How to Calculate Overtime Pay in the Philippines: An HR Guide

For most employees in the Philippines, an eight-hour workday is the norm. However, with the changing work landscape, especially with the rise of remote work in Singapore, many employees find themselves working beyond these regular hours. When this happens, they are entitled to overtime (OT) pay as compensation for the extra hours they put in.

In this article, we'll break down what overtime pay is, who is eligible, and how you can calculate it.

For those interested in currency conversions, we’ve also provided information on how these amounts translate into Singapore Dollars (SGD).

Overtime pay is the additional compensation given to employees who work more than eight hours in a day.

According to the Labor Code of the Philippines, the standard OT pay rate on regular workdays is 25% more than the employee's usual hourly rate. However, this rate may be higher if the company or a collective bargaining agreement (CBA) specifies more generous terms.

For employees working on holidays or rest days, the OT pay rate increases to 30% above their normal hourly rate. This applies regardless of whether employees are working remotely or on-site, as the law mandates fair compensation for extra hours worked.

Not all employees are entitled to overtime pay under Philippine labor laws. The Labor Code outlines specific categories of workers who are exempt from receiving additional compensation for hours worked beyond the standard eight-hour workday.

Understanding who falls into these categories is crucial for employers to ensure compliance and avoid potential legal issues.

1. Government Employees

Employees who work for the government, including those in government-owned and controlled corporations, are generally not entitled to overtime pay.

This exemption recognizes that government workers often have different compensation structures and benefits compared to private sector employees.

2. Managerial Employees

Managerial employees are those who have significant authority and responsibility in the workplace.

They are typically responsible for managing the business or a specific department and may also oversee other employees. Because their roles often involve duties that extend beyond standard working hours, they are not eligible for overtime pay.

Key Characteristics of Managerial Employees:

• They manage the business or a department.
• They supervise two or more employees.
• They have the authority to hire or fire, or make recommendations affecting employment status.

3. Members of the Managerial Staff

Employees classified as members of the managerial staff perform roles that support the management of the business but do not have the same level of authority as full managers.

These staff members are still considered exempt from overtime pay due to the nature of their work, which often involves flexible hours and duties.

Duties May Include:

• Implementing management policies.
• Making independent decisions based on their judgment.
• Assisting the owner or manager in managing the business or a department.
• Performing tasks requiring specialized skills or knowledge.

4. Domestic Helpers

Domestic helpers, or household workers, are also exempt from overtime pay. These individuals work in private households and their employment conditions are typically governed by different regulations, which do not mandate overtime compensation.

5. Employees with Results-Based Compensation

Employees who are compensated based on the results of their work rather than the time they spend working are not eligible for overtime pay.

This category includes workers paid on a piece-rate, takay, pakyaw, or task-based basis. The rationale is that these employees are paid according to the output or task completion rather than hours worked.

Examples:

• Piece-rate workers: Paid per unit of work completed.
• Task-based workers: Paid for completing specific tasks or projects.

6. Field Personnel

Field personnel are employees who perform their duties away from the company's premises and whose working hours are not monitored in a fixed manner. Because their work environment and schedules can vary significantly, they are not covered by standard overtime regulations.

Characteristics:

• Work is performed outside the employer’s premises.
• They do not have regular working hours.
• They may have varied schedules depending on their field assignments.

7. Employees Under Flexible Work Arrangements

Some employees work under flexible work arrangements that allow them to manage their schedules independently.

This flexibility often means they are not subject to standard working hours example night shifts, and therefore, they do not qualify for overtime pay.

This includes telecommuting employees if their work is structured in a way that does not require them to adhere to fixed working hours.

These exemptions are essential to understand because they help define the boundaries of overtime compensation obligations for employers.

Misclassifying employees or incorrectly assuming eligibility for overtime pay can lead to disputes and potential penalties. Employers must carefully review the nature of each employee's role to determine whether they fall under any of these exempt categories.

This clear distinction ensures that only those who are rightfully entitled to overtime pay receive it, maintaining fair labor practices in compliance with the law.

There are specific scenarios where employers can require their employees to work overtime based on Article 89 of the Labor Code, such as:

• During National Emergencies: Like war or local disasters.
• Calamities: Including fires, floods, or earthquakes.
• Emergency Repairs: To prevent significant loss or damage.
• To Prevent Business Interruptions: Ensuring smooth operations.

In such cases, employers must pay the appropriate OT rates as outlined in the Labor Code.

