Overtime pay is a critical aspect of labor law compliance in the Philippines. For HR and payroll professionals, understanding the nuances of overtime regulations is essential to ensure fair compensation and avoid legal pitfalls. This guide provides an in-depth look at overtime pay regulations, including legal bases, computation methods, and best practices for HR and payroll professionals.
What Is Overtime?
Overtime refers to work performed beyond the standard eight (8) hours per day or 48 hours per week, as stipulated by Article 87 of the Labor Code of the Philippines, and Telecommuting Act (RA 11164). Employees who render overtime work are entitled to additional compensation, unless specifically exempted.
Who Is Entitled to Overtime Pay?
In the Philippines, eligibility for overtime compensation depends on an employee’s classification and job responsibilities. This section offers an overview of the key guidelines and exemptions, making it easier for employers and employees alike to navigate their rights and obligations under the law.
Eligible Employees
Rank-and-File Employees
These are employees who do not hold managerial positions and are entitled to the benefits provided under the Labor Code.
Workers with Fixed Work Hours
Employees who have a set schedule and are required to work beyond their designated hours are eligible for overtime compensation.
Telecommuting Employees
Under the Telecommuting Act (RA 11165), remote workers are entitled to the same benefits as on-site employees, including overtime pay.
Employees Covered by a Collective Bargaining Agreement (CBA)
If a CBA stipulates overtime provisions, employees covered by it are entitled to overtime pay as per the agreement’s terms.
Not Eligible Employees
Government Employees
Employees of government agencies are typically compensated through Compensatory Time Off (CTO) instead of overtime pay.
Managerial Employees
Those who have the authority to hire, transfer, suspend, lay off, recall, discharge, assign, or discipline other employees, and whose primary duty consists of the management of the establishment, are not entitled to overtime pay.
Managerial Staff
Employees who assist managerial employees in the performance of their duties and who are paid a fixed monthly salary are generally exempt from overtime compensation.
Domestic Helpers (Kasambahay)
Employees working in households as domestic helpers are not entitled to overtime pay under the Kasambahay Law.
Field Personnel
Employees whose primary duties require them to be out of the office and whose hours of work cannot be determined with certainty are exempt from overtime pay.
Employees Paid on a Per-Project Basis
Workers who are compensated based on the completion of a specific project or task, and whose employment is not continuous, are generally not entitled to overtime pay.
Employees Receiving Fixed Monthly Salaries Above a Certain Threshold
Employees whose monthly salaries exceed a specified amount may be exempt from overtime pay, depending on the nature of their work and the terms of their employment contract.
Who Is Entitled to Overtime Pay?
Overtime pay isn’t one-size-fits-all—it changes depending on the day and the type of work involved. Whether it's a regular weekday, a holiday, or a rest day, each scenario can come with its own rate. These variations are designed to reflect the added value or inconvenience of working during specific times.
Rest Days
Employees are entitled to a rest period of at least 24 consecutive hours after every six consecutive workdays.
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If an employee works on their scheduled rest day, they must receive an additional 30% of their regular wage.
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If an employee has no fixed work/rest schedule, work on Sundays or holidays earns an extra 30% of the regular wage.
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If a holiday falls on a rest day, and work is required, the employee is entitled to at least 50% additional pay on top of their regular wage.
Special (Non-Working) Days
Special holidays are declared by law or presidential proclamation and are not the same as regular holidays.
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Work on a special holiday is paid at 130% of the regular wage.
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If the employee works overtime beyond eight hours on a special day or rest day (non-regular holiday), they receive their regular hourly rate plus at least 30%.
Regular Holidays
These are officially recognized national holidays.
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Working on a regular holiday earns 200% of the daily wage for up to 8 hours.
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If the holiday falls on a rest day, employees are entitled to an additional 30% of the 200% wage.
Regular Holidays in the Philippines:
- New Year’s Day – January 1
- Maundy Thursday – Tentative Date
- Good Friday – Tentative Date
- Day of Valor – April 9
- Eid Al-Fitr – Tentative Date
- Labor Day – May 1
- Independence Day – June 12
- National Heroes Day – August 26
- Bonifacio Day – November 30
- Christmas Day – December 25
- Rizal Day – December 30
|
Type of Day |
Overtime Rate |
|
Regular Workday |
+25% (1.25x hourly rate) |
|
Rest Day or Special Holiday |
+30% (1.3x hourly rate) |
|
Regular Holiday |
+30% on top of 200% base pay |
|
Rest Day + Holiday |
Up to +130% over base |
Who Is Entitled to Overtime Pay?
