The payroll function of any company is crucial, and the calculation of overtime pay before processing employee payments is an essential aspect of it. In the United Arab Emirates (UAE), there are specific laws and regulations that govern how employers should handle overtime pay for their employees.
However, this process can often be confusing and complicated for employers to follow. Therefore, it is essential to understand the rules and regulations regarding overtime calculations in UAE. In this article, you will learn everything you need to know about overtime calculation in the UAE. We will also provide you with tips for accurately calculating and managing overtime pay.
How to Calculate Overtime in the UAE? Under the UAE Labour Law, overtime is calculated based on basic salary in all cases. The formula for normal overtime is calculated as: “basic salary × 12/365/8 × total overtime hours × 1.25 = total overtime pay”. However, if overtime is performed between 10 pm and 4 am, the rate increases to 50%.
What Does Overtime Mean?
Overtime refers to the extra time employees devote to work activities beyond their regular working hours. Under the Labour Law, these additional hours must be compensated at a higher rate than conventional working hours.
The purpose of overtime is to provide fair compensation for employees’ extra efforts and to discourage employers from exploiting their workforce. For instance, in Article 17 of the Federal Decree Law No. 33 of 2021, the standard working hours of an employee in the UAE comprises 8 hours per day or 48 hours per week. If an employee ends up working more than their normal working hours, it is considered as overtime, and they are entitled to overtime payment for the extra hours worked. However, the working hours for individuals employed in trade, hotels, and cafeteria security may be extended to nine hours per day.
Types of Overtime
Overtime can be classified into two categories:
- Force Majeure Overtime: This type of overtime is applicable to prevent or repair claims when urgent and extraordinary damages that require immediate attention occur.
- Structural overtime: It is meant for tasks that arise unexpectedly, such as “work peaks” or other circumstances related to the company’s operations.
In each country, the Labor Law limits the maximum number of additional working hours that employees can be expected to work per week. That limit generally applies to structural overtime only, as force majeure is not restricted by law due to its nature.
Formula For Overtime Calculation In UAE
The overtime calculation procedure follows a specific formula specified in Articles 67-72 of UAE Labour Law. The following are the key elements involved in calculating overtime:
- Basic Salary of Employee
- Number of Overtime Hours
- Overtime Formula Type (Normal / Fridays / Other Public Holidays)
Now that we’ve covered the basics of overtime, let’s proceed to how to calculate overtime in the United Arab Emirates using different formulas, depending on the various situations.
Overtime Calculation on a Normal Working Day
In case the nature of the job requires the employees to work beyond their normal working hours, they shall receive compensation equivalent to their wage for the ordinary working hours plus 25% extra for the overtime period.
Formula:
Per Day Wage= Basic Salary × 12/365
Normal Hour Payment= Per day salary ÷ 8 ( the normal working hours in a day as per UAE Labor Law)
Overtime Payment= Number of overtime hours × Per Hour × 1.25
Now, let’s assume that the basic salary of an employee is AED 3,200 per month, and he worked 100 hours in a month. This is how his overtime payment would be calculated:
Per Day Wage= (3,200 x 12)/365 = AED 105.20
Per Normal Hour Payment= 105.20 ÷ 8 = AED 13. 15
Per Hour Overtime = 13.15 + 13.15 × 25% = 16.43
Now that we have an overtime hour payment let’s calculate the total overtime payment:
Total Overtime Pay= Total overtime hours × per hour overtime pay
i.e. 100 × 16.43 = 1643
Therefore, in this scenario, the monthly payment would be:
Total salary = Basic salary + Overtime Pay
i.e. AED 3,200 + AED 1,643 = 4,843
However, if the employee works overtime between 10.00 PM and 4.00 AM, they will be entitled to a pay equal to normal working hours’ remuneration (based on basic salary) plus 50% of that day. This rule does not apply to workers who work on a shift basis.
