How to Compute Overtime Pay in the Philippines

Overtime pay is the additional compensation given to an employee for work performed beyond the normal working hours prescribed by law.

In the Philippines, overtime pay is not always computed using the same rate. The amount depends on when the overtime work is performed—whether it is on an ordinary working day, rest day, special non-working day, or regular holiday.

There is also an important distinction between working beyond an employee’s schedule and working beyond eight hours in a day. These are often treated as the same thing in actual payroll practice, but they are not necessarily the same under the Labor Code.

Alternative work arrangements, such as a valid compressed workweek, can further affect when overtime begins.

This guide explains how overtime pay is computed in the Philippines, including common situations employers encounter when processing attendance and payroll.

What Is Overtime Pay?

Under Article 87 of the Labor Code of the Philippines, work may be performed beyond eight hours a day provided the employee is paid additional compensation.

For overtime performed on an ordinary working day, the employee must generally receive an additional 25% of the regular hourly rate.

For overtime performed on a holiday or rest day, the employee must generally receive an additional 30% of the hourly rate applicable on that day.

This distinction is important because overtime on a rest day or holiday is not simply calculated using the employee’s ordinary hourly rate.

When Does Overtime Start?

As a general rule, statutory overtime applies to work performed beyond eight hours in a day.

When counting the employee’s actual hours worked, non-compensable meal or lunch breaks are excluded. For example, an employee who is at work from 8:00 AM to 5:00 PM with a one-hour unpaid lunch break has 8 compensable working hours, not 9.

This means overtime should not automatically be determined solely by checking whether an employee worked beyond the scheduled time-out.

*Hours shown exclude non-compensable meal or lunch breaks.

If an employee is scheduled to work only six hours but actually works eight compensable hours, the additional two hours are not automatically statutory overtime simply because they were beyond the employee’s schedule.

However, an employment contract, collective bargaining agreement, company policy, or established company practice may provide a more favorable overtime benefit.

Recognized alternative work arrangements, such as a valid compressed workweek, may also have a different overtime threshold.

Does Overtime Start After 8 Hours Worked or After the Employee’s Schedule?

This is one of the most important distinctions when computing overtime in actual payroll.

Many companies determine overtime based on the employee’s scheduled time-out.

For example, an employee may have the following schedule:

8:00 AM to 5:00 PM, with a one-hour unpaid meal break.

Because the employee normally completes eight compensable working hours by 5:00 PM, work after 5:00 PM will normally also be work beyond eight hours.

This makes two different approaches appear to produce the same result:

Scheduled approach: Work after 5:00 PM = overtime

Eight-hour approach: Work after completing 8 compensable hours = overtime

For an employee who reports on time and completes the regular schedule, there is normally no difference.

The distinction becomes important when the employee is late, has a shorter work schedule, or otherwise does not complete eight hours before the scheduled time-out.

Example: Employee Reports Several Hours Late

Suppose an employee has this schedule:

• Schedule: 8:00 AM to 5:00 PM
• Meal break: 1 hour
• Scheduled working hours: 8 hours

However, the employee reports at 1:00 PM and works until 10:00 PM.

Assuming there is a one-hour non-compensable meal break during this period, the employee has worked a total of 8 compensable hours.

If overtime were determined solely from the scheduled time-out, the period from 5:00 PM to 10:00 PM might appear to be five hours of overtime.

But the employee has actually performed only eight compensable hours of work for the day.

Under the general statutory rule that overtime is work beyond eight hours a day, the employee has no statutory overtime in this example.

The fact that some of the employee’s working hours occurred after the scheduled 5:00 PM time-out does not by itself make those hours statutory overtime.

What If the Employee Works 9 Actual Hours?

If the same employee renders nine compensable working hours, the first eight hours are regular hours for purposes of determining the statutory overtime threshold.

The remaining one hour would generally be overtime.

The important question is therefore not simply:

“How many hours did the employee work after the scheduled time-out?”

