What is overtime and how to calculate it?

1 of March, 2021

Overtime is a fact of life in the modern office workplace. Depending on the country you are in, employees are required to report the amount of hours they work extra and be paid extra accordingly. That is why your HR team needs to understand how to calculate overtime. They can also be offered in lieu days. If you want a reliable way to track extra hours, we have the advice and the digital tools here just for you.

What is overtime?

The overtime definition can refer to the amount of time someone works beyond normal working hours. It is also a term used to describe the pay one receives for working these extra hours. Normal hours are usually fixed in your contract and subject to employment laws in your country. The assumption is that extra hours worked must be remunerated at a higher rate than the employee’s starting hours in the contract.

Overtime can be a headache for managers, despite being a simple concept. Often the debate ranges around :

• What rate (as a % of their standard salary) is the employee entitled to as extra pay if they work extra hours.
• Can I compensate my employee with other things than extra pay such as days off.
• What is overtime in respect to extra hours worked.

How is overtime calculated?

Overtime hours can be calculated with the following formula for overtime :

Price of overtime hours = (monthly pay/30) / (daily working hours) * 1.75

With 1.75 being the rate at which you pay extra hours. This rate has to be set by either the company or it is enshrined in law. In Spain for example overtime pay has to be 75% added to your normal hourly rate.

What are in lieu days or in lieu time?

In lieu days are holidays given to employees who have worked enough extra hours worked to be compensated with the equivalent of such hours.

In lieu days help employers reduce their payout costs and employees tend to favor them too at times, in order to go on holiday or just take a few more intervals. Some employees prefer getting everything done in 3 or 4 working days and this gives them the flexibility to do so while still being paid the same amount they would if they worked their hours across 5 days.

With a time tracking app like Sesame you can even have in lieu hours, so that you can give compensation in an even more precise manner.