A Guide to Overtime Pay: What It Is and How It’s Calculated

When you work beyond the typical 40-hour workweek, you might qualify for overtime pay. Although overtime pay is regulated by national and local laws, it’s helpful to understand its general principles.

Knowing these can guide you in checking your eligibility and estimating potential earnings from overtime hours. In this article, we’ll discuss what overtime pay is, how it works, and the different types of overtime. Bibigyan ka rin namin ng steps para malaman kung paano ito kino-compute.

Please note, this article is for informational purposes only and doesn’t serve as legal advice. Kung may legal concerns ka, better to consult an attorney.

What is Overtime Pay?

Overtime pay is the additional compensation earned for working beyond the standard working hours. For instance, if your regular work week consists of 40 hours and you work 50 hours in a week, you would qualify for overtime pay for the 10 extra hours.

In the Philippines, overtime pay is governed by the Labor Code, which mandates that work exceeding eight hours a day must be compensated with an additional 25% of the employee’s regular hourly wage on regular working days, and 30% on rest days, regular holidays, and special holidays.

Employers are required to comply with these regulations to ensure proper computation of overtime pay. Non-compliance can lead to legal consequences, as ignorance of the law does not exempt an organization from responsibility.

Typically, companies use HRIS Software Philippines that is already adjusted to the local labor laws and regulations to calculate their employees’ payroll.

Who isn’t Eligible for Overtime Pay?

Under the Labor Code, companies are required to compensate employees for work performed beyond their standard 8-hour workday. However, certain workers are exempt from receiving overtime pay, including:

1. Government Employees: This includes individuals working in government-owned and controlled corporations.
2. Managers or Supervisory Employees: Those who:
   • Oversee the operations of a business, department, or branch.
   • Supervise at least two other employees.
   • Have the authority to hire, terminate, or make employment-related recommendations.
3. Managerial Staff Members: Employees with responsibilities such as:
   • Carrying out tasks related to their employer’s management policies.
   • Making independent decisions based on their judgment.
   • Assisting in managing the business, department, or branch.
   • Performing specialized work requiring specific training, expertise, or knowledge.
   • Handling special assignments or tasks.
   • Spending 20% or less of their time on activities unrelated to the duties above.
4. Domestic Workers: Individuals employed to perform household tasks or similar roles.
5. Employees Paid by Results: This includes workers compensated based on piecework, takay, pakyaw, task-based rates, or non-time-based arrangements, provided the pay complies with relevant regulations or fixed rates set by the Labor Secretary.
6. Field Personnel: Employees who work outside the company’s premises and do not have fixed working hours.

When Can Overtime Work be Conducted?

Article 89 of the Labor Code allows employers to require employees to work overtime under specific circumstances, including:

• During war or national/local emergencies.
• In life-threatening situations caused by disasters such as fires, floods, typhoons, or earthquakes.
• For emergency repairs on machinery, equipment, or installations to avoid significant loss or damage.
• To protect perishable goods from loss or damage.
• To prevent disruptions in business operations.

In these scenarios, employers are obligated to compensate employees with the additional pay specified in the Labor Code.

Types of Overtime

Overtime requirements can vary depending on your employment contract. Some employers may mandate overtime, while others offer it as an option for handling extra tasks. Understanding your workplace’s approach to overtime can help you set realistic expectations.

Here are common types of overtime:

• Time Off in Lieu (TOIL): Instead of extra pay, some employers provide additional time off to balance long hours worked. Employees and employers collaborate to schedule this compensatory time.
• Voluntary Overtime: Employers may offer overtime work that employees can choose to accept or decline without consequences. Those who opt in are compensated accordingly.
• Compulsory Overtime: Also known as mandatory overtime, this type is outlined in your employment contract. Despite being a requirement, employers must adhere to labor laws regarding overtime compensation.
• Non guaranteed Overtime: Employers are not obligated to offer this type of overtime, but if they do, employees must work the additional hours as specified in their contract.

However, the companies must ensure that the overtime doesn’t impact employee experience badly, as employees are the assets of the company who keep it going.

How do Companies Calculate Overtime Pay?

Do you want to know how the companies typically calculate overtime pay? Here are the five steps of calculating overtime salary for the employees:

1. Determine if You Are Exempt

Check if your job qualifies for overtime pay under the Philippine Labor Code. Certain employees, such as managerial staff, government workers, domestic helpers, and field personnel, may be exempt. If you are covered by the law, you are entitled to overtime pay for work exceeding eight hours in a day.