Calculating overtime pay is crucial to ensuring that employees are fairly compensated for any extra hours they work beyond their regular schedule. Here’s a more detailed breakdown of the process:

Step 1: Determine the Employee’s Hourly Rate

The first step in calculating overtime pay is to determine the employee’s regular hourly rate. This rate is derived from their daily wage.

Formula: Hourly Rate = Daily Wage / 8 hours

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Example Calculation:

• If an employee earns a daily wage of ₱800, their hourly rate would be: ₱800 / 8 = ₱100 per hour
• In SGD, this is approximately SGD 2.41 per hour.

Step 2: Calculate the Overtime Hourly Rate

Overtime work is compensated at a higher rate than regular work. For regular workdays, the overtime rate is typically 25% more than the employee's regular hourly rate. This is to acknowledge the additional effort required to work beyond regular hours.

Formula: Overtime Hourly Rate = Hourly Rate × 1.25

Example Calculation:

• Using the hourly rate of ₱100: ₱100 × 1.25 = ₱125 per hour
• In SGD, this is approximately SGD 3.02 per hour.

Step 3: Multiply by the Number of Overtime Hours Worked

Once you have the overtime hourly rate, multiply it by the number of extra hours the employee has worked.

Formula: Overtime Pay=Overtime Hourly Rate×Number of Overtime Hours

Example Calculation:

• If the employee worked 3 hours of overtime: ₱125 × 3 = ₱375 (Overtime Pay)
• In SGD, this is approximately SGD 9.06.

Step 4: Add the Overtime Pay to the Regular Daily Wage

To get the total daily earnings, add the overtime pay to the employee’s regular daily wage.

Formula: Total Daily Wage = Regular Daily Wage + Overtime Pay

Example Calculation:

• If the regular daily wage is ₱800 and the overtime pay is ₱375: ₱800 + ₱375 = ₱1,175 (Total Daily Wage)
• In SGD, this totals approximately SGD 28.31.

When an employee works overtime on rest days or special holidays, the calculation changes due to the higher compensation rates mandated by law.

Rest Days and Special Non-Working Holidays

On these days, the overtime rate is calculated at 130% (or 1.3 times) of the regular hourly rate.

Formula: Overtime Pay=Hourly Rate×1.3×Number of Overtime Hours

Example Calculation:

• If an employee’s hourly rate is ₱100 and they work 2 extra hours: ₱100 × 1.3 × 1.3 × 2 = ₱338 (Overtime Pay)
• In SGD, this is approximately SGD 8.17.

If the rest day coincides with a special non-working holiday, employees are entitled to an additional 30% of their hourly rate.

Formula: Overtime Pay=Hourly Rate×1.5×1.3×Number of Overtime Hours

Example Calculation:

• Using the previous hourly rate and hours worked: ₱100 × 1.5 × 1.3 × 2 = ₱390 (Overtime Pay)
• In SGD, this is approximately SGD 9.43.

Regular Holidays

On regular holidays, overtime pay is calculated at twice the regular hourly rate, plus an additional 30% for the overtime work.

Formula: Overtime Pay = Hourly Rate × 2 × 1.3 × Number of Overtime Hours

Example Calculation:

• If an employee’s hourly rate is ₱300 and they work 3 extra hours: ₱300 × 2 × 1.3 × 3 = ₱2,340 (Overtime Pay)
• In SGD, this is approximately SGD 56.39.

If the holiday falls on a rest day, the employee is entitled to an additional 30% on top of this.

Formula: Overtime Pay=Hourly Rate×2×1.3×1.3×Number of Overtime Hours

Example Calculation:

• With the same hourly rate and hours worked: ₱300 × 2 × 1.3 × 1.3 × 3 = ₱3,042 (Overtime Pay)
• In SGD, this is approximately SGD 73.37.

1. Do I Include the Cost of Living Allowance in OT Pay?

No, the cost of living allowance (COLA) is not included in overtime pay calculations.

2. How is OT Pay Calculated for Night Shifts?

The Bureau of Working Conditions provides the following rates:

• 137.5% for OT during night shifts on regular days.
• 185.9% for OT during night shifts on rest days or special holidays.
• 286% for OT during night shifts on regular holidays.

3. What is the Maximum Number of OT Hours an Employee Can Work?

Employees can work 12 to 16 hours a day (4 to 8 hours of overtime), depending on their tasks. A minimum of 12 hours turnaround time between shifts is required.

4. Is Overtime Mandatory?

Overtime is generally not mandatory unless required by specific situations such as emergencies.

5. Can Employees Request Overtime Work?

Employees should not request overtime unless the situation warrants it and the employer agrees.

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