A simple planning method
Calculate the gross overtime first. Compare annual earnings before and after that overtime using the correct nation and tax year. The difference in net pay is a better guide than applying one flat percentage to every shift.
For England, Wales and Northern Ireland, the main earned-income rates are 20%, 40% and 45%. Scotland has starter, basic, intermediate, higher, advanced and top bands. National Insurance uses UK-wide employee thresholds.
Why one month's payslip can look harsher
Payroll may include several shifts, an arrears payment or a tax-code adjustment in one month. PAYE then measures the position in that pay period and cumulative year. A single net-to-gross ratio may not represent the eventual annual cost.
Pension and student loans
Pension contributions often receive Income Tax relief, but the precise treatment depends on pensionable pay and payroll method. Student and postgraduate loan deductions can apply to the pay-period earnings above their thresholds and are not included in every quick calculator.
Frequently asked questions
Is overtime taxed more than basic pay?
It is taxed as additional employment income. Some or all may fall into a higher marginal band, which can make the deduction rate look larger.
Does National Insurance still apply to overtime?
Yes, where pay in the relevant earnings period is above the employee thresholds.