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.

Key Takeaways

• A Legal Requirement, Not an Optional Bonus: Overtime pay in the Philippines is a legally mandated premium under the Labor Code. It is required for any work performed by an eligible employee beyond the standard eight hours in a single day.
• The Pay Rate Varies Significantly Based on the Day: The overtime rate is not a single, flat percentage. The premium changes depending on the day: it is +25% on a regular workday, +69% on a rest day or special holiday, and +160% on a regular holiday.
• Night Shift Premium is Added on Top of Overtime: If overtime hours are worked between 10 PM and 6 AM, the employee is also entitled to a night shift differential. This is an additional 10% premium that is calculated on top of the already computed overtime rate.
• All Rank-and-File Employees are Entitled to Overtime: An employee’s entitlement to overtime is based on their function, not their contract status. All rank-and-file employees (whether regular, probationary, or casual) are eligible. The only employees who are exempt are managers, field personnel, and government employees.

What is the Meaning of Overtime Pay?

In the Philippines, overtime pay is the additional compensation an employee receives for work performed beyond eight (8) hours a day, as mandated by the Labor Code. It is not simply “extra hours = extra pay.” Instead, it is a legally protected premium designed to compensate employees for the higher physical, mental, and social costs of working beyond the normal workday.

From a payroll perspective, overtime pay is calculated by taking the employee’s regular hourly rate and applying the corresponding legal premium (at least 25% more for regular overtime, 30% more if on a rest day or holiday, and higher if combined with night shift differential or special holidays).

How Do You Calculate Overtime 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 × 8 Hours)
  • Example: Monthly Salary: ₱20,000 Working Days per Year: This divisor depends on your company’s work schedule. It is not universal. Common divisors used in Philippine payroll are:
    • 261 days: For employees working 5 days a week (factoring in 12 regular holidays).
    • 313 days: For employees working 6 days a week (factoring in 12 regular holidays).
    • 365 days: Sometimes used to include all days in the year.
  • Using the 261-day divisor for a 5-day work week: Hourly Rate = (₱20,000 × 12) / (261 × 8) = ₱114.94

Step 2: Apply the Correct Overtime Multiplier

This step is a common source of confusion. The multipliers below apply only to the overtime hours, not to the first eight hours of work.

To calculate pay correctly, you must first establish the rate for the first 8 hours based on the day type, and then apply the separate overtime multiplier to any hours worked in excess of 8.

Pay Rates for First 8 Hours

• Regular Workday: 100% of the regular hourly rate
• Rest Day or Special (Non-Working) Holiday: 130% of the regular hourly rate
• Regular Holiday: 200% of the regular hourly rate (This is the “double pay” mandate)

Pay Rates for Overtime Hours (Hours in excess of 8)

• Regular Workday OT: 125% of the regular hourly rate
• Rest Day or Special Holiday OT: 169% of the regular hourly rate (Calculated as: [130% Base Pay] × [130% OT Premium])
• Regular Holiday OT: 260% of the regular hourly rate (Calculated as: [200% Base Pay] × [130% OT Premium])

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

How to Calculate 1 Hour of Overtime

One hour of overtime is calculated by multiplying your hourly rate by the applicable overtime rate. On a regular workday, this is 1.25 times your standard rate. However, payroll errors often occur when context is ignored. Was the hour worked after 10 PM? Was it during a rest day or a special holiday? That one hour might actually qualify for 1.69 times, 2.6 times, or a combination that includes night differential. This matters most in shift-based operations, where schedules rarely fit within the usual nine-to-five, and accurate timekeeping determines whether staff are paid fairly or not at all.

If your team regularly logs an extra hour per shift, it is worth examining the root cause. Is the overtime due to delays, poor handoffs, or system inefficiencies that require employees to stay past their schedule? While accurate pay is critical, so is understanding why overtime happens in the first place. Whether it stems from tool limitations, unrealistic deadlines, or last-minute client demands, identifying the cause helps refine scheduling and avoid quietly exhausting your top performers.

Step 4: Add Night Shift Differential (if applicable)

Employees working between 10 PM and 6 AM are entitled to a night shift differential (NSD) of at least 10% of their regular hourly rate, as mandated by the Labor Code.

This 10% premium is compounded on top of the overtime rate. If an employee works overtime on a regular day during the night shift, the formula is:

Regular Night Shift OT Rate = (Hourly Rate × 125%) × 110% = 137.5% of the regular hourly rate.

