>> July 23, 2009
In Accounting, salary and wages are part of Company expenses. For providing the salary of overtime, it is very important to understand what is overtime. More deep knowledge, you can get from cost accounting’s labor cost part.
In general words, when an employee works more than normal working hours. That extra work time is called overtime and when company pays for this. This is called overtime salary or wages.
Calculation of overtime wages is not so easy because, different country has different rules and regulation for calculating overtime pay. But, it must be high than normal rate of wages in general working hours.
Calculation of Overtime Salary in USA
In USA, Overtime wages is calculated under Fair labor standards Act 1937. This act also defines overtime. Any employee who works more than 40 hours in week, that excess hours will be overtime. Suppose, if an employee has worked 52 hours in a week in USA. Then he will get overtime wages of 52-40 =12 hours with 1.5 times of normal hourly wage. Suppose his hourly pay is 5 $. Then he will get overtime wages 1.5 X 5X 12 = $ 90 .
Calculation of Overtime salary and wages in India
But In India, there is no such rules apply but different factories provides it with normal hourly or day rate basis. Some Indian companies only provide incentive for overtime.
But Factories Act, 1948 provides guidelines that it should be double of total salary .
We can explain it with simple example
Suppose one employee is working in Indian factory . His basic pay is Rs. 5000 , his dearness allowance is Rs. 200 and House rent allowance is Rs. 1000
Total salary = 5000 + 500 +1000 = Rs. 6500
This is monthly basis . Suppose , one employee worked 10 hours as overtime in factory . Then we will pay him overtime double of normal salary
First of all we convert normal salary into hourly salary
Hourly salary rate = 6500 / 26 = Rs. 250 per day = 250 / 8 = Rs. 31.25 per hour
Overtime salary = Normal hourly rate of salary X 2 = Rs. 31.25 X 10 X 2 = Rs. 625
MrExcel has made learning video for calculation of Overtime in excel sheet which is very useful for accountants
You might like: