How To Compute For Overtime Pay

Overtime pay can be a minor hassle or a huge problem. It all depends on how complicated your overtime scheme is. It can also vary depending on how big your company is.

This can be particularly problematic during the end of the year. When your organization needs to reach targets quickly, you might need to hire more employees. You might also need existing manpower to work for a few more hours.

Employment surveys show that a huge chunk of people who want to work more hours are already those working 8 hours a day.  It simply means your full-time employees are willing to work overtime, should the need and opportunity arise.

An Overtime Example

Take Robert, for example. Robert owns a successful toy store. At the end of each year, he expects that there will be a huge influx of customers. this is due to the holiday season and also due to the various promotions that he has slated for the year-end.

In order to cope with the demand, he has decided to extend store hours and hire additional employees. This means that he has to deal with the headache of having to compute payroll with the additional overtime pay.

Rules Regarding Overtime Pay

If you are in the Philippines, you should know that according to the law, “all employees in all establishments and undertakings whether for profit or not are entitled to overtime pay for work rendered beyond eight (8) hours.”

It might seem simple at first -after all, it’s just additional hours, right? Well, overtime pay is a bit more complicated than that.

The rules governing the computation for hours spent at work beyond the regular 8 hours are totally different. It’s not just a matter of adding hours and multiplying by a fixed rate.

• The hourly rate for a normal day overtime is equal to 125% of the normal hourly wage of the employee.
• For a  rest day overtime, the rate is 169% of the regular rate. The same goes if the date of the overtime falls on a special holiday.
• On the other hamd, if the overtime occurs during a regular holiday, the rate is 260%.
• For overtime rendered during a  simultaneous rest day and special holiday, then the pay would be equal to 195% of the regular rate.
• An overtime during a  simultaneous rest day and regular holiday, the hourly rate is 338% of the regular rate.

As you can see, it can all get a bit convoluted. Not all overtime pay is equal. Not knowing how to compute can lead to problems in payroll processing later on. This is especially true if you haven’t automated your payroll process yet.

Another problem that you might find yourself facing is unauthorized overtime. It can be particularly problematic for a company if your employees keep working overtime, even when you do not need them to, or have not asked them to. Considering the rates posted above, this can lead to a big unbudgeted expense.

Rampant unauthorized overtime may also lead to inefficiency. It encourages employees to slack off and not meet their targets during the regular work hours. It will also discourage hardworking employees. Employees who work harder to finish on time will get less money than those who slack off.

How do you solve these two problems?

1. Study the Rules

You have to familiarize yourself with the rules on overtime pay. Some of these are listed above, but to compute your overtime pay properly, you should be aware of the law, as well as your own company’s policies.

Familiarizing yourself with the rules on how to compute overtime pay will also help you schedule your employees’ overtimes properly in order to reduce costs. It will teach you, for example, to avoid scheduling overtime on employees’ rest days.

2. Establish And Enforce Overtime Policies

In order to prevent abuse of overtime, you need to establish rules with your employees. Ensure that overtime work will only be rendered when needed and authorized. This will lower your overtime costs, keeping your unbudgeted expenses at a minimum. This will also help make sure that your employees complete their tasks on time.

3. Automate Your Timesheets

By automating your timesheets, you will ensure the accuracy of the employees’ overtime pay. Employees can make mistakes in keeping their times, especially if they are eager to make money through overtime work.

Automating your timekeeping will also speed up the process when you compute overtime pay. You won’t have to wait for employees to fill up the sheets to know how many hours of overtime each employee has rendered.

4. Automate Your Payroll

While we’re on the subject of automating timekeeping, you might also want to automate your payroll.

When you automate your payroll, the system can work by itself. You won’t have to worry about timekeeping or computing based on different overtime rates. All you’ll have to do is ensure that all employees only render overtime when authorized.

Of course, when you automate your payroll, you will also still need to ensure that you only schedule or authorize rendering of overtime on regular days, avoiding holidays and rest days for each and every employees.

As a boss, you might not be able to memorize when your employees have rest days, especially if their rest days vary.

Compute Overtime Pay The Right Way

With the right system and software, you will have the necessary information at the tip of your fingers and you can avoid blunders in scheduling overtime.

When you want to compute overtime pay the right way, you should start at the bud. Simplify the whole process of rendering overtime in the first place. There will be times when you will have to ask people to render unscheduled overtime hours, but these would be fewer.