Formula:
Per day salary = Basic salary × 12/365
Per hour payment = Per day salary ÷ 8
Overtime remuneration = Number of overtime hours × Per hour’s payment × 1.5
Let’s take the same example and see how this formula works with the shift timings:
Per Day Wage= (3,200 x 12)/365 = AED 105
Per Normal Hour Payment= 105 ÷ 8 = AED 13.12
Per Hour Overtime = 13.15 + 13.15 × 50% = AED 19.72
Now, if the employee works for a total of 100 hours in that month, they would earn:
Total Overtime Pay= Total overtime hours × per hour overtime pay
i.e. 100 × 19.72 = 1972
Therefore, in this scenario, the monthly payment would be:
Total salary = Basic salary + Overtime Pay
i.e. AED 3,200 + AED 1,972 = 5,172
Overtime Calculation on a Public Holiday
The overtime calculation during Public holidays in the UAE can differ slightly from the previous cases. Under Article 81 OF UAE Labor Law, when work circumstances cause an employee to work on public holidays or rest days for which he/she is entitled to full or partial pay, the employee shall receive compensatory leave for those days with a bonus (equivalent to 50% of their remuneration). If such days are not compensated by leave, the employer must pay a bonus equivalent to 150% of the basic remuneration for the days worked.
Short Formula:
Total overtime pay = Basic salary × 12/365/8 × total overtime hours × 1.5 in addition to one day compensatory off.
Using the same example of an employee with a basic salary of AED 3,200 and working 8 hours of overtime on a public holiday, here’s how the overtime pay in UAE would be calculated:
3,200 × 12/365/8 × 8 × 1.5 = 157 (8 hours pay + 1 day off)
If the employer fails to grant the employee compensatory leave, they are entitled to additional payment equivalent to 150% of their remuneration for the days worked. This is how the calculation would look like then:
3200 × 12/365/8 × 8 × 2.5 = 263 (8 hours overtime pay + 1 day off)
Common Mistakes to Avoid in Overtime Calculation – For Employers
When it comes to complying with the overtime calculation laws in the UAE, most companies are diligent and follow the correct formulas. However, some fail to do so, which can lead to legal issues and penalties.
For example, most compliant companies use the correct overtime calculation formula, which is:
- Per Day Salary = Basic Salary ÷ 30 days
Another correct formula that is used by compliant companies is:
- Per Hour Salary = Basic Salary ÷ 30 days ÷ 8 hours
However, there are still some companies that use incorrect overtime calculation formulas, such as:
- Per Day Salary = Basic Salary × 12/365
or
- Per Hour Salary = Basic Salary × 12/365 ÷ 8 hours
Key Overtime Calculation Rules According to UAE Labour Law
Just like there are rules specified for official working hours, there are also key rules that employers must keep in mind when it comes to overtime hours and compensation in the UAE. Some of these rules include:
- Employers may request overtime from their employees, but the additional working hours must not surpass a maximum of 2 hours per day.
- If the nature of work requires employees to work beyond their regular working hours, they should receive compensation equivalent to a full day’s pay plus an additional 25% for the overtime period. This can increase to 50% if the employee works overtime between 10 PM and 4 AM. However, this rule does not apply to employees working on a shift basis.
- In case the employer requires employees to work on their off days, they must provide a compensatory day off or pay an additional 50% of the employee’s remuneration for that day.
- Employees who work continuous overtime for five or more hours are entitled to a break of at least one hour, which will not be included in the overtime hours calculation.
- Even though regular working hours in the UAE are 8 hours per day, during Ramadan, employees only work 6 hours a day.
- Employees should not be instructed to work for more than two consecutive days on weekends except day workers.
In addition, it is imperative for employers and employees to understand that certain positions, such as senior and administrative supervisors, are exempt from the overtime calculation rules. Also, some employees, such as those on maternity or paternity leave or night-shift workers, are exempt from overtime work, but this depends on the labor legislation of each country. Similarly, employees working on naval ships or in marine industries are not entitled to overtime pay.
Furthermore, some time spent commuting to and from work, as well as breaks for food and rest, are not considered part of the overtime hours calculation.
