A study found that 71% of employees worked overtime at least once a week. While this can boost productivity, failing to compensate your employees for these extra hours violates a major Philippines labor law. 

ADP Research Institute reports that unpaid overtime increased from an average of 7.3 hours a week in 2020 to 9.2 hours per week in 2021. This trend is concerning in a country like the Philippines, where protecting employees and ensuring fair compensation are priorities.

When it comes down to how to compute overtime pay Philippines, it can be complex for HR professionals and business owners, especially if they are not familiar with the labor laws. Manual methods can be time-consuming and prone to errors.

This guide explains how to compute overtime pay Philippines, helping you navigate this process and ensuring compliance with labor laws.

What is overtime pay?

Overtime pay is a crucial component of how to compute overtime pay and is mandated by Philippine labor law, governed by the Labor Code, as it compensates employees for working beyond regular hours. 

The law stipulates normal work hours of eight per day or 48 per week, with overtime pay rates varying depending on the day. For instance, on regular workdays, overtime pay is set at 25% of the regular hourly rate, while on rest days and holidays, it is 30% of the hourly rate.

This compensation is designed to protect employees from exploitation and ensure fair pay. HR teams and employers should foster transparency in their company culture. The essence of overtime pay is to protect employees from exploitation and ensure they receive fair compensation for their work. Understanding how to compute overtime pay rates accurately is essential to avoid errors.

What are the types of overtime pay?

In the Philippines, there are specific labor laws governing overtime pay. These regulations state the types of overtime pay and the different rates for regular days, special days, rest days, and holidays. 

1. Regular day overtime 

Employees get this compensation when they work overtime on ordinary work days

2. Rest day overtime 

This is the compensation for employees who work during their rest days. Usually, rest days are at least 24 hours after every six consecutive regular work days. 

3. Special holiday overtime 

When employees work on a day the government declares as a public holiday, they are to be compensated with extra pay for the additional hours rendered.

4. Regular holiday overtime

This is the pay for working on regular holidays like Christmas, Eid’l Fitr, Maundy Thursday, Christmas, or New Year’s Day.

5. Emergency overtime

This is the payment for work done during war, natural disasters, or emergencies when urgent work is needed to prevent loss of life or damage.

In addition to understanding how to compute overtime pay Philippines, it’s crucial to use an accurate formula that takes into account specific circumstances and labor regulations. This is necessary because computations differ for each additional hour worked, and employees can earn more based on the type of overtime pay.

For example, when employees work on a special holiday, they should receive an additional payment of at least 30% of their regular wage. If the holiday falls on their scheduled rest day, the employee is entitled to an extra rate of at least 50% of their regular wage. 

Who is eligible for overtime?

To learn how to compute overtime pay Philippines, it is important to first understand who is eligible for overtime. Regular employees are eligible for overtime pay. However, exceptions include:

• Managerial employees

These are employees whose main job involves supervising the company, a department, or other management team members. Managerial employees aren’t entitled to overtime pay when they exceed eight working hours.

• Field personnel

This refers to non-agricultural employees who carry out their duties outside the principal place of business. They’re not eligible because their actual work hours in the field aren’t certain. 

• Retail and service establishments

Retail and service establishments with less than ten workers are not eligible for overtime pay.

Other employees not eligible for overtime, as provided under Article 82 of the Labor Code, are:

• The employer’s family members depend on them for support.
• Domestic helpers 
• Individuals in the personal service of another
• Workers are paid by results determined by the Secretary of Labor in appropriate regulations.

When can employers require overtime work?

The Labor Code spells out the requirement for overtime work Philippines and provides a legal framework for fair compensation. Per the code, employers can request overtime work during:

• National emergencies

The National Assembly or the Chief Executive can declare a national emergency during situations that threaten the nation’s security, economy, or welfare. Such emergencies include natural disasters, terrorist attacks, economic crises, and public health emergencies. You can request overtime work during this period.

• Local emergencies

Demand extra work during certain events threatening public safety, health, or property within a particular city, state, or town. Such local emergencies include natural disasters, power outages, pandemics, or other unforeseen emergencies.

• Urgent tasks on machines, installations, or equipment

When your company’s machines, installations, or equipment need urgent fixing, you’re entitled to demand extra hours.

• Prevent loss or damage to perishable goods

Request additional working hours when needed to avoid the loss or damage of certain goods. However, you must be sure the situation requires overtime work by considering the nature of the perishable goods, how urgent they are, and the likely consequences of not acting on time.

• Abnormal pressure of work due to special circumstances

Ask employees to work overtime when there’s much extra work due to special situations. This request should be made when alternatives like outsourcing tasks, hiring makeshift workers, or adjusting schedules are difficult to adopt.

• Completion of work needed before the regular 8-hour workday

Employees can work extra hours if needed to complete or continue a task started before the eighth hour to avoid serious problems for business operations. 

Can employees request or refuse overtime work?

Employees can request overtime to extend their working hours beyond the regular schedule, but approval depends on factors like labor laws, operational needs and company policies. 

HR teams consider factors such as performance, availability, budget, workload, and staffing levels when granting these requests.

Overtime work in the Philippines is voluntary, and employers should not compel employees to work beyond their standard hours. However, compulsory overtime is allowed during emergencies, imminent losses, or critical business situations. Refusal to work additional hours during such circumstances may lead to disciplinary actions or termination. 

How to compute overtime pay Philippines?

Paying for overtime has the advantage of boosting employee productivity. The additional compensation enhances employee engagement, motivating employees to strive harder to achieve goals. Ultimately, this approach ensures that every hour worked is fairly compensated in accordance with the law.

