{"id":8171,"date":"2021-06-11T14:00:47","date_gmt":"2021-06-11T13:00:47","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=8171"},"modified":"2026-01-29T09:42:55","modified_gmt":"2026-01-29T09:42:55","slug":"pay-overtime-commission-bonuses-employees","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/pay-overtime-commission-bonuses-employees\/","title":{"rendered":"How to pay overtime, commission and bonuses to employees"},"content":{"rendered":"
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\n\t\t\t\t\t\tHow to pay overtime, commission and bonuses to employees\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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Setting up the payroll structure is a critical task within the payroll function. Aside from regular employee wages, your employees may be entitled to other pay such as overtime, commission and bonuses.<\/p>\n\n\n\n

The policies for how to earn these are determined by the company and usually published in the principal statement of the employee contract<\/a>.<\/p>\n\n\n\n

Payroll managers must have a clear understanding of the basic terms to contribute informed expertise when shaping those policies.<\/p>\n\n\n\n

This article will guide you through the key definitions and concepts involved with overtime, commission and bonuses, covering:<\/p>\n\n\n\n

How to calculate overtime<\/a><\/p>\n\n\n\n

How to calculate bonuses<\/a><\/p>\n\n\n\n

How to calculate commission<\/a><\/p>\n\n\n\n

How overtime, commission and bonuses affect tax codes<\/a><\/p>\n\n\n\n

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Download your free guide, How to boss managing your people and payroll, and give your team the support that ultimately helps your business succeed<\/a><\/div>\n<\/div>\n\n\n\n

How to calculate overtime<\/h2>\n\n\n\n

First, what is overtime pay?<\/p>\n\n\n\n

Overtime pay is money earned outside of regular working hours, or hours outside of the normal shift. UK overtime law requires that the total hours worked must not be below the relevant minimum wage<\/a>. However, employers aren’t required to pay overtime.<\/p>\n\n\n\n

The terms for how employees earn overtime pay and the amount must be included in the employee contract, alongside the details for employee salary and wage earnings.<\/p>\n\n\n\n

Employees are only required to work overtime hours if it’s in their contract to do so. And even then, required overtime can’t exceed an average of 48 hours per week (employees can agree to work longer but this agreement needs to be documented).<\/p>\n\n\n\n

Overtime pay should be managed and calculated each pay period alongside wage earnings. Overtime hours worked and the amount earned should be itemised on the employee payslip so it’s easy to identify.<\/p>\n\n\n\n

It’s best practice to pay out overtime pay at the same time that regular employee earnings are paid.<\/p>\n\n\n\n

How to calculate bonuses<\/h2>\n\n\n\n

Not all companies offer bonus pay, but it’s a proven motivator in the workforce.<\/p>\n\n\n\n

Criteria for earning a bonus must be set in advance as part of the employee contract.<\/p>\n\n\n\n

The company must pay taxes on all bonuses, deduct bonus tax from employee earnings, and report bonus payments to HMRC because bonuses count as earnings.<\/p>\n\n\n\n

What you report to HMRC depends on the type of bonus your company pays out:<\/p>\n\n\n\n

Cash bonuses<\/h3>\n\n\n\n

This includes vouchers that are exchangeable for cash. This type of bonus pay should be reported with regular employee pay, and must deduct and pay Pay As You Earn (PAYE) tax and Class 1 National Insurance.<\/p>\n\n\n\n

Non-cash bonuses<\/h3>\n\n\n\n

Tax reporting rules here will vary depending on what you give. In some cases, you’ll have to use PAYE, for example, if the item can be easily be converted to cash.<\/p>\n\n\n\n

Gov.uk has a resourceful list of rules<\/a> for specific items and how to work out their value.<\/p>\n\n\n\n

Christmas bonuses<\/h3>\n\n\n\n

These count as earnings as well. For cash bonuses, add the value to the regular earnings amount, and deduct and pay PAYE and Class 1 National Insurance.<\/p>\n\n\n\n

For goods as gifts, you must pay tax and report them all on form P11D, and pay Class 1 National Insurance based on the value<\/a>.<\/p>\n\n\n\n

Trivial benefits are exempt from tax and reporting laws. Goods must meet all of the following criteria to be considered trivial:<\/p>\n\n\n\n