An Updated Guide to Calculating Overtime Pay - Sprout Solutions (2024)

(Updated June 23, 2023)

For many employees, the typical eight-hour workday has long been the norm, even in the era of working from home.

However, in this new landscape, some find themselves extending their work hours, struggling to maintain a healthy work-life balance amidst the at-home distractions.

Whenever an employee exceeds regular working hours, you’ll need to properly compensate them in the form of overtime (OT) pay, which is included in the list of benefits they 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, check out our comprehensive guide below.

What is Overtime Pay?

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.

Meanwhile, an employee working overtime on a holiday or rest day will receive 30% of their hourly rate from their employer.

Remember, though, that employers still need to pay overtime even if they’ve adopted work-from-home setups. The Telecommuting Law’s Implementing Rules and Regulations (IRR) now requires companies to pay their employees adequate overtime.

Who Isn’t Eligible for OT Pay?

According to the Labor Code, companies must 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:

1. Government employees, including workers in government-owned and controlled companies
2. Managers or employees who:
   1. Manage the business they work for or any of its departments or branches.
   2. Supervise two or more employees.
   3. Hire or fire employees or recommend changes to one’s employment status.
3. Officers or members of a managerial staff with the following tasks:
   1. Perform work related to their employer’s management policies.
   2. Make decisions based on their judgments.
   3. Help the business owner or their manager manage the company or a particular department or branch.
   4. Perform work requiring special training, experience, or knowledge OR special assignments and tasks.
   5. Spend 20% or fewer of their working hours on activities unrelated to the duties above.
4. Domestic helpers and individuals working for another person
5. Employees who receive results-based compensation, including workers with piece, takay, pakyaw, or task-based rates and non-time work. These types of pay should follow relevant regulations or the Labor Secretary’s fixed rates.
6. Field personnel or employees working outside their company’s location and without fixed working hours

When Can Employers Require OT Work?

Article 89 of the Labor Code states that employers may require employees to work overtime:

1. During war or national or local emergencies
2. During life-threatening situations caused by calamities like fires, floods, typhoons, or earthquakes
3. When employees need to conduct emergency repairs on machines, installations, or equipment to prevent serious loss or damage
4. When work is necessary to prevent loss or damage to perishable goods
5. When employees need to prevent any interruptions to business operations

In any of these cases, employers must pay workers the additional compensation stated in the Labor Code.

How Do Companies Compute Overtime Pay?

If your company pays employees for working overtime, you need to calculate how much they’ll receive. Here’s how to compute a worker’s overtime pay.

Regular Work Days

First, calculate the employee’s hourly pay or the amount they receive for every hour worked. You can compute the worker’s hourly pay by using this formula:

Daily rate ÷ 8 hours = Hourly rate

Let’s say the employee gets ₱800 per day. Your hourly rate computation should look like this:

₱800 ÷ 8 = ₱100

After getting the employee’s hourly pay, compute for hourly overtime rate with this overtime pay 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

Now, let’s say Employee A received our sample overtime hourly rate of ₱125 and worked for three hours. Here’s how we calculated their pay with overtime pay using the formula 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

We’ve mentioned that employees get 30% (or 130%) of their fixed hourly rate for working overtime on rest days and special non-working holidays. Use this formula to compute their OT pay on these days:

Hourly rate x 130% (1.3) x 130% (1.3) 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 could calculate their OT pay like this:

₱100 x 130% x 130% x 2 = ₱338 (₱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, they should receive an extra 30% of their hourly rate.

Hence, your overtime pay formula will be:

Hourly rate x 150% (1.5) x 130% (1.3) x number of hours worked

The 150% in the formula above represents the extra 50% from a worker’s hourly pay.

Now, let’s use our sample hourly rate and number of hours worked in our computation. Here’s how the formula looks with these sample values:

₱100 x 150% x 130% x 2 = ₱390 (₱100 x 1.5 x 1.3 x 2 = ₱390)

Regular Holidays

Companies also require some employees to work on regular holidays.

Employees working extra hours during a regular holiday are entitled to 30% more of their existing hourly rate. You can compute OT pay for regular holidays using this formula:

Hourly rate x 200% (2) x 130% (1.3) x number of hours worked

Unlike the previous overtime pay formula we used, the formula above includes a value of 200%. You add it to the employee’s pay for working on a regular holiday.

Here’s another example to see how the calculation works.

Employee C earns ₱300 per hour worked daily. When they worked on a regular holiday, they rendered three hours of overtime. Using the formula above, we get:

₱300 x 200% x 130% x 3 = ₱2,340 (₱300 x 2 x 1.3 x 3 = ₱2,340)

But if the employee works overtime on a regular holiday that falls on their rest day, they get 30% more of their hourly rate. In this case, you calculate OT pay with this formula:

Hourly rate x 200% (2) x 130% (1.3) x 130% (1.3) x number of hours worked

Your calculation should look like this:

₱300 x 200% x 130% x 130% x 3 = ₱3,042 (₱300 x 2 x 1.3 x 1.3 x 3 = ₱3,042)

Frequently Asked Questions About Overtime Pay

Do I need to include the cost of living allowance when calculating OT pay?

The Bureau of Working Conditions states that overtime pay computations exclude an employee’s COLA or pay for additional expenses in its Handbook on Workers’ Statutory Monetary Benefits.

How do I compute overtime pay for night shift employees?

The BWC’s Handbook on Workers’ Statutory Monetary Benefits provides the following rates for night shift OT pay computations:

• 137.5% for OT rendered during night shifts on regular days
• 185.9% for OT rendered during night shifts on rest days or special non-working holidays
• 286% for OT rendered during night shifts on regular holidays

How many hours can employees render for OT work?

The Department of Labor and Employment (DOLE) has set maximum allowable working hours for several Philippine industries.

Employees can work 12 to 16 hours (four to eight hours of overtime) depending on their tasks. However, companies with these allowable working hours must set at least 12 hours of turn-around time.

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 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 ensure 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.

Sprout’s Overtime Pay Computation Table

Processing payroll for employees in varying shifts and schedules can get tedious. You’d have to compute overtime pay for these employees, creating errors that delay payments and cause disputes.

Sprout’s payroll solution covers 32 types of pay rates, from basic holiday or rest day to chained (SH-ND-OT). In turn, you can customize your payroll for different work schedules and automate OT pay calculations.

More importantly, Sprout Payroll complies with BIR, PHIC, SSS, and Pag-IBIG’s mandated reports. We continuously update our system with the latest computation tables of taxes and statutory contributions without extra fees.

Talk to us about Sprout Payroll today, and visit our blog for more payroll tips and insights.