# Overtime Premium
## Definitions
- Overtime: Working hours above normal working hours
- Overtime Premium: The extra amount paid above the normal rate (normally double = 100% extra)
> Occasional overtime = Healthy sign → full capacity utilisation
> Persistent overtime = Bad sign → insufficient labour strength, or workers deliberately underperform during normal hours
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## Cause-wise Accounting Treatment
| Cause of Overtime | Treatment of Overtime Premium |
|---|---|
| Regular policy due to shortage of labour | Charge to specific jobs |
| At customer's request to complete work immediately | Charge to that specific job |
| To increase output as part of general production programme | Charge to Production Overhead |
| To meet additional market demand | Charge to Production Overhead |
| To meet seasonal demand | Charge to Production Overhead |
| Irregular production requirements | Charge to Production Overhead |
| To make up shortfall due to abnormal situations (flood, earthquake, machine breakdown) | Charge to Costing P&L Account |
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## Effect on Productivity
1. Overtime Premium Payment (OTP) is an extra cost above normal rate
2. Excessive overtime leads to below-normal output due to fatigue
3. Workers may deliberately slow down in normal hours to earn overtime
4. Result: Reduced output + Increased OTP = Higher cost of production
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## Steps to Control Overtime
1. Maintain standard output during normal working hours
2. Require senior authority approval with justification for overtime
3. Compare actual output rate: overtime hours vs normal working hours
4. Submit periodic reports on overtime wages to top management (preventive action)
5. Set an upper limit on overtime hours per category of workers