Employers should also determine:

“How many compensable hours did the employee actually work during the day?”

Companies May Have a More Favorable Overtime Policy

Employers may establish a company policy that is more favorable than the statutory minimum.

For example, a company may provide:

Approved work performed after the employee’s scheduled time-out will be paid as overtime.

Under such a policy, an employer may pay an overtime premium for approved work after 5:00 PM even when the employee has not yet exceeded eight actual compensable working hours.

This should be distinguished from the minimum statutory overtime entitlement under the Labor Code.

Employers should therefore clearly define whether their overtime policy is based on:

• Actual compensable hours exceeding the statutory threshold;
• Work beyond the employee’s scheduled time-out; or
• A more favorable contractual, collective bargaining, or company policy.

What About a 4-Hour Saturday Schedule?

Another common Philippine work arrangement is a 44-hour workweek, such as:

• Monday to Friday — 8 hours per day
• Saturday — 4 hours
• Total — 44 hours per week

Many companies consider work beyond the four-hour Saturday schedule as overtime.

For example:

Saturday schedule: 8:00 AM to 12:00 PM
Actual work: 8:00 AM to 2:00 PM

The employee worked two hours beyond the Saturday schedule.

However, if Saturday is an ordinary working day, the fact that the employee exceeded the four-hour schedule does not by itself mean that the fifth and sixth hours are statutory overtime.

Under the general statutory rule, overtime is based on work beyond eight hours a day, rather than simply work beyond a shorter scheduled workday.

Therefore:

Actual compensable hours worked: 6 hours

Statutory OT based solely on the eight-hour rule: 0 hours

However, if the company’s policy treats approved work beyond the four-hour Saturday schedule as overtime:

Company-policy OT: 2 hours

The company’s more favorable policy may therefore result in overtime compensation even though the statutory eight-hour threshold has not yet been exceeded.

What If the Employee Works More Than 8 Hours on Saturday?

Suppose the employee’s regular Saturday schedule is four hours but the employee renders nine compensable working hours.

The employee has now exceeded eight hours of actual work.

Under the general statutory rule:

Actual compensable hours: 9

Statutory overtime: 1 hour

A company with a more favorable policy may already treat the hours beyond the employee’s four-hour Saturday schedule as overtime.

This is why employers should distinguish between statutory overtime and a more favorable overtime benefit provided by company policy.

How Does Overtime Work Under a Compressed Workweek?

A compressed workweek is an important exception to the usual eight-hour daily rule.

Under a valid compressed workweek arrangement, the normal workday may exceed eight hours in exchange for fewer working days during the week.

For example, a 40-hour workweek might be arranged as:

• Monday — 10 hours
• Tuesday — 10 hours
• Wednesday — 10 hours
• Thursday — 10 hours
• Friday — No work

The employee still works a total of 40 hours during the week, but those hours are distributed over four days instead of five.

Under a valid compressed workweek arrangement, the ninth and tenth hours are not automatically overtime merely because they exceed eight hours.

They form part of the employee’s established normal workday under the compressed workweek arrangement.

When Does Overtime Start Under a Compressed Workweek?

Suppose an employee has a valid 10-hour compressed workday.

If the employee works:

10 compensable hours → No overtime

If the employee works:

11 compensable hours → 1 hour beyond the established compressed workday

The overtime threshold should therefore be determined according to the valid compressed workweek arrangement rather than automatically applying the ordinary eight-hour threshold.

Compressed workweek arrangements are subject to applicable DOLE requirements and limitations. Employers should not simply extend normal working hours beyond eight hours and call the arrangement a compressed workweek.

What If the Employee Is Late Under a Compressed Workweek?

Consider an employee whose compressed schedule requires ten compensable hours:

Schedule: 7:00 AM to 6:00 PM
Meal break: 1 hour
Normal compensable hours: 10 hours

Suppose the employee instead reports at 10:00 AM and works until 9:00 PM, with a one-hour non-compensable meal break.

