken to ‘get the job done’. However, further down the employment ladder, unpaid overtime, taken as time off in lieu, can and does have a significant impact on the effective rate of pay for employees. I therefore make no apology for the length of this blog as I fully explore the problem, look at the current NMW rates and how this problem must be addressed
The UK’s National Minimum Wage system, established in 1999, was designed to provide a safety net for workers and ensure fair compensation for all hours worked. Yet beneath the surface of this protective framework lies a troubling reality that undermines these hard-won protections. Recent analysis reveals that unpaid overtime is not just an inconvenience; it’s a systematic erosion of minimum wage protections affecting millions of workers across the country.
The scale of the problem
The numbers are staggering. According to the latest Trades Union Congress (TUC) analysis, UK workers provided £31 billion worth of unpaid overtime in 2024, with 3.8 million people putting in an average of 7.2 unpaid hours per week. For these workers, this equates to approximately £8,000 per year in unpaid wages.
This represents a significant increase from previous years, with the TUC noting that employers claimed £26 billion of free labour in 2023, showing a worrying upward trend.
The scale of unpaid overtime has grown substantially over the past decade, creating what amounts to a parallel economy of free labour that operates alongside the formal wage system.
The impact extends far beyond individual workers. When millions of employees work for free, it distorts labour markets, creates unfair competition between businesses, and undermines the fundamental principle that all work should be fairly compensated.
How unpaid overtime breaches minimum wage law
The relationship between unpaid overtime and minimum wage violations is more complex than it might initially appear. While employers are not legally required to pay workers for overtime, average pay for the total hours worked must not fall below the National Minimum Wage.
This creates a crucial calculation that many employers and workers overlook.
When determining minimum wage compliance, employers must track the total number of hours worked by employees, including regular work hours and any overtime, to calculate their average hourly rate. The total annual pay must be divided by the number of hours worked over the year to ensure compliance with legal
requirements.
Consider this real-world example from recent analysis;
A worker paid an annual salary of £45,000, contracted to work 40 hours per week, working a single hour of unpaid overtime each day, would exceed their annual hours in month 11 and breach minimum wage requirements by month 12 if no top-up payment is made.
This problem is particularly acute for salaried workers, where compliance is calculated by dividing the total salary by the total hours worked, making the calculation problematic when employees work significantly more hours than their contracts specify.
Time taken off in lieu of overtime worked
This is an area most employers overlook. When an employee works extra hours under a TOIL arrangement, those hours are counted toward their total working time for minimum wage calculation purposes. However, the compensation (time off) may not be received until a later pay period.
Example Scenario:
- Employee works 40 contracted hours plus 5 TOIL hours in week 1
- Employee takes 5 hours off in week 3
- For minimum wage purposes, week 1 shows 45 hours worked with pay for only 40 hours
- This could result in the hourly rate falling below minimum wage
The risk of non-compliance
If the total pay divided by total hours worked (including TOIL hours) falls below the National Minimum Wage rate, the employer is in breach of minimum wage law. This can occur even if the employee eventually receives time off equivalent to the extra hours worked.
Current minimum wage rates and the growing gap
The stakes have never been higher. From April 2025, the National Living Wage for workers aged 21 and over increased to £12.21 per hour, with the 18-20 age group rate rising to £10.00 per hour, and the 16-17 age group and apprentice rates both increasing to £7.55 per hour.
These increases, while welcome, also heighten the risk of minimum wage breaches through unpaid overtime. The 6.7% increase in the minimum wage is much higher than the rate of inflation, reflecting the government’s commitment to ensuring wages reflect the cost of living. However, this protection is meaningless if workers are providing free labour that reduces their effective hourly rate below these thresholds.
The government’s intention to align the National Minimum Wage and National Living Wage to create a single adult wage rate further emphasises the importance of ensuring all workers receive fair compensation for all hours worked.
Sectors most affected by unpaid overtime
The burden of unpaid overtime is not evenly distributed across the economy.
Analysis by the TUC established £26 billion worth of unpaid overtime. Teaching leads with 38% of workers doing unpaid overtime, followed by health and care managers at 35%. This concentration in public services highlights how staffing pressures and resource constraints contribute to the problem.
In 2023, public sector workers contributed £11 billion worth of unpaid overtime, with 1 in 6 public sector workers (16.7%) doing unpaid overtime compared to 1 in 9 (11.9%) in the private sector. This disparity reflects the unique pressures facing public services, where workers often feel compelled to work additional hours to maintain service quality despite inadequate staffing levels.
Professional and managerial roles also feature prominently in unpaid overtime statistics. Chief executives, managers and directors feature strongly in unpaid overtime statistics, suggesting that the additional responsibilities of senior staff are not properly managed by employers.
Regional and demographic variations
Geographic location significantly impacts unpaid overtime patterns. London has the highest proportion of workers doing unpaid overtime at 17%, compared to 13% nationally. This concentration in the capital likely reflects the higher cost of living and competitive pressure in London’s job market.
Gender differences in unpaid overtime are relatively small but notable. Women and men are similarly likely to work unpaid overtime, with 13.2% of women working unpaid overtime compared to 13.1% of men, though women who do unpaid overtime work 6.8 hours per week compared to 7.5 hours for men.
The enforcement challenge
HMRC’s enforcement of minimum wage law has intensified significantly in recent years. During 2023, HMRC imposed £13.7 million in penalties following National Minimum Wage enforcement action, with more than 108,000 workers receiving minimum wage arrears after investigations.
