Computing Your Employees’ Overtime Pay

September 21, 2019 | Jantzein Malaya

Computing Your Employees’ Overtime Pay

In the hustle and bustle of running a business, every minute counts, and every amount of work should be properly done. Productivity and efficiency must always be intertwined, and how much one understands this can make or break a business, especially a new, up and coming one.

In the Philippines, most workers adhere to the standard work schedule of 8 o’clock in the morning to 5 o’clock in the afternoon on weekdays, reserving an hour from 12 o’clock noon to 1 o’clock in the afternoon for lunch break. This work schedule gives Filipinos eight hours to do their tasks, the normal amount of hours of work every day, as mandated by Article 83 of the Labor Code of the Philippines.

There are instances that may require employees to stay for work beyond the normal hours they are required to do so. Regardless if the company is in the private or public sector, employers are required to provide additional compensation for the additional hours an employee has to work.

Overtime pay entails different rules in its computation compared to computing for the compensation for regular work hours. Employers have to consider what shift the employee is in, and on what day they worked overtime. To further understand this, here are a few samples of overtime pay computations:

                For every formula, assume the employee’s hourly rate is P100.00.

Let n = the employee’s hourly rate

       OP = hourly overtime pay

Normal Work Day

For normal working days, the hourly rate of an employee’s overtime is 125% of his/her hourly rate.

For this, the formula would be (n x 125% = OP)

(n x 125% = OP)

100.00 x 1.25 = 125.00

OP = P125.00

For normal working days where the employee’s regular shift is the night shift, a different computation is to be made. Employees working anytime from 10 o’clock in the evening to 6 o’clock in the morning qualifies for the Night Shift Differential (NSD). Employees extending their work hours during in the night shift will be given an additional 25% as his overtime rate with their regular hourly rate, plus ten percent 10% for every hour of working between the covered period.

When computing for the overtime pay of the employee in the night shift, the hourly rate would be 137.5% of his/her hourly rate, respecting the provisions of the NSD.

For this, the formula would be [(n x 125%) x 10%] = OP

[(n x 125%) x 10%] = OP

[(100.00 x 1.25) x 0.10] = 137.50

OP = P137.50

Rest Days or Special Non-Working Holidays

Article 91 of the Labor Code of the Philippines states that employees are to be given not less than 24 hours of rest period after six consecutive work days. Many in the private sector follow this provision, but government offices and some private-owned companies provide two whole days, or 48 hours for the employees’ rest period.

Employees who work on their rest day and special non-working holidays are to be provided with 130% of their hourly rate, and if these employees still have to stay for overtime, the hourly rate will go up to 169%.

For this, the formula would be (n x 169% = OP)

(n x 169% = OP)

100.00 x 1.69 = 169.00

OP = P169.00

For those in the night shift, the hourly rate for their overtime pay will be 185.9% of their normal hourly rate.

For this, the formula would be [(n x 169%) x 10%] = OP

[(n x 169%) x 10%] = OP

[(100.00 x 1.69) x 0.10] = 169.00

OP = P185.90

Regular Holidays

Employees already enjoy the benefit of receiving 200% of their hourly rate when they have to work on regular holidays. But if an employee has to stay for overtime during regular holidays, they will receive an additional 60% of their hourly rate to the 200% hourly rate they will be receiving. This will mean that employees will receive 260% hourly rate as overtime pay.

For this, the formula would be (n x 260% = OP)

(n x 260% = OP)

100.00 x 2.60 = 260.00

OP = P260.00

For those in the night shift, the hourly rate for their overtime pay will be 286% of their normal hourly rate.

For this, the formula would be [(n x 260%) x 10%] = OP

[(n x 260%) x 10%] = OP

[(100.00 x 2.60) x 0.10] = 286.00

OP = P286.00

Combined Rest Days and Holidays

Some slight changes must be done in the overtime pay computation if a holiday falls on an employee’s rest day. If the employee will work on such day, his/her hourly rate will be 195% for Special Non-working Holidays and 338% for Regular Holidays if he/she is working on a day shift, and 214.5% for Special Non-Working Holidays and 371.8% for Regular Holidays if he/she is working on the night shift.

For the combined rest day and special non-working holiday overtime pay, the formula would be (n x 195% = OP)

(n x 195% = OP)

100.00 x 1.95 = 195.00

OP = P195.00

For the combined rest day and special non-working holiday overtime pay for the night shift, the formula would be [(n x 195%) x 10%] = OP

[(n x 195%) x 10%] = OP

[(100.00 x 1.95) x 0.10] = 214.50

OP = P214.50

For the combined rest day and regular holiday overtime pay, the formula would be (n x 338% = OP)

(n x 338% = OP)

100.00 x 3.38 = 338.00

OP = P338.00

For the combined rest day and regular holiday overtime pay for the night shift, the formula would be [(n x 338%) x 10%] = OP

[(n x 338%) x 10%] = OP

[(100.00 x 3.38) x 0.10] = 371.80

OP = P371.80

Those may be a lot of numbers, but familiarizing with the overtime pay rate of your employees will help you better understand the needs of your employees and can help you make better decisions in dealing with your company’s finances. Payroll can be hard to deal with sometimes, but it doesn’t have to be. Investing in a fast, reliable software can help you manage everything without breaking a sweat. Get the best solution for your payroll needs today. Go to www.sweldomo.ph to know more.