The employee has still worked only 10 compensable hours.

The fact that three hours were worked after the scheduled 6:00 PM time-out does not necessarily mean the employee rendered three hours of overtime.

This again demonstrates why hours worked and hours outside the employee’s schedule should not automatically be treated as the same thing.

Three Different Overtime Concepts Employers Should Understand

The examples above demonstrate that employers may encounter three different concepts when processing overtime.

1. Statutory Overtime

This is overtime required under applicable labor laws based on the statutory working-hours rules.

For employees under the ordinary work arrangement, the general threshold is work beyond eight hours a day.

2. Overtime Based on Company Policy

An employer may provide a more favorable rule.

For example:

All approved work beyond the employee’s scheduled time-out is paid as overtime.

This may result in overtime even when the employee has not exceeded eight compensable working hours.

3. Overtime Under a Compressed Workweek

Under a valid compressed workweek, the employee’s established normal working hours may exceed eight hours per day without the additional hours automatically being treated as overtime.

The applicable work arrangement therefore needs to be identified before overtime is calculated.

How to Get the Employee’s Hourly Rate

Before computing overtime pay, determine the employee’s applicable hourly rate.

For a daily-paid employee working eight hours per day:

Hourly Rate = Daily Rate ÷ 8

Example

If the employee’s daily rate is ₱800:

₱800 ÷ 8 = ₱100 per hour

The employee’s ordinary hourly rate is therefore ₱100.

For monthly-paid employees, the daily and hourly equivalent may depend on the divisor used by the employer and the employee’s work schedule.

The correct divisor and applicable daily rate should therefore be determined before computing overtime. Refer to this article on how to compute employees daily rate.

Overtime Pay on an Ordinary Working Day

Overtime performed on an ordinary working day is generally paid at 125% of the employee’s regular hourly rate.

Formula

Overtime Pay = Hourly Rate × 125% × Overtime Hours

Example

Suppose an employee has:

• Daily rate: ₱800
• Hourly rate: ₱100
• Overtime: 2 hours

The overtime pay is:

₱100 × 125% × 2 = ₱250

The employee receives ₱250 in overtime pay in addition to the compensation for the regular working hours.

Overtime Pay on a Rest Day

An employee who works on a scheduled rest day is generally entitled to a premium for the first eight hours.

The rate for the first eight hours is generally:

Daily Rate × 130%

If the employee works beyond eight hours, the overtime hours receive an additional 30% based on the employee’s hourly rate on the rest day.

Formula

Rest Day OT Pay = Hourly Rate × 130% × 130% × OT Hours

This is equivalent to 169% of the ordinary hourly rate.

Example

Using a ₱100 ordinary hourly rate and two overtime hours:

₱100 × 130% × 130% × 2 = ₱338

The employee receives ₱338 for the two overtime hours.

Overtime Pay on a Special Non-Working Day

For work performed on a special non-working day, the employee is generally entitled to 130% of the basic wage for the first eight hours.

For work beyond eight hours:

Formula

Special Day OT Pay = Hourly Rate × 130% × 130% × OT Hours

This is equivalent to 169% of the ordinary hourly rate.

Example

For a ₱100 hourly rate and two overtime hours:

₱100 × 169% × 2 = ₱338

Overtime When a Special Non-Working Day Falls on a Rest Day

When a special non-working day also falls on the employee’s scheduled rest day, the first eight hours are generally paid at 150% of the basic wage.

For overtime:

OT Pay = Hourly Rate × 150% × 130% × OT Hours

The effective overtime rate is 195% of the ordinary hourly rate.

For a ₱100 hourly rate and two overtime hours:

₱100 × 195% × 2 = ₱390

Overtime Pay on a Regular Holiday

An employee who works on a regular holiday is generally paid 200% of the basic wage for the first eight hours.

For overtime:

Formula

Regular Holiday OT Pay = Hourly Rate × 200% × 130% × OT Hours

The effective overtime rate is 260% of the ordinary hourly rate.