The penalties are substantial and designed to deter non-compliance. The penalty for pay reference periods starting on or after 1 April 2016 is double the total underpayment (200%) for all workers, with a maximum penalty of £20,000 per worker. However, recent tribunal decisions have confirmed that while there is a statutory cap of £20,000 per underpaid worker for each penalty notice, there is no limit on the number of penalty notices HMRC can issue for different periods.
Despite this enforcement activity, the challenge of identifying unpaid overtime violations remains significant. How would HMRC establish what additional hours employees have worked, for which they have not been paid? This enforcement difficulty may explain why unpaid overtime continues to grow despite increased penalties.
The broader economic impact
The economic implications of widespread unpaid overtime extend far beyond individual workers. When businesses systematically undercompensate workers through unpaid overtime, it creates several problematic effects:
Market distortion: Companies that rely heavily on unpaid overtime gain an unfair competitive advantage over those that properly compensate all working hours. This distorts pricing and creates pressure on ethical employers to reduce compensation or face competitive disadvantage.
Reduced consumer spending: Workers effectively earning below minimum wage have less disposable income, reducing consumption and economic growth. The £31 billion in unpaid overtime represents £31 billion in lost consumer spending power.
Tax revenue loss: Unpaid overtime represents untaxed income that should contribute to public finances through income tax and National Insurance contributions. This hidden economy reduces government revenue and shifts the tax burden onto compliant taxpayers.
Productivity concerns: Widespread unpaid overtime may mask underlying productivity and efficiency problems. When additional output can be achieved through free labour, there’s less incentive to invest in training, technology, or process improvements.
Legal frameworks and worker rights
The legal framework surrounding unpaid overtime and minimum wage compliance involves several key pieces of legislation:
- The Working Time Regulations 1998 establish that employees cannot work more than 48 hours per week unless they voluntarily opt out, and employees under 18 cannot work more than 40 hours per week or 8 hours per day. However, these protections are meaningless if additional hours are unpaid and effectively reduce workers below minimum wage thresholds.
- The National Minimum Wage Act protects workers’ rights to be paid a minimum wage on an hourly basis, regardless of how many hours they work. This creates a clear legal obligation for employers to ensure that unpaid overtime does not reduce effective hourly rates below statutory minimums.
For workers seeking redress, if employers have continuously avoided paying for overtime, workers can claim up to two years of unpaid overtime through employment tribunals. However, the practical challenges of proving unpaid hours and the potential career consequences of pursuing claims may deter many workers from seeking remedies.
Recommendations for reform
Addressing the unpaid overtime crisis requires comprehensive reform across multiple areas:
Enhanced record-keeping requirements: The TUC notes that “part of the problem is that some employers fail to record the overtime staff do. And when they don’t record it, they don’t pay it”. Mandatory digital time recording systems could help ensure all working hours are properly documented and compensated.
Strengthened enforcement: While HMRC has increased enforcement activity, the scale of unpaid overtime suggests current efforts are insufficient. Increased resources for compliance officers and more proactive industry-wide investigations could help identify systematic problems.
Sector-specific interventions: Given the concentration of unpaid overtime in public services and certain professions, targeted interventions addressing staffing levels and workload management could reduce the pressure for unpaid overtime.
Worker education: Many workers may not realise that unpaid overtime could constitute minimum wage violations. Comprehensive education campaigns could help workers understand their rights and identify potential breaches.
Employer guidance: Clear guidance helping employers understand their obligations regarding unpaid overtime and minimum wage compliance could prevent inadvertent violations and encourage proactive compliance.
The path to reform
The intersection of unpaid overtime and minimum wage law represents one of the most significant challenges facing UK employment law today. As minimum wage rates continue to rise and enforcement activity intensifies, the pressure on employers to properly account for all working hours will only increase.
The government’s commitment to worker protection, evidenced by substantial minimum wage increases and enhanced enforcement powers, provides a foundation for addressing this crisis. However, meaningful reform will require coordinated action from employers, unions, enforcement agencies, and policymakers.
For Workers
- Understanding your rights regarding unpaid overtime and minimum wage protection is crucial.
- If you regularly work unpaid overtime, calculate whether your effective hourly rate falls below minimum wage thresholds
- Don’t forget that this includes time off in lieu of additional hours worked.
- Consider seeking advice from unions or employment rights organisations.
For Employers
- Review your practices regarding overtime recording and compensation.
- Ensure that any unpaid overtime does not reduce workers’ effective hourly rates below minimum wage requirements
- Consider whether current workloads are sustainable without relying on unpaid labour.
For Policymakers
- The scale of unpaid overtime suggests that current legal frameworks may be insufficient to address this systemic problem.
- Consider whether additional protections, enhanced enforcement powers, or sector-specific interventions are necessary to ensure meaningful compliance with worker protection laws.
The £31 billion worth of unpaid overtime provided by UK workers in 2024 represents more than just missing pay; it represents a fundamental undermining of the minimum wage system designed to protect workers from exploitation. When millions of workers effectively earn below the legal minimum through unpaid overtime, it calls into question the effectiveness of our entire framework of worker protection.
The solution requires recognition that unpaid overtime is not simply a workplace culture issue but a legal compliance problem with serious economic consequences. Only through comprehensive reform, enhanced enforcement, improved record-keeping, better worker education, and targeted interventions in affected sectors can we ensure that the promise of minimum wage protection becomes a reality for all workers.
The integrity of the UK’s employment law system depends on ensuring that all work is fairly compensated and that legal protections are meaningful rather than merely theoretical. The time for action is now, before this hidden crisis further erodes the foundations of fair work in the UK.