Read More : UAE Labour Law
Bayzat’s Payroll – Overtime Calculation Made Easier & Scalable
Complying with the UAE’s overtime calculation formulas and rules without mistakes can be challenging for many companies. For this reason, it is essential to have a reliable payroll system in place that automates these calculations and ensures accuracy.
Bayzat’s Payroll system does just that by seamlessly integrating with attendance systems and accurately calculating overtime pay based on the UAE Labour Law. With the scalability of our system, as your company grows and the number of employees increases, you can easily manage and track overtime pay without any manual errors or confusion.
In addition to automated overtime calculations, Bayzat’s Payroll Software also offers features such as:
- Overtime Request Status: Employees can view the status of their overtime requests under the Attendance section of the Bayzat app. All extra hours requests and statuses are found under the Time and Pay Adjustments tab.
- Compensation Requests: Employees can conveniently request compensation for extra hours worked directly from the Bayzat app.
- Automatic Adjustments: When an employee works overtime, the system automatically creates the extra hours and pay adjustments. These appear in the Pending tab for review and action by the admin.
- Variable Pay Categories: Employers can create their own variable pay categories to add to employee salaries when needed. Besides overtime, the default list also includes bonuses and commissions.
- Employee View and Control: Employees can see their scheduled extra hours under Attendance > Time & Pay Adjustments and have the option to accept or reject these.
- Overtime Policy Setup: Employers can set up an overtime policy to capture the additional hours worked by employees and assign them to payroll.
- Scheduling Overtime: As an Admin, you can schedule overtime hours for employees in advance. Employees can then accept or reject the overtime hours request from their mobile app.
In case, your company needs help with overtime calculations or setting up an overtime policy, Bayzat’s team of experts is always available to assist. With our payroll system, you can ensure accurate and efficient overtime management, giving both employees and administrators control and clarity in the process.
FAQs about Overtime Calculation in UAE
Q1. What is 1.25 overtime?
1.25 overtime refers to the remuneration an employee receives for working overtime, calculated as their normal pay rate plus an additional 25%. This can be calculated as 1.25 times the employee’s regular pay rate, and it may vary depending on the specific rules and regulations in each country or company. In some cases, the overtime rate may be higher, such as 1.5 or 2.0, which translates to an additional remuneration of 50% or 100%, respectively.
Q2. Is overtime calculated on a basic or gross salary?
As per the UAE Labour Law, overtime should be calculated on an employee’s basic salary. This does not include any additional allowances or benefits that may be included in their gross salary.
Q3. What can an employee do if the overtime is not compensated?
If the employer fails to compensate an employee for overtime hours worked, the employee has the right to file a complaint with the Ministry of Human Resources and Emiratisation (MoHRE). The MoHRE will then investigate the case and take necessary action against the employer if found guilty.
Q4. Is forced overtime legal in the UAE?
Unless agreed upon in the employment contract, employers are not allowed to force employees to work overtime. However, it is common for employment contract clauses to include expectations of working additional hours if the demands of the business call for it.
Q5. Is lunch break included in working hours in UAE?
In the UAE, employees are entitled to a minimum of one hour break for every continuous five hours of work. However, this break is not considered part of the working hours and will not be counted in the total number of hours worked for overtime calculation purposes.
Q6. What categories are exempted from overtime payment?
Under Clause 4 of Article 15, there are certain categories of employees who are exempt from the overtime payment rules in the UAE. These include chairpersons and members of boards of directors, as well as employees in supervisory positions with powers of the employer.
Q7. Can you refuse to work overtime?
It can be hard to say no to your employer when asked to work overtime, but it is important for employees to understand their rights. According to the UAE Labour Law, employees have the right to refuse to work overtime if they are not contractually obligated. However, employers also have the right to request an employee to perform up to 2 hours of additional work, which will be treated as overtime.
Q8. What are the minimum and maximum overtime hours per day?
There is no specific rule on minimum overtime hour requirements in the UAE. However, the maximum overtime hours allowed per day is 2 hours, as per the UAE Labour Law. This means that employers cannot request employees to work more than two additional hours per day.
Get Social