However, it all begins with an accurate overtime pay formula to properly show you how to compute overtime pay. This process may appear complex at first glance. For example, you cannot simply calculate overtime pay by multiplying additional hours worked by a fixed rate. Instead, you must adhere to the specific regulations that govern how to compute overtime pay Philippines.

1. Determine the regular hourly rate

The first step on how to compute overtime pay Philippines is to set the hourly rate. As we established previously, the standard working hours in the Philippines are eight hours per day or 48 hours per week. So, to get the regular hourly rate, work with the employee’s salary or daily wage.

Read next: Philippines Minimum Wage Guide for Employers

Say you’re in the Davao region, and your company is in the non-plantation agricultural sector. The Philippine minimum wage for this sector is ₱457 per day. To get the hourly rate, divide the daily wage by eight hours.

For example: ₱457/8= ₱57.125 as hourly rate.

On the other hand, you’ll have to determine the daily wage if you’re working based on salaries. 

For example: if an employee earns ₱50,000 monthly and works 22 days per month, the daily wage would be:

₱50,000 / 22 = ₱2272.727

Now, to get the hourly rate, divide the daily wage by 8:

 ₱2,272.727 / 8 = ₱284.09 

2. Identify the applicable overtime rate

Up next on how to compute overtime pay, identify the applicable overtime rate, which typically ranges from 125% to 200% of the employee’s regular wage rate, with higher rates during rest days and holidays. 

Since the overtime rate depends on the type of overtime, here are examples of applicable rates per day:

• Regular work day: 25% wage increase for each hour.
• Rest day or special day: 30% wage increase per hour.
• Special holiday that falls on a scheduled work day: 50% wage increase. 
• Regular holiday: 30% wage increase.
• Overtime work falling on a scheduled rest day: 30% wage increase.
• Night shift: at least a 10% wage increase for each hour.

3. Calculate the overtime hours

The next step on how to compute overtime pay is to calculate the extra hours worked for overtime pay. For example, if an employee worked overtime for a day, that would be eight hours. If they worked an additional two hours, the overtime would be two hours. This information is crucial for the subsequent steps in the overtime pay formula.

4. Compute the overtime pay

Compute the overtime pay depending on the applicable OT rate. 

For example, using the 25% overtime rate for a regular workday:

Multiply the hourly rate by 125%, that is 1.25. 

If the base hourly rate is ₱100, the overtime pay per hour will be ₱125.

5. Add up the total overtime pay

The final step on how to compute overtime pay Philippines is to add up the total overtime pay. 

If an employee works two extra hours on a regular workday at an hourly rate of ₱100, their overtime pay would amount to ₱125 X 2, totalling an additional ₱250 to their regular wage. Working two hours for five days in a week would result in an additional of ₱1250 to their regular wage by the end of the week.

Calculating overtime pay for night shift employees

Employees who work between 10:00 pm and 6:00 am are entitled to a night shift differential (NSD) of at least 10% of their regular hourly wage.

In this case, the steps above to compute overtime pay for night-shift employees still apply.

For example, if an employee worked two additional hours during a night shift and their hourly wage was ₱100, it’ll amount to:

₱100 x 10% = ₱10 + ₱100 = ₱110 as the NSD rate.

₱110 x 1.25 = ₱137.50 as the overtime rate.

₱137.50 x 2 hours = ₱275 as overtime pay.

Ways to Ensure Responsible Overtime Practices

Overtime can boost productivity and income in a company. However, knowing how to compute overtime pay Philippines is just the beginning; effectively managing the process is equally important. 

Failure to manage extra working hours properly can lead to serious consequences, including a lack of work-life balance, employee burnout, reduced engagement, and ironically, lower productivity.

To mitigate these risks, consider these steps to manage your employees’ overtime effectively: 

Plan and schedule work effectively

Forecast workload changes by reviewing past data and business trends. This prepares you and leaves enough room to add extra working hours to the company’s schedule. Then, set realistic goals and delegate tasks based on importance and urgency for better execution.

Compensate employees fairly

Fair compensation is a fundamental aspect of the Philippine labor code and a key driver of employee motivation. By following the steps outlined on how to compute overtime pay Philippines, your company will give employees fair payment for additional hours worked.

Maintain clear communication and accurate records

Effective communication is essential in any organization. Internal communication channels should facilitate this to ensure employees provide prompt responses and feedback. It’s also important to align communication with your company values. Use channels such as newsletters, emails, communication apps, and 1-on-1 meetings to enhance communication and involve everyone, including remote workers.

Additionally, maintaining accurate records of employees on your payroll is crucial. Managing performance ensures alignment with your company’s remuneration and goals. Secure employee records allow HR teams to easily access employment contracts and necessary documents to assist with how to compute overtime pay Philippines and other wage adjustments. This approach helps in developing a company culture that fosters employee satisfaction and growth.

Promote healthy work-life balance

Maintaining a healthy work-life balance is a crucial aspect for employee well-being, productivity, and job satisfaction. Encourage employees to manage their time effectively and prioritize their health, relationships, and interests outside of work. 

Provide support through flexible work arrangements, rest periods, clear communication of expectations, time off, and activities that enhance mental, physical, and emotional well-being.

Optimize Overtime Management with HR Tools

Ensuring accuracy in computing overtime pay is crucial for both employees and employers. It not only helps in complying with labor laws but also fosters trust and fairness in the workplace. 

Additionally, optimizing overtime management with HR tools like Omni can streamline processes, reduce errors, and improve overall efficiency on how to compute overtime pay Philippines. 

With features like support for Philippine peso, automated tax calculations, and managed SSS, PhilHealth and PAG-IBIG contributions, Omni can help HR simplify the overtime pay formula and ensure compliance to the Labor Code with ease. 

Book a demo with us today and see how Omni can simplify the intricacies and complexities on how to compute overtime pay in the Philippines and minimize the costs associated with common errors.