# Overtime Payment
## Concept
When a worker works more than the normal hours, he receives extra payment for the additional hours — called Overtime Payment.
## Components of Overtime Hourly Rate
For each overtime hour, the worker is paid:
$$\text{Overtime rate per hour} = \text{Normal Rate per hour} + \text{Overtime Premium per hour}$$
The overtime premium is usually expressed as a % of the normal rate (e.g., 50% premium = 1.5× the normal rate for the OT hours).
## Effective / Average Rate per Hour
$$\text{Average rate per hour} = \frac{\text{Total payment for the day}}{\text{Total hours worked}}$$
## Reasons for Overtime and Cost Accounting Treatment
| Reason for OT | Treatment |
|---|---|
| Due to market shortage / general workload | Increase the wage rate per hour (i.e., charge the OT premium to production by inflating the regular rate) |
| Due to production requirement (planned/normal) | Charge normal rate to the specific job; transfer the overtime premium to Production Overhead |
| Due to specific customer's requirement / rush order | Add the OT premium to that customer's bill |
| Due to Abnormal Reasons (e.g., recovery from a strike/fire/breakdown) | Transfer to Profit & Loss Account (charge to costing P/L) |
## Factories Act Position (Statutory Note)
The Factories Act specifies that overtime is payable if a worker works:
- More than 9 hours in a day, OR
- More than 48 hours in a week
Overtime wages = (Basic + D.A. + Food Allowance) × 2 (i.e., twice the ordinary rate).