What is Overtime Pay?

Overtime pay is an additional chunk of pay, on top of the regular pay acquired by an employee for working extra hours beyond the normal duties in a given time. Overtime pay is usually paid at 1 ½ – 2 times the hourly rate or more than the ordinary rate.

Overtime premium is paid because the employee is being asked to perform some specific hours beyond the usual or regular hours of the employee. There are actually various ways of computing overtime wages. Before you can compute your employee’s overtime wages, though, you need to know your employee’s salary and how it is computed so that there will be no squabble or problem in the future.

Overtime Pay Laws in India

In India, overtime pay is covered by the country’s labor laws.

The Payment of Wages Act, 1936 and the Factories Act- 1948, which states that no employee should work for more than 48 hours in a week or 9 hours in a day.

According to these acts, wage on overtime is payable when work is done beyond the standard number of working hours. Standard hours of working have been computed to be 48 hours/week. However, in any case, the overtime compensation rates must never be less than double the normal rate of wages.

Importance of overtime pay

Overtime pay is significant in many ways like:

  • It ensures that employees get fair pay for overtime, meaning extra time or hours.
  • Increasing employee morale by paying them good money for overtime work.
  • Neglecting overtime laws brings in a penalty, which can be avoided by sticking to overtime pay regulations.

How to Calculate Overtime Pay (For Salaried as well as Hourly Employees)

Calculating overtime for salaried and hourly employees differs and here is how you can calculate both

  • Hourly Employees: For overtime computation for hourly employees, you multiply the regular hourly rate by 2 (or the applicable overtime rate) and then multiply this by the number of hours worked overtime. Example: The employee’s regular rate is of ₹1,600. If this employee worked 5 hours of overtime, you would calculate overtime rate as follows:
    – Overtime Rate = ₹1,600 x 2 = ₹3200, if they work for 5 extra hours then the
    Overtime Pay = ₹3200 x 5 = ₹16000
  • Salaried Employees: To find the right rate of pay per hour for the salaried employees, multiply the yearly remuneration by 2,080 hours (one-year full-time employee working hours). Example: A salaried employee earns ₹41,60,000 every year.
    Hourly Rate = ₹41,60,000 / 2,080 = ₹20,000
    Overtime Rate = ₹20,000 x 2 = ₹40,000, If they work 10 hours of overtime
    Overtime Pay = ₹40,000 x 10 = ₹4,00,000

This system ensures that all the overtime pay for overtime work is well-calculated for both salaried and hourly employees.

What factors determine overtime pay?

A number of factors may be used to determine the overtime pay’s rate, among these:

  • Classification of employees: Are they exempt or non-exempt workers for labor purposes?
  • Company Policies: Company policies regarding eligibility and rate of overtime.
  • Work Hours: The total hours worked in a week or pay period.
  • State and Local Laws: The differences that vary State and local laws about overtime compensation.

FAQs

Who are qualified for overtime pay?

The overtime pay is differently eligible in different countries. But in India, any employee working above 48 hours a week becomes eligible for the overtime pay.

Can the overtime be compensated by employees other than money?

No, employers have to pay 1.5 – 2 times the average pay of the employee when they work overtime. Monetary compensation needs to be obtained by the employees for overtime pay.

Can an employer require its employees to work overtime?

No. There is no compulsion where an employee can be forced to stay beyond his work hours.

What is a spread-over?

Spread-over is when you include your shift, from the time that you punched into work until the time you punched out, it also includes lunch and coffee breaks.

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