Overtime
What is overtime?
Overtime refers to the additional hours that employees work beyond their regular or expected working hours. During critical deadlines and major milestones, employees may be expected to work beyond their typical hours to ensure success. Tracking overtime helps employers pay their employees fairly and accurately for their extra time and effort.
What is meant by overtime pay?
Overtime pay refers to the remuneration that employees receive for working beyond their typical office hours. It's usually calculated at a higher rate, like 1.5X or 2X, as a way to recognize the additional effort. The pay rate is usually decided by company policy or statutory mandate.
How do you calculate overtime pay?
Here's a step-by-step explanation of how overtime pay is calculated:
Step 1: Calculate the employee's hourly wage
For instance, if an employee earns $1,400 per week and works 40 hours, their hourly wage should be: $1,400 ÷ 40 = $35/hour
Step 2: Calculate their overtime pay
Overtime is usually compensated at one and a half times the employee’s regular hourly wage. So in this case: $35 × 1.5 = $52.50/hour (overtime rate)
Step 3: Log their overtime hours
To calculate the overtime hours, subtract the employee's total working hours from their standard working hours. If the employee worked 50 hours: 50 − 40 = 10 overtime hours
Step 4: Determine their overtime pay
Multiply the overtime hours by the overtime rate to find out the overtime pay: 10 × $52.50 = $525
In this example, the overtime pay for the week would be $525.
Which employees are entitled to overtime benefits across different countries?
Eligibility for overtime benefits varies from country to country and is primarily determined by local labor laws and statutory regulations.
India:
Under the Factories Act and Shops and Establishments Act, workers employed in factories and non-managerial employees are generally entitled to overtime pay.
USA:
According to the Fair Labor Standards Act (FLSA), non-exempt employees, typically hourly or blue-collar workers, are eligible for overtime. Exempt employees in managerial, executive, or administrative roles are not.
UK:
There are no specific legal requirements for overtime pay. However, employees are prohibited from working more than 48 hours per week. Whether overtime is paid depends on individual employment contracts.
UAE:
Overtime is governed by Federal Decree Law No. 33 of 2021. Employees working beyond 8 hours per day or 48 hours per week are entitled to overtime pay, typically 1.25x the basic rate for regular days, 1.5x for public holidays, and 2x for rest days.
Philippines:
All employees working more than the standard eight working hours are entitled to receive overtime pay benefits as stated by the Labor Code of the Philippines. Overtime is compensated at different rates depending on the day: 1.25 times the regular pay on standard workdays, 1.3 times on rest days, and 1.5 times on special holidays.
Is overtime pay subject to taxes?
Yes, overtime pay is usually taxable and is subject to the applicable income tax rate, as it forms part of an employee's total earnings.
How is overtime tracked and recorded?
Many organizations use HR tech tools to track and record employee overtime. Some use biometric systems, which calculate overtime based on employees’ logged hours against their regular work schedules. Others rely on timesheets, requiring employees to fill in daily, weekly, or monthly time logs. More advanced setups use intuitive HR software that automatically calculates overtime hours and pay rates based on predefined rules and policies.