This section provides detailed steps for calculating overtime pay for both monthly and daily paid employees.
Monthly-Paid Employees
For employees on a monthly salary, the computation involves determining the daily and hourly rates based on the monthly salary and the number of working days in a month.
Calculate Daily and Hourly Rates
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Formula: Daily Rate = Monthly Salary ÷ Number of Working Days
Hourly Rate = Daily Rate ÷ 8
Example:
For a monthly salary of ₱20,000 and 22 working days in a month:
Daily Rate = ₱20,000 ÷ 22 = ₱909.09
Hourly Rate = ₱909.09 ÷ 8 = ₱113.64
Daily-Paid Employees
For employees paid on a daily basis, overtime pay is calculated based on their daily wage.
Regular Workday Overtime
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Formula: Overtime Pay = (Hourly Rate × 1.25) × Overtime Hours
Example:
If an employee's daily wage is ₱800, the hourly rate is ₱800 ÷ 8 = ₱100. For 2 hours of overtime on a regular workday:
Overtime Pay = (₱100 × 1.25) × 2 = ₱250
Rest Day or Special Holiday Overtime
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Formula: Overtime Pay = (Hourly Rate × 1.30) × Overtime Hours
Example:
For the same employee working 2 hours on a rest day:
Overtime Pay = (₱100 × 1.30) × 2 = ₱260
Regular Holiday Overtime
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Formula: Overtime Pay = (Hourly Rate × 2.00) × Overtime Hours
Example:
For 2 hours of overtime on a regular holiday:
Overtime Pay = (₱100 × 2.00) × 2 = ₱400
Night Shift Differential Pay
Night shift differential is a premium pay granted to employees who work between 10:00 PM and 6:00 AM. According to Article 86 of the Labor Code of the Philippines, private sector employees are entitled to a night shift differential of no less than 10% of their regular wage for each hour of work performed during this period – while government employees are entitled to 20%.
Regular Night Shift
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Formula: Night Differential Pay = Hourly Rate × 1.10 × Night Shift Hours
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Example:
For an hourly rate of ₱100 and 8 hours worked between 10:00 PM and 6:00 AM:
Night Differential Pay = ₱100 × 1.10 × 8 = ₱880
Night Shift on Rest Day or Special Holiday
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Formula: Night Differential Pay = Hourly Rate × 1.30 × 1.10 × Night Shift Hours
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Example:
For an hourly rate of ₱100 and 8 hours worked on a rest day:
Night Differential Pay = ₱100 × 1.30 × 1.10 × 8 = ₱1,144
Night Shift on Regular Holiday
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Formula:
Night Differential Pay = Hourly Rate × 2.00 × 1.10 × Night Shift Hours
Example:
For an hourly rate of ₱100 and 8 hours worked on a regular holiday:
Night Differential Pay = ₱100 × 2.00 × 1.10 × 8 = ₱1,760
Overtime and Night Shift Differential Pay Computation
To compute overtime pay for night shift employees, it’s important to apply the correct rate based on the type of day the work was performed. According to the BWC’s Handbook on Workers’ Statutory Monetary Benefits, night shift overtime (OT) pay is computed using specific percentage rates. For OT done during night shifts on regular working days, employees should be paid 137.5% of their hourly rate. On rest days or special non-working holidays, the OT night shift pay rate increases to 185.9%. For OT during night shifts on regular holidays, the rate is significantly higher at 286%
Sample Computations (₱100 hourly rate):
Regular Day Night Shift OT Pay
₱100 × 137.5% = ₱100 × 1.375 = ₱137.50Rest Day/Special Non-Working Holiday Night Shift OT Pay
₱100 × 185.9% = ₱100 × 1.859 = ₱185.90
Regular Holiday Night Shift OT Pay
₱100 × 286% = ₱100 × 2.86 = ₱286.00
When Is Overtime Required?
Employers can legally require OT work in specific situations where business operations demand additional labor beyond regular hours. These circumstances are typically exceptional and are outlined in labor laws to ensure that overtime work is justified and compensated appropriately.
