(Updated October 22, 2021)
Most employees work eight-hour shifts every day. It’s been the norm for most workers, even as companies embrace work-from-home arrangements during the pandemic.
But sometimes, employees tend to work beyond their usual schedule, especially when working from home. After all, at-home distractions can blur the line between work and personal life, making it harder for some people to maintain a proper work-life balance.
Whenever an employee exceeds regular working hours, their organization is responsible for providing extra compensation known as overtime (OT) pay. In fact, OT pay is part of the list of benefits workers can receive on top of their basic pay.
But what exactly is OT pay, and how do you compute it properly? If you want to learn more about this type of compensation or need a refresher, check out our comprehensive guide.
What is Overtime Pay?
OT pay describes the additional pay given to employees who render work beyond eight hours. The Philippine Labor Code sets a worker’s OT pay rate at 25% of their hourly rate on regular working days, except if a more favorable company policy or collective bargaining agreement provides for more generous OT pay rates.
OT pay describes the additional pay given to employees who work beyond eight hours. The Labor Code of the Philippines sets a worker’s OT pay rate at 25% of their hourly rate on regular working days. But this rate can change if a company or a collective bargaining agreement (a legal contract between a business and a worker’s union) sets more generous pay rates.
If an employee works overtime on a holiday or rest day, however, they’ll receive 30% of their hourly rate from their employer.
Take note also that the mere existence of a work-from-home setup does not per se negate an employer’s responsibility to pay overtime. It’s also worth noting that employers still need to pay overtime even if they’ve adopted a work-from-home setup.
Who Isn’t Eligible for OT Pay?
The Labor Code requires companies to pay employees for the extra work they’ve performed beyond their 8-hour work day. However, there are workers exempted from receiving overtime pay. They include:
- Government employees, including workers in government-owned and controlled companies
- Managers or employees who manage the business they work for or any of its departments or branches
- Field personnel or employees working outside their company location and have no fixed working hours
- Members of an employer’s family who depend on the employer for support
- Domestic helpers and individuals working for another person as covered by The Batas Kasambahay Law
- Employees who receive results-based compensation, such as barbers and massage therapists
When Can Employers Require OT Work?
The Labor Code states that employees can render overtime voluntarily, if approved by their line managers and receive OT pay. Article 89 of the Labor Code provides examples when companies may require employees to work overtime:
- During war or national or local emergencies
- During life-threatening situations caused by calamities like fires, floods, typhoons, or earthquakes
- When employees need to conduct emergency repairs on machines, installations, or equipment to prevent serious loss or damage
- When work is necessary to prevent loss or damage to perishable goods
- When employees need to prevent any interruptions to business ops
How Do Companies Compute Overtime Pay?
If your company pays employees for working overtime, you need to calculate how much they’ll receive. Let’s take a look at how you can compute a worker’s overtime pay.
Regular Work Days
First, calculate the employee’s hourly pay. Hourly pay is the remuneration an employee gets from working a set hourly rate.
You can compute the worker’s hourly pay by using this formula:
Daily rate ÷ 8 hours = Hourly rate
If the employee gets a daily rate of ₱800, your hourly rate computation will look like this:
₱800 ÷ 8 = ₱100
After getting the employee’s hourly pay, compute for hourly overtime rate with this formula:
Hourly rate x 125% = Overtime hourly rate
Let’s take the employee’s hourly rate of ₱100 and include it in your computation. The computation should look like this:
₱100 x 125% = ₱125 (₱100 x 1.25 = ₱125)
Next, multiply the worker’s overtime hourly rate by the excess hours they’ve worked. Use this formula:
Overtime hourly rate x number of extra hours worked = pay with overtime pay
Consider this example. Let’s say Employee A had our sample overtime hourly rate of ₱125 and they worked for three hours. Here’s how we calculated their pay + overtime pay using the formula mentioned above:
₱125 x 3 = ₱375
Finally, compute the worker’s total daily wage using this formula:
Pay with overtime pay + pay for ordinary hours = total daily wage
If we take the ₱375 that Employee A earned from working overtime and add it to the regular pay they’re currently earning, we get:
₱375 + ₱800 = ₱1,175
Rest Days or Special Non-Working Holidays
As previously mentioned, employees can get 30% (or 130%) of their fixed hourly rate if they work overtime on rest days and special non-working holidays. Use this formula to compute their OT pay on these days:
Hourly rate x 130% x 130% x number of hours worked
For example, Employee B gets ₱100 for the hours they work every day. If they worked for two more hours on a special non-working holiday, we can calculate their OT pay like this:
₱100 x 1.3 x 1.3 x 2 = ₱338
But if the employee’s rest day falls on the same day as a special non-working holiday, the formula for overtime pay will be:
Hourly rate x 150% x 130% x number of hours worked
Take note that the 150% in the formula is the additional 50% from a worker’s hourly pay.
