Computing the Overtime Pay of a Monthly Paid Employee receiving Above-Minimum Salary

Previously, we posted an article on how to compute the overtime pay of employees who are minimum wage earners using the daily wage rate in NCR per Wage Order No. NCR-22 or PhP537.00 per day.

However, there are employees who are entitled to overtime pay for work beyond eight (8) hours but are monthly paid. In practice, monthly paid employees can be rank-and-file, supervisory, or managerial in level.

It is settled that supervisory and managerial employees, as a general rule, are not entitled to overtime pay under Art. 82 of the Labor Code. (See pp. 51-52 of re-numbered and updated Labor Code of the Philippines, 2018 Edition by Atty. Villanueva)

Overtime work is performed beyond eight hours of work. This should be compensable at a rate provided by law.

A monthly paid employee is one who is considered paid all days of the year. The factor used is 365 days to determine the equivalent annual and monthly salary of monthly-paid employees.

To compute the Estimated Equivalent Monthly Rate (EEMR) of a monthly-paid employee, the procedure is as follows:

EEMR =         Applicable Daily Rate (ADR) x 365

12 months

Where 365 days/year =      297 ordinary working days

52 rest days

12 regular holidays

   4 special days

365 Total equivalent no. of days/year

For instance, a rank-and-file employee who receives a monthly salary of PhP18,000.00 is also entitled to overtime pay for work beyond eight (8) hours. To compute the overtime rate, it is necessary to breakdown the salary into days and then hours.

The simplistic and inaccurate approach is to divide the PhP18,000.00 by 30 days. But there are months which have 31 days. Hence, the best formula to use is the EEMR approach.

Applying it now:

Daily Rate     =          Monthly Pay x 12 months

365 days

=          PhP18,000.00 x 12 months

365 days

=          PhP216,000.00

365 days

=          PhP591.780822

=          PhP591.78 (rounded-off)

Since overtime pay is usually computed on an hourly basis, the daily rate should be divided by eight (8) hours considering that the daily salary is presumed to be for the eight (8) hours of work. Thus, the hourly rate of the daily rate of PhP591.780822 is as follows:

Hourly rate    =          Daily rate / 8 hours

=          PhP591.780822 / 8 hours

=          PhP73.9726028

=          PhP73.97 (rounded-off)

It bears noting that an employee cannot refuse to render overtime where there is business necessity or emergency to do so in accordance with the Labor Code. Refusal to render overtime can be ground for disciplinary action. (See page. 137, Guide to Valid Dismissal of Employees, 2^nd Edition by Atty. Elvin B. Villanueva citing R.B. Michael Press vs. Galit, G.R. No. 153510, February 13, 2008)

In computing overtime, every HR Practitioner, Business Owner or Manager needs to know are 1) Rates 2) Premium Days Days.

There are only two (2) rates: 1) 25% on ordinary working day and 2) 30% on rest days and holidays. The premium days are 1) rest days 2) special days 3) regular holidays (note: there is no more “legal holiday” as the term was changed to “regular holiday” under R.A. 9492 amending Section 26, Chapter 7, Book I of Executive Order No. 292, otherwise known as the Administrative Code of 1987).

Chances are, the premium days may happen on the same day such as rest day that falls on special day or regular holiday. Each of these combinations will be considered in showing the sample computations below.

The sample computations are based on the upcoming title Guide on Employee Compensation and Benefits Volume 1, 2nd Edition 2020 by Atty. Villanueva. Watch out for the discounted introductory retail price and editable soft copy version.

Going back to the illustration, assuming that Ma. Tinde S. Saote is an Administrative Assistant based in NCR, how do we compute her OT pay on ordinary day, special day, regular holiday and rest day assuming in each of the said instances she rendered OT work for two (2) hours?

The daily and hourly rates shown above will be used in computing based on the formula provided.

Scenario A:   OT pay for work in excess of eight (8) hours performed on ordinary working days, she must be paid an additional twenty-five percent (25%) of the hourly rate of said ordinary working day

Formula:        OT Pay = Daily rate / 8 hours x 125% x number of hours of OT work

Computation:

OT Pay           = PhP591.780822 / 8 hours x 125% x 2 hours

= PhP73.9726028 x 125% x 2 hours

=PhP92.4657534 x 2 hours

= PhP184.93

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Scenario B:   OT pay for work in excess of eight (8) hours performed on a special day she must be paid an additional thirty percent (30%) of the hourly rate of said special day

Formula:        OT Pay = Daily rate / 8 hours x 130% x 130% x number of hours OT work

Computation:

OT Pay           = (([PhP591.780822 / 8 hours] x 130%) x 130%) x 2 hours

= (([PhP73.9726028] x 130%) x 130%) x number of hours OT work

= ((PhP96.1643836) x 130%) x 2 hours

= (PhP125.013699) x 2 hours

= PhP250.03

Scenario C:   OT pay for work in excess of eight (8) hours performed on a scheduled rest day she must be paid an additional thirty percent (30%) of the hourly rate of said rest day

Formula:        OT Pay = Daily rate / 8 hours x 130% x 130% x number of hours OT work

Computation:

OT Pay           = (([PhP591.780822 / 8 hours] x 130%) x 130%) x 2 hours

= (([PhP73.9726028] x 130%) x 130%) x number of hours OT work

= ((PhP96.1643836) x 130%) x 2 hours

= (PhP125.013699) x 2 hours

= PhP250.03

Scenario D:   OT pay for work in excess of eight (8) hours performed on a special day that falls on a scheduled rest day she must be paid an additional thirty percent (30%) of the hourly rate of said day

Formula:        OT Pay = Daily rate / 8 hours x 150% x 130% x number of hours OT work

Computation:

OT Pay           = (([PhP591.780822 / 8 hours] x 150%) x 130%) x 2 hours

= (([PhP73.9726028] x 150%) x 130%) x number of hours OT work

= ((PhP110.958904) x 130%) x 2 hours

= (PhP144.246575) x 2 hours

= PhP288.49

Scenario E:   OT pay for work in excess of eight (8) hours performed on a regular holiday she must be paid an additional thirty percent (30%) of the hourly rate of regular holiday

Formula:        OT Pay = Daily rate / 8 hours x 200% x 130% x number of hours OT work

Computation:

OT Pay           = (([PhP591.780822 / 8 hours] x 200%) x 130%) x 2 hours

= (([PhP73.9726028] x 200%) x 130%) x number of hours OT work

= ((PhP147.945206) x 130%) x 2 hours

= (PhP192.328767) x 2 hours

= PhP384.66

Scenario F:   OT pay for work in excess of eight (8) hours performed on a regular holiday that falls on a scheduled rest day she must be paid an additional thirty percent (30%) of the hourly rate of said day

Formula:        OT Pay = Daily rate / 8 hours x 260% x 130% x number of hours OT work

Computation:

OT Pay           = (([PhP591.780822 / 8 hours] x 260%) x 130%) x 2 hours

= (([PhP73.9726028] x 260%) x 130%) x number of hours OT work

= ((PhP192.328767) x 130%) x 2 hours

= (PhP250.027397) x 2 hours

= PhP500.05

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