Icebreakers, overtime and the squeezed middle

One of the wonders of life is that there are a lot of things to talk about. But one of its big let downs is that when people regularly spend time together they often spend it talking about the same old things; the weather, what mutual acquaintances have been up to, the rest. But every now and then something new will break into that conversation, and that is when life gets interesting.

This applies in pubs and homes up and down the country, but also in the weird world of public policy discussions. On the labour market for instance, Conservatives carry on talking about (and legislating for) restrictions on trade unions long after it made any sense economically, or indeed politically. Both they and Labour like to argue about the level of the minimum wage for the lowest earners and the top rate of tax for the very highest, but have much less to say about all those in between.

But something of an icebreaker may be about to put a new topic of conversation onto the table: the overtime we do, and what we are paid for it. That icebreaker was the recent Taylor Review into Modern Working Practices, to which the government’s response is expected early in the New Year. While most attention on the report has focused on fairly minor changes for workers in the gig economy, the report also included proposals for a higher minimum wage for non-contracted hours (posh-talk for overtime).

This is a big deal because a lot of us do paid overtime – 2.6 million people do over 1 billion hours of it a year (and that’s before we even start on the 1.5bn hours of unpaid overtime). Men and those doing manufacturing or transport jobs are most likely to be doing some, but amongst those that do overtime it is a bigger deal financially for part timers and women.  Despite these big numbers, we never talk about it. Uber (rightly) gets discussed in Parliament – overtime not so much.

Not talking about it, alongside wider changes in our labour market like the minimum wage, has resulted in overtime becoming far less lucrative. The typical premium has gone from over 25 per cent in the 1990s to under 15 per cent today. Only one in five workers now get traditional time and a half rates. Most women get absolutely no pay premium at all, possibly because they are more likely to work in sectors without unions, who to be fair never stopped talking about and negotiating overtime rates.

As well as not talking about overtime we don’t regulate it either, with the single exception of the Working Time Directive (which some hope we will be free of post-Brexit). In contrast many European countries fix premiums or limit hours. Even the US requires firms to pay workers an overtime premium if they are lower earners.

So it’s good that the Taylor Review has put the issue of overtime back on the agenda. Now that the conversation has been started however, it’s worth the government also considering bolder and complementary policy options in their forthcoming response.

We don’t think further hard time limits on non-contractual work or overtime are beneficial. However, there is a strong case for learning from New Zealand (which gives workers protections against repercussions for declining overtime) and New York (where regulations against “surprise scheduling” make two week notice of shifts the norm).

On overtime premiums themselves, the Taylor Review proposal should certainly be taken forward, but it would be best piloted at a regional or sectoral level alongside options that go further.

That is firstly for reasons of simplicity. The technical details of how Matthew Taylor’s proposal works mean it is better suited to making firms using zero hours contracts pay extra for the privilege – rather than providing a genuinely higher minimum wage for overtime hours. A simpler overtime minimum wage would benefit up to three times more workers (960,000 vs 310,000 workers, if a 50 per cent premium was applied) and be easier for workers to understand, at the cost of a significant cliff edge and an incentive to employers to offset the cost of the policy by holding down standard hourly rates.

More generally it is not clear that the arguments for a minimum overtime premium apply only to the very lowest paid. The horrendous pay squeeze we are living through is certainly not just about the very lowest earners (indeed they are the group that has seen the fastest pay rises in recent years) so neither should our answers to it be.

Crucially, we have very little evidence of how firms will respond to mandatory overtime pay premiums in the UK. And this matters because there will be a mix of winners (those getting more guaranteed hours or higher pay) and losers (those offered less work). That is why piloting a range of more ambitious options is a welcome next step.

A conversation on overtime that has been largely lacking for the past few decades is starting up again. The onus is now on the government to have something decent to say on it when it responds to the Taylor Review in the New Year.