Overtime Pay and Tax — Why Extra Hours Don't All Land in Your Pocket 2026/27
How overtime pay is taxed through PAYE and National Insurance, and why extra hours can push some earners into a higher tax band, for 2026/27.
No Special Overtime Tax Rate
A common misconception is that overtime is taxed at a punitive, separate rate — it isn't. Overtime pay is simply added to your regular earnings for the pay period and taxed through the normal PAYE system, using your existing tax code and the standard Income Tax bands (20%, 40%, 45% in rUK, or the Scottish bands for Scottish taxpayers). The frustration usually comes from a specific month looking heavily taxed, not from overtime itself carrying a different rate.
Why a Big Overtime Month Can Look Heavily Taxed
PAYE calculates tax based on what you're paid in that specific period, annualised as though you earned that amount every month. A month with substantial overtime therefore looks, for tax purposes, as if you're suddenly earning at an annualised rate well above your normal salary — which can push that period's earnings into a higher tax band even though your actual annual income, once overtime evens out, might not reach that threshold at all. Under cumulative PAYE, this generally self-corrects: a lower-earning month later in the year, or the year-end reconciliation, brings your total tax back in line with your true annual liability, sometimes producing a welcome refund.
The National Insurance Angle
| Earnings band (per period) | NI rate applied to overtime earnings in that band |
|---|---|
| Below the primary threshold | 0% |
| Primary threshold to upper earnings limit | 8% |
| Above the upper earnings limit | 2% |
Unlike Income Tax, National Insurance is generally assessed on each pay period independently rather than cumulatively across the year, so a period with a lot of overtime pushing earnings into the upper band pays a lower marginal NI rate on that portion (2% rather than 8%) — the opposite direction to the higher-rate Income Tax band squeeze, which is a small offsetting factor worth knowing about even though it doesn't change the overall picture much.
The £100,000 Trap
For higher earners, overtime that tips annual income over £100,000 triggers the Personal Allowance taper — losing £1 of the £12,570 allowance for every £2 earned above £100,000, fully gone by £125,140. Combined with the 40% higher rate itself, this creates an effective marginal rate of 60% on income within the tapered band, meaning a chunk of overtime earned in that specific range delivers far less take-home benefit than the headline hourly overtime rate might suggest. Anyone whose base salary sits close to £100,000 is worth keeping an eye on this before accepting a lot of extra overtime in the same tax year.
Making Sense of Your Own Payslip
- Check whether a heavily-taxed overtime month is a per-period effect that should even out, or reflects your genuine annual position
- Confirm your tax code is correct and reflects any other income you have
- If your salary is near £100,000, estimate whether overtime could push you into the Personal Allowance taper for the year
- Use a full-year estimate, not a single payslip, to judge whether overtime is genuinely worth it after tax
Use the overtime and take-home pay calculators below to see how extra hours affect your pay after tax and National Insurance.
Frequently asked questions
Is overtime taxed at a different rate to my normal salary?
No — overtime pay is added to your normal earnings and taxed through PAYE using your existing tax code and the same Income Tax bands and National Insurance rates as your regular salary. There's no separate or higher tax rate specifically for overtime, though it can push your total pay for that period into a higher tax band if it's substantial.
Why does my payslip sometimes show a bigger tax deduction in a month with lots of overtime?
PAYE is calculated based on your pay for that specific period, so a month with significant overtime is treated as if you earn that higher amount every month, which can trigger tax at a higher marginal rate for that month specifically, even if your annual total wouldn't actually reach the higher-rate threshold. This generally evens out over the year through the cumulative PAYE system, sometimes resulting in a refund in a later, lower-earning month.
Does overtime affect how much National Insurance I pay?
Yes — National Insurance is calculated per pay period in the normal way, so overtime earnings in a given period are subject to the same 8% main rate (between the primary threshold and upper earnings limit) and 2% above that, in the same way your regular salary is.
Could overtime push me over the £100,000 threshold and reduce my Personal Allowance?
Yes — if overtime pushes your total annual income above £100,000, your Personal Allowance starts to taper away at £1 for every £2 earned above that threshold, creating an effective marginal tax rate of 60% on income in the tapered band, fully withdrawn by £125,140. This is worth being aware of if overtime is a meaningful and somewhat unpredictable part of your income near that threshold.
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