This calculation is a critical point of failure in manual payroll.

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

Is 30 Minutes Considered OT?

Yes. Thirty minutes of extra work counts as overtime if it goes beyond the standard eight-hour workday. However, this is often ignored because it seems too minor to matter. When left untracked, these small extensions quietly add up. For instance, if someone consistently stays an extra 30 minutes to finish reports or assist with handovers, that adds up to more than 10 hours of unpaid labor each month. When that effort goes unrecognized, it can create friction that appears not only in disputes but also in disengagement. Unfortunately, many policies lack clear language around overtime thresholds under one hour, making it easy to overlook these short work extensions.

To prevent issues, timekeeping should be precise, and policies must be transparent. If team culture expects extra effort beyond scheduled hours, it should be reflected in compensation or through adjusted schedules. Some companies account for these 15 to 30-minute extensions with buffer shifts or automatic tracking, especially in client-facing or operations-heavy roles. Employees should keep an eye on recurring short overtime patterns and clarify expectations early, particularly when the work is informal but consistent. Goodwill fades quickly when effort is not acknowledged.

Over Time Pay Computation Scenarios

Base Hourly Rate: ₱114.94

Scenario	Pay for First 8 Hours (Total)	Pay for Overtime Hours (Per Hour)	Example: 2 Hours OT (Total Pay for 10 Hours)
Regular Workday	₱114.94 × 100% × 8 = ₱919.52	₱114.94 × 125% = ₱143.68/hr	₱919.52 + (₱143.68 × 2) = ₱1,206.88
Rest Day or Special Holiday	₱114.94 × 130% × 8 = ₱1,195.38	₱114.94 × 169% = ₱194.25/hr	₱1,195.38 + (₱194.25 × 2) = ₱1,583.88
Regular Holiday	₱114.94 × 200% × 8 = ₱1,839.04	₱114.94 × 260% = ₱298.84/hr	₱1,839.04 + (₱298.84 × 2) = ₱2,436.72
Regular Workday + Night Shift OT	₱114.94 × 100% × 8 = ₱919.52	₱114.94 × 137.5% = ₱158.04/hr	₱919.52 + (₱158.04 × 2) = ₱1,235.60

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

How to Calculate 8 Hours of Overtime

Calculating eight hours of overtime is not as simple as multiplying the hourly rate by eight. The total depends heavily on when the overtime was worked. If it falls on a rest day, a holiday, or during night hours (10 PM to 6 AM), different pay multipliers apply. For example, eight hours of overtime on a regular workday is paid at 1.25 times the hourly rate, while the same on a regular holiday can increase to 2.6 times. If those hours overlap with the night shift window, an additional 10 percent is added. In just one shift, multiple pay rates may apply. Many manual payroll systems overlook these layered conditions, leading to underpayments that often escalate into trust issues or retroactive claims.

When eight-hour overtime becomes routine, it can point to larger operational issues such as unrealistic workloads, chronic understaffing, or overdependence on specific roles. Payroll accuracy is just one part of the equation. Managers also need to evaluate whether extended shifts are being used to mask inefficiencies. If employees regularly work 16-hour days, no pay multiplier can compensate for the long-term impact on morale or retention. It is important to track the patterns, not just the rates.

How to Calculate Overtime for Casual Employees?

A common misconception is that employment status (e.g., “casual,” “probationary,” or “project-based”) affects overtime entitlement. This is incorrect.

Under the Philippine Labor Code, entitlement to overtime pay is determined by an employee’s function, not their contract status.

Who is Entitled?

• All Rank-and-File Employees: This includes casual, probationary, seasonal, and regular employees. If they are not in a managerial role and are required to work beyond eight hours, they must be paid overtime.

Who is Exempt? The “exempt” employees mentioned in the law refer to:

• Managerial Employees: Those who manage a department, have the power to hire/fire, or execute significant management policies.
• Field Personnel: Employees who work unsupervised away from the main office and whose hours cannot be determined with reasonable certainty.
• Government Employees: They are covered by Civil Service rules, not the Labor Code.

Therefore, a casual employee’s overtime is calculated using the exact same formulas (125%, 169%, 260%) as a regular employee’s.

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 FAQs.

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.

Frequently Asked Questions