Example

For a ₱100 hourly rate and two overtime hours:

₱100 × 260% × 2 = ₱520

Overtime When a Regular Holiday Falls on a Rest Day

When a regular holiday falls on the employee’s scheduled rest day, the first eight hours are generally paid at:

Daily Rate × 200% × 130%

This is equivalent to 260% of the basic wage.

For overtime:

OT Pay = Hourly Rate × 200% × 130% × 130% × OT Hours

The effective overtime rate is 338% of the ordinary hourly rate.

Example

For a ₱100 hourly rate and two overtime hours:

₱100 × 338% × 2 = ₱676

Overtime Pay Rates at a Glance

The overtime percentages above represent the effective rate compared with the employee’s ordinary hourly rate.

Alternative work arrangements, such as a valid compressed workweek, should be evaluated separately.

Why Is Holiday and Rest Day Overtime Multiplied Twice?

One common overtime computation mistake is simply adding the premiums together.

For example, someone might assume overtime on a rest day is:

100% + 30% rest day premium + 30% overtime premium = 160%

That is not the statutory computation.

The overtime premium is applied to the hourly rate applicable on that particular day.

For a rest day:

130% × 130% = 169%

For a regular holiday:

200% × 130% = 260%

For a regular holiday that falls on a rest day:

200% × 130% × 130% = 338%

Can Undertime Be Offset Against Overtime?

No.

Article 88 of the Labor Code provides that undertime on one day cannot be offset by overtime work performed on another day.

For example:

Monday: Employee works 7 hours → 1 hour undertime

Tuesday: Employee works 9 hours → 1 hour overtime

The employer cannot simply offset Monday’s one-hour undertime against Tuesday’s one-hour overtime.

The overtime compensation earned on Tuesday remains due.

However, this should not be confused with an employee working outside the scheduled hours on the same day without actually exceeding the applicable number of compensable working hours.

For example, an employee reporting late and consequently working after the scheduled time-out does not automatically convert all post-schedule hours into statutory overtime.

Is Working on a Rest Day Automatically Overtime?

No.

Rest day work and overtime work are different concepts.

If an employee works eight hours on a scheduled rest day, the employee is generally entitled to the applicable rest day premium, but those eight hours are not automatically overtime.

For example, if an employee works ten hours on a rest day:

First 8 hours → Rest day premium

Remaining 2 hours → Rest day overtime

This distinction is important when configuring attendance and payroll rules.

What If Overtime Extends Into the Night?

Overtime pay and night shift differential are separate labor benefits.

Covered employees are generally entitled to night shift differential for work performed between 10:00 PM and 6:00 AM.

Therefore, overtime hours falling within the night shift differential period may require both the applicable overtime premium and night shift differential.

Payroll systems should identify not only how many hours were worked, but also when those hours were worked.

Are All Employees Entitled to Overtime Pay?

Not every employee is necessarily covered by the statutory overtime provisions.

The Labor Code and its implementing rules contain exclusions for certain categories of employees and workers.

Depending on the circumstances, these may include certain:

• Government employees
• Managerial employees
• Members of managerial staff who satisfy the applicable requirements
• Field personnel
• Members of the employer’s family who are dependent on the employer for support
• Domestic workers and persons in the personal service of another
• Workers paid by results under conditions regulated by the Secretary of Labor

Whether an employee is exempt should be determined based on the employee’s actual duties and circumstances, rather than merely the employee’s job title.

An employer should therefore not automatically assume that an employee is exempt from overtime simply because the employee’s position contains words such as “manager” or “supervisor.”

Does Overtime Need to Be Approved?

Companies commonly require employees to obtain approval before rendering overtime as part of their attendance and payroll controls.