2. Track Your Weekly Working Hours

Monitor your daily and weekly work hours carefully. Use tools like timesheets or timekeeping systems to ensure accuracy, especially if you work irregular or split shifts. Under Philippine law, any work beyond eight hours in a day should be compensated with overtime pay.

3. Determine Your Hourly Rate

If you’re paid hourly, your rate is already clear. For salaried employees, calculate your hourly rate by dividing your monthly salary by 26 (average working days in a month) and then by 8 (hours in a workday).

Example: If your monthly salary is PHP 20,000:

1. Divide PHP 20,000 by 26 = PHP 769.23 (daily rate).
2. Divide PHP 769.23 by 8 = PHP 96.15 (hourly rate).

4. Know Your Employer’s Overtime Rate

The Labor Code mandates an overtime rate of at least 25% more than your hourly rate for work on a regular working day and 30% more on a rest day, special day, or holiday. For instance, if your hourly rate is PHP 96.15, your overtime rate for regular days would be:

Regular Day Overtime: PHP 96.15 x 1.25 = PHP 120.19
Rest Day/Holiday Overtime: PHP 96.15 x 1.30 = PHP 124.99

5. Calculate Your Overtime Pay

Multiply the number of overtime hours worked by your overtime rate to find your total overtime earnings. Then, add it to your regular wages to determine your total pay for the week.

Example: If you worked 10 overtime hours on a regular working day:

1. Overtime Pay = 10 hours x PHP 120.19 = PHP 1,201.90
2. Add to your regular wages (e.g., PHP 769.23 x 5 days = PHP 3,846.15).
3. Total Wages = PHP 3,846.15 + PHP 1,201.90 = PHP 5,048.05

If you’re a team of HR yourself and confused where to start calculating and wonder whether you’ll be doing calculations all the time, fret not! An HRIS system can automate each payroll calculation accurately, be it daily, weekly, monthly, or any time range your company works for.

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Streamline Overtime Pay with HashMicro Payroll Software

Ever wondered if manual payroll mistakes are costing you more than just time? Isipin mo, one overlooked error, and you’re facing disputes, penalties, or worse, a damaged reputation. Kaya ba ng business mo ang ganitong risk?

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The system generates real-time, detailed reports na madaling ma-access by both employers and employees. Plus, with automated features, you save time and focus on more strategic tasks instead of worrying about payroll calculations.

Here’s how HashMicro does it with its features:

• Automated Payroll Management: Calculates salaries, taxes, and deductions automatically, reducing the need for manual computations.
• Tax Compliance Tools: Performs automatic tax calculations and prepares filings according to Philippine tax regulations.
• Attendance and Leave Tracking Integration: Captures attendance data and processes leave requests directly into payroll systems.
• Employee Self-Service Portal: Allows employees to access their payslips, tax documents, and personal details online.
• Expense Management System: Manages reimbursements, allowances, and other employee expenses within the same platform.
• Comprehensive Reporting Capabilities: Generates payroll, tax, and attendance reports for administrative and strategic use.

Conclusion

Overtime pay ensures workers are properly compensated for going beyond their standard hours, as required by law. In the Philippines, this means extra pay for working more than eight hours daily. Employers need to handle this correctly to avoid issues and keep employees happy.

Calculating overtime pay manually can be a real hassle and prone to errors. Bakit mo pa kailangan mag-manual? HashMicro Payroll Software makes payroll fast, accurate, and hassle-free. It takes care of overtime, attendance, and other payroll tasks so you can focus on running your business.

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FAQ on Overtime Pay

• Can my employer require me to work overtime?

  Yes, employers can require employees to work overtime. However, they must compensate non-exempt employees at the appropriate overtime rate for hours worked beyond the standard workweek.

• Is overtime pay required for weekend or holiday work?

  Under federal law, overtime pay is not mandated solely for work on weekends or holidays unless it results in exceeding the standard 40-hour workweek. However, some employers may offer premium pay for such hours as part of their policies.

• Are there limits to the amount of overtime an employee can work?

  While federal law doesn’t set a maximum number of overtime hours, certain state laws and company policies may impose limits to ensure employee well-being and compliance with labor standards.

• How is overtime pay calculated for employees with multiple pay rates?

  For employees working at different pay rates within the same workweek, the regular rate for overtime calculation is typically a weighted average of those rates. This is determined by dividing total earnings by total hours worked.