Overtime premium
Overtime premium the additional amount awarded for overtime hours for employees. This is the amount calculated on the basis of the hourly rate. The rules for the overtime premium vary depending on the country in which they are in force. Usually to receive an overtime premium we add 50% of the basic rate. For example, if a worker's getting a rate of $20 per hour the overtime premium is $10 per every extra working hour. If worker works for 41 hours in a week, the salary will be $830 for this . ($800 for 40 hours of standard working hours plus $30 for one hour of overtime)[1].
Employees are protected by a regulation that sets standard working hours and overtime. Otherwise, they would have to work more without any benefits[2]. The company should pay an overtime premium to compensate the employee for the disutility of ‘involuntary’ extra working time. The Fair Labor Standards Act (FLSA) in addition to setting a minimum wage, requires that employees who are insured be rewarded an overtime wage of at least one and one-half times in relation to the standard pay per hour of work, if their weekly working time exceeds 40 hours. FLSA was signed in 1938 in United States. At that time, the regulations were designed to discourage employers from using a long workweeks and, instead, to create new jobs. Until today, it is not known whether these provisions bring the expected effect - it remains a matter for discussion[3]. The incidence of overtime premium is largely dependent on institutional and societal standards. The distribution of wages and the amount of overtime premiums may affect both the supply and demand[4].
Key findings
Regulation regarding the overtime premium:
Pros[5]:
- Some employees may get higher rates per hour of work due to the shorter standard workweek.
- Protection of employees who would otherwise be required to work longer.
- Potential rise employment because of reduced working week (especially among women).
- Workers receive more time, which they can utilize to rest or perform duties related to their private life.
- Limiting overtime can bring benefits to employees in management positions because of reorganization of working time.
Cons[6]:
- Due to the reduction of overtime, the employment of skilled and unskilled employees may be reduced.
- Potential employees will not always be satisfactory of substitutes which overtime workers may get.
- Shortening the normal workweek increases competition for jobs for unemployed workers.
- Costs rises when the standard workweek is shortened. It can lead to employment reduction.
- Overtime premium is often calculated as a percentage of an employee's regular rate of pay. For example, if an employee's regular rate of pay is $20 per hour and the overtime premium is 25%, the employee would receive an additional $5 for each hour of overtime worked (in addition to the $20 for the regular hours).
- In some cases, overtime premiums are a flat rate, regardless of the employee's regular rate of pay. For example, an employer may offer a $10 overtime premium for every hour of overtime worked. In this case, an employee making $20 per hour would receive $30 per hour for overtime hours, while an employee making $10 per hour would receive $20 per hour for overtime hours.
- Some employers also offer a double time premium, which is calculated as twice the employee's regular rate of pay. This is common in fields where it is difficult to find qualified workers and employers need to incentivize employees to work longer hours. For example, if an employee's regular rate of pay is $20 per hour and the employer offers a double time premium, the employee would receive an additional $40 for each hour of overtime worked (in addition to the $20 for the regular hours).
Overtime premium provides several advantages to employers and employees alike. These include:
- Increased pay for employees who choose to work more than the standard hours in their contract. This can be a great incentive to work longer hours, and can help to increase productivity.
- Flexibility for employers. Overtime premium can be used to cover short-term staffing shortages, or to accommodate special projects or events.
- It can help to reduce the cost of hiring additional staff. Overtime premium can be used to cover the costs of retaining existing staff, rather than having to hire additional workers.
- It helps to motivate employees and increase their loyalty to the company. Knowing that their hard work will be rewarded can help to improve morale, and make employees more likely to stay with the company for the long term.
Overtime premium is an additional payment made to employees who have exceeded the standard hours of work. There are certain limitations associated with overtime premium, such as:
- It is not always available to employees, as certain organizations have restrictions on the number of hours of overtime they will allow.
- It is usually subject to taxation and is considered as income when calculating tax liabilities.
- It may not always be available due to budgetary or other constraints imposed by employers.
- It is not always offered to all employees in an organization, as some may not be eligible for additional pay.
- Overtime premiums are typically paid at a lower rate than the regular rate of pay for the same hours.
- Employers may limit the amount of overtime that can be worked, or may require employees to take time off in lieu of overtime.
Overtime premium is a way to compensate employees for working extra hours. Other approaches to compensate employees for their overtime hours include:
- Paying a higher hourly rate - this may involve giving a higher rate of pay for any work done beyond the standard working hours.
- Awarding extra days off - this may involve giving extra days off as a reward for overtime work, as well as rewarding employees with extra vacation days.
- Offering bonuses - this may involve offering bonuses for employees who exceed expectations or complete tasks quickly.
- Providing reimbursements - this may involve reimbursing employees for out-of-pocket expenses incurred while working overtime.
These approaches to compensating employees for overtime work provide a variety of options for organizations to choose from. In addition, they can help organizations to ensure they are recognizing and rewarding their employees for their hard work and dedication.
Footnotes
- ↑ Robert A. Hart, Yue Ma., (2008), Wage-Hours Contracts, Overtime Working and Premium Pay,IZA Discussion Papers, No. 3797, p.6-8
- ↑ Ronald L Oaxaca, (2014), The effect of overtime regulations on employment,IZA World of Labor
- ↑ Trejo, Stephen J., (2001), Does the Statutory Overtime Premium Discourage Long Workweeks?,IZA Discussion Papers, No. 373, p.5-6
- ↑ Anxo D., Karlsson M., (2019), Overtime work: A review of literature and initial empirical analysis, p.37
- ↑ Ronald L. Oaxaca, (2014), The effect of overtime regulations on employment,IZA World of Labor
- ↑ Ronald L. Oaxaca, (2014), The effect of overtime regulations on employment,IZA World of Labor
| Overtime premium — recommended articles |
| Lieu days — Longevity pay — Cafeteria system — Indirect labor costs — Contingent staffing — Forced retirement — Indirect compensation — Employee leasing — Qualified automatic contribution arrangement |
References
- Anxo D., Karlsson M., (2019), Overtime work: A review of literature and initial empirical analysis 2-13.
- Martins, Pedro S., (2017), Economic effects of overtime premium flexibility 2-6
Author: Sabina Łach
