How to Compute Overtime Pay in the Philippines: 2025 Guide

Overtime pay ensures that employees are fairly compensated for work beyond their regular hours. Under the Philippine Labor Code, employers must pay overtime based on specific rates, depending on the type of day (regular workday, holiday, or rest day).

In this guide, we’ll break down the step-by-step computation of OT pay, explain legal policies employers must follow, and highlight common payroll mistakes to avoid. We’ll also explore how payroll software can automate overtime calculations and what employees can do if their OT pay isn’t paid correctly.

Step-by-Step Guide: How to Compute OT Pay

Calculating OT pay requires applying the correct rate based on an employee’s salary and work schedule. Follow these steps:

Step 1: Identify the Employee’s Hourly Rate

• Formula:
  Hourly Rate = Monthly Salary × 12 Months / Number of Working Days per Year × Number of Hours per Day
  
  
• Example:
  • Monthly Salary: ₱20,000
  • Working Days per Year: 261 (standard for private companies)
  • Hourly Rate = (20,000 × 12) ÷ (261 × 8) = ₱114.94

Step 2: Apply the Correct Overtime Multiplier

Overtime rates depend on when the overtime work was performed:

Type of Overtime	Overtime Rate Multiplier
Regular Workday	125% (1.25)
Rest Day or Special Holiday Overtime	169% (1.69)
Regular Holiday Overtime	260% (2.60)
Night Shift Overtime	110% (1.10) additional to standard OT rate

Related: It’s essential to see salary ranges as they impact OT pay.

Step 3: Multiply by Overtime Hours Worked

Overtime Pay = Hourly Rate × Overtime Rate × Overtime Hours Worked

Step 4: Add Night Shift Differential (if applicable)

Employees working between 10 PM and 6 AM receive an additional 10% premium. If overtime is performed during this period, both overtime pay and night shift differential apply.

Step 5: Deduct Any Required Taxes & Contributions

• Overtime pay is taxable as part of an employee’s gross salary.
  
  
• SSS, PhilHealth, and Pag-IBIG contributions may also be deducted if overtime pay increases the employee’s total earnings for the period.

Now that we understand how to compute overtime pay, let’s dive into the legal rules employers must follow.

Related: Know the full list of employee benefits.

Philippine Labor Code: Overtime Pay Rules Explained

The Department of Labor and Employment (DOLE) enforces strict guidelines for overtime pay. Employers must comply with the following:

Maximum Legal Overtime Hours

Employees can work a maximum of 8 hours per day, with overtime subject to employee consent (except in emergencies).

Who Qualifies for Overtime Pay?

• Entitled: Rank-and-file employees (regardless of employment status).
  
  
• Exempted: Managers, field personnel, government employees, and workers on output-based compensation.

Employer Obligations & Penalties

• Failure to pay overtime can lead to DOLE investigations, back payments, and penalties.
  
  
• Employers must keep accurate payroll records and ensure timely compensation.

For full labor law details, refer to DOLE’s official overtime pay guidelines.

Now, let’s explore real-world overtime pay computation scenarios.

Related: Payroll in the Philippines: Your Complete Guide

Over Time Pay Computation Scenarios

Here’s how OT pay varies depending on the type of day worked:

Scenario	Formula	Example Calculation (₱114.94/hour)
Regular Workday Overtime (125%)	Hourly Rate × 1.25 × Overtime Hours	(114.94 × 1.25 × 2) = ₱287.35
Rest Day Overtime (169%)	Hourly Rate × 1.69 × Overtime Hours	(114.94 × 1.69 × 2) = ₱388.50
Regular Holiday Overtime (260%)	Hourly Rate × 2.60 × Overtime Hours	(114.94 × 2.60 × 2) = ₱597.68
Night Shift Overtime (110% + OT Rate)	Hourly Rate × 1.10 × Overtime Rate × Overtime Hours	(114.94 × 1.10 × 1.25 × 2) = ₱316.08

Errors in computation can lead to payroll disputes. Next, we’ll cover common mistakes and how to avoid them.

Common Overtime Pay Calculation Mistakes & How to Avoid Them

1. Misapplying Overtime Rates: Ensure correct multipliers based on work schedule.
   
   
2. Forgetting Night Shift Differentials: Night shift workers get an extra 10% premium.
   
   
3. Late or Missing Overtime Payments: Employers must pay overtime in the next payroll cycle.
   
   
4. Incorrect Deductions: Double-check tax and benefit deductions on payslips.
   
   

Payroll Automation: How Payroll Software Simplifies Overtime Computation

Using payroll software ensures:

• Automated overtime calculations based on Philippine labor laws.
• Accurate payroll records for compliance with DOLE audits.
• Timely overtime payouts to employees.

If you suspect an error in your overtime pay, here’s what you can do.

Employee Rights: What to Do If OT Pay Is Incorrect

1. Check Your Payslip: Verify hourly rate, overtime hours, and deductions.
2. Raise the Issue with HR – Request a detailed breakdown of your pay.
3. Report to DOLE – If unpaid overtime is unresolved, file a complaint with DOLE.
4. Seek Legal Advice – If violations persist, consult a labor lawyer.

To help clear up confusion, let’s address some frequently asked questions.

FAQ: Answering the Most Common Overtime Pay Questions

How do you compute overtime pay in the Philippines?

Multiply the hourly rate by the applicable overtime multiplier based on work type (e.g., 125% for a regular workday).

What is the overtime rate for night shift workers?

Night shift workers receive 10% extra on top of their overtime rate.

Can an employer refuse to pay overtime?

No, unless the employee falls under exempted categories (e.g., managerial positions).

What happens if an employee works beyond legal overtime hours?

Employers must secure DOLE approval for excessive overtime work.

Conclusion

For employers, ensuring accurate overtime pay computations is critical for compliance. Consider using payroll automation or consulting HR professionals to stay compliant with labor laws.

For employees, knowing your overtime pay rights helps ensure you get fair compensation. If you encounter issues, don’t hesitate to seek guidance from HR experts or DOLE representatives. Better yet, perhaps it’s time to seek fair career opportunities with attractive packages.

By understanding overtime pay calculations, both employers and employees can maintain a fair and legally compliant workplace.