A typical process includes:

1. Recording the employee’s actual time in and time out
2. Determining actual compensable working hours
3. Identifying hours that qualify for overtime
4. Requesting or approving overtime
5. Determining the type of day worked
6. Applying the appropriate overtime rate
7. Including approved overtime in payroll

However, employers should be careful about relying solely on the absence of an overtime request when the employer actually required, permitted, or knowingly allowed compensable work to be performed.

Common Overtime Pay Computation Mistakes

Automatically Treating All Work After Scheduled Time-Out as Statutory Overtime

The statutory rule generally concerns work beyond eight hours a day.

Work outside the employee’s schedule does not necessarily mean the employee has already exceeded eight compensable working hours.

Automatically Treating Work Beyond a Short Saturday Schedule as Statutory Overtime

An employee scheduled for four hours on Saturday does not automatically have statutory overtime beginning with the fifth hour solely because the employee exceeded the schedule.

A company may nevertheless have a more favorable policy providing overtime after the scheduled four hours.

Applying the 8-Hour Threshold to a Valid Compressed Workweek

A valid compressed workweek may establish a normal workday longer than eight hours without those additional hours automatically becoming overtime.

Using 125% for Every Type of Overtime

The 125% rate generally applies to overtime on an ordinary working day. Rest days and holidays have different rates.

Computing Holiday Overtime From the Ordinary Hourly Rate

The overtime premium should be applied to the rate applicable to the holiday or rest day.

Treating All Rest Day Work as Overtime

Work on a rest day receives premium pay, but the first eight hours are not automatically overtime.

Offsetting Overtime on One Day Against Undertime on Another

The Labor Code specifically prohibits this practice.

Looking Only at Total Payroll-Period Hours

Overtime generally needs to be evaluated based on the applicable daily working-hours rules rather than simply comparing total hours for the entire payroll period.

Ignoring Meal Breaks

Non-compensable meal periods generally should not be counted as hours worked when determining whether the employee exceeded the applicable working-hours threshold.

Relying Only on Job Titles to Determine Overtime Exemption

The employee’s actual duties and circumstances should be considered when determining whether an exemption applies.

Automating Overtime Computation With MPM Payroll

Overtime computation can become complicated when attendance includes late arrivals, undertime, shorter Saturday schedules, shifting schedules, compressed workweeks, rest days, holidays, night work, and different company overtime policies.

MPM Payroll can use employee schedules and actual attendance records to help determine overtime during payroll processing.

Attendance can come from different sources, including Web Bundy, Employee Self-Service (ESS), and supported biometric attendance devices.

Companies can configure their attendance and overtime rules according to their actual payroll policies. This is particularly useful when an employer adopts a more favorable policy, such as treating approved work beyond the scheduled time-out as overtime.

Instead of manually identifying overtime hours and applying different multipliers for each type of day, employers can configure their attendance, overtime, and approval rules so that approved overtime can be processed consistently during payroll computation.

This is particularly useful for companies with:

• Multiple employee schedules
• Shifting schedules
• Short Saturday schedules
• Compressed workweeks
• Rest day work
• Holiday work
• Night shifts
• Different overtime approval policies

Frequently Asked Questions

Conclusion

Computing overtime pay in the Philippines requires more than checking whether an employee clocked out after the scheduled end of the shift.

For employees under an ordinary work arrangement, the general statutory rule is based on work performed beyond eight hours in a day. Non-compensable meal periods are generally excluded when counting those working hours.

This distinction becomes particularly important when employees arrive late, have shorter scheduled workdays, or work a four-hour Saturday schedule.

Employers may also provide more favorable overtime benefits by treating approved work beyond the employee’s scheduled hours as overtime.

A valid compressed workweek creates another important distinction because the employee’s normal workday may exceed eight hours without the additional hours automatically being treated as overtime.

Once overtime hours have been determined, employers must then identify the type of day because different rates apply to ordinary working days, rest days, special non-working days, regular holidays, and holidays falling on rest days.

Accurate employee schedules, attendance records, holiday calendars, overtime approvals, and clearly defined company policies are therefore essential to correct payroll computation.