Employers can legally require OT work in cases of:
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War or national emergencies
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Life-threatening disasters (e.g., typhoons, earthquakes)
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Urgent equipment repairs
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Preventing loss of perishable goods
- Avoiding disruption of business operations
Common Mistakes of Companies in Overtime Pay Computation – and How to Avoid Them
Accurate overtime computation is not just a payroll concern—it’s a legal obligation. Mistakes in calculating OT can lead to employee grievances, costly labor disputes, financial penalties, and lasting damage to a company’s credibility. Below are some of the most frequent errors made by employers, along with tips on how to prevent them:
Excluding Overtime for Remote Employees
Under the Telecommuting Act (RA 11165), remote or work-from-home employees are entitled to the same labor standards and benefits as on-site staff, including overtime pay. To stay compliant, employers must implement reliable time-tracking systems for remote work and ensure that hours beyond the standard workday are properly compensated.Misclassifying Employees as “Exempt” from OT Pay
Some employees are incorrectly labeled as exempt from OT pay, often due to their job titles or fixed monthly compensation. However, exemption depends on the actual nature of work, not just position or pay level. Employers should review the DOLE guidelines or consult with HR experts to accurately classify roles and avoid unjust denial of OT pay.Basing Overtime Pay on Gross Income (Including Allowances)
Overtime pay should be calculated based on the basic salary only—excluding allowances, bonuses, commissions, or other non-regular payments. Using the gross income leads to inflated or inaccurate OT rates. To avoid this, payroll systems should separate taxable basic pay from variable pay components when computing OT.Manual Miscalculations in Spreadsheet-Based Payroll Systems
While spreadsheets offer flexibility, they are prone to human error—especially in handling formulas, data entry, and rate updates. These manual mistakes often go unnoticed until a labor complaint arises. Companies are advised to invest in automated payroll systems with built-in compliance checks, or at the very least, regularly audit manual computations for accuracy and consistency
Statute of Limitations: Timeframe for Filing Unpaid Overtime Claims
Understanding the statute of limitations is vital for both employers and employees when it comes to unpaid overtime. According to Article 291 (now renumbered as Article 306) of the Philippine Labor Code, employees have three (3) years from the time the cause of action accrued to file claims for unpaid monetary benefits, including overtime pay. This means that the employee must initiate a claim within three years from the date the unpaid overtime was incurred—or risk losing their legal right to recover those wages.
For employees, this underscores the importance of regularly reviewing pay slips, keeping personal time records, and raising discrepancies as soon as they are noticed. Delays in action could lead to forfeiture of claims, regardless of their validity.
For employers, understanding this time limit is equally important. Failure to settle legitimate OT claims within this period does not only risk retroactive financial liability but may also expose the company to legal complaints and interest penalties. Employers should maintain detailed, organized records of timekeeping and payroll transactions for at least three (3) years to prepare for potential audits or labor claims.
Penalties for Non-Compliance
Failure to properly compensate employees for overtime is a serious violation of labor standards and can lead to both legal and financial consequences. Under the Labor Code of the Philippines, employers who fail to comply with overtime pay requirements may face fines per violation, as well as imprisonment at the discretion of the court, depending on the severity and frequency of the offense.
Beyond monetary and criminal penalties, employers risk being the subject of labor complaints, which can lead to mandatory audits by the Department of Labor and Employment (DOLE) and even temporary suspension of business operations.
Best Practices for HR and Payroll Teams
Having the right systems in place makes a big difference when it comes to handling overtime pay. By following clear processes and using dependable tools, HR and payroll teams can work more efficiently and reduce the chances of mistakes. Solutions like PayrollPlus can simplify the entire process, helping ensure overtime calculations are accurate and hassle-free.
Key Features of PayrollPlus:
Automated Overtime Calculations: PayrollPlus automatically computes overtime pay based on the type of day (regular, rest day, special holiday, or regular holiday), ensuring accurate and timely compensation.
Compliance with Philippine Labor Laws: The software is updated to reflect the latest changes in labor regulations, ensuring that your business remains compliant.
Employee Self-Service Portal: Employees can access their overtime records, submit requests, and view payslips through a user-friendly portal, promoting transparency and trust.
Customizable Payroll Settings: PayrollPlus allows businesses to configure overtime rules and rates specific to their operations, accommodating various pay structures and agreements.
Comprehensive Reporting: Generate detailed reports on overtime hours worked, overtime pay, and compliance metrics, aiding in audits and internal reviews.
Integration with Timekeeping Systems: Seamlessly integrate with biometric and online timekeeping systems to capture accurate attendance data for precise overtime calculations.
By implementing PayrollPlus, businesses can mitigate the risk of overtime pay errors, ensure compliance with labor laws, and enhance overall payroll efficiency.