Companies can mandate employees to work on regular holidays, as well. If workers render extra working hours during a regular holiday, they’re entitled to 30% more of their existing hourly rate. You can calculate OT pay for regular holidays using this formula:
Hourly rate x 200% x 130% x number of hours worked
The 200% used in the formula is added to the employee’s pay for working on a regular holiday.
But if the employee works overtime on a regular holiday that falls on their rest day, they can get 30% more of their hourly rate. In this case, you can compute for OT pay using this formula:
Hourly rate x 200% x 130% x 130% x number of hours worked
Frequently Asked Questions About Overtime Pay
Do I need to include the cost of living allowance when calculating OT pay?
According to the Philippine Labor Code, overtime pay computations exclude an employee’s cost of living allowance (COLA) or pay for additional expenses.
How do I compute overtime pay for night shift employees?
To computer for night shift OT pay, follow these steps:
- Divide the worker’s daily rate by eight hours to get their hourly rate.
- Multiply the hourly rate by 110% (10% of the employee’s hourly rate) for the night shift hourly rate.
- Take the worker’s night shift hourly rate and multiply it by the number of hours worked.
- Add the night shift differential pay to the employee’s regular working hours.
How many hours can employees render for OT work?
Employees can work overtime for up to eight hours but the number of extra hours may vary. For example, some may file a single hour of OT work while others can file for a total of eight hours of OT.
Do Philippine labor laws require employees to work overtime?
Overtime work isn’t required by law. However, companies can have their workers render overtime during war, national or local emergencies, or life-threatening situations. Employees can also work for over eight hours to achieve favorable weather, especially if their work depends on these environmental conditions.
Can an employee ask their employer to let them work overtime?
Generally, employees shouldn’t request overtime if certain situations don’t require it or their employer doesn’t assign additional work.
Ensure Accurate Compensation for OT Work with Sprout
Build your organization’s credibility and make sure your employees receive the proper compensation for the extra hours they put into their work. By understanding how overtime pay in the Philippines works, you can keep your workforce happy and motivated.
The payroll process can be tedious especially when you have hundreds of employees with different types of shifts and schedules.
You would have to compute Overtime pay for multiple employees and various reports show that nearly 9 out of 10 spreadsheets (88%) contain errors. A majority of these are human errors that could cause a delay in payment crediting to your employees and lead to employee dissatisfaction or complaints.
In the Philippines, there are 32 different types of Overtime pay rates and Sprout’s Payroll solution has all of those built into its system!
Sprout’s Overtime Pay Computation Table
You won’t have to worry about chasing deadlines as the payslips for your employees are automatically generated in the system, as well. Sprout’s software extensively covers 32 types of pay rates, ranging from basic holiday/rest day to chained (SH-ND-OT), which will allow you to customize the payroll for diverse work schedules and easily calculate overtime pay by automating them.
More importantly, Sprout Payroll is compliant with mandated government compliance reports from BIR, PHIC, SSS, and Pag-IBIG. We continuously update our system with the latest computation table of taxes and statutory contributions with no additional fee.
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