For Philippine employers, Human Resources managers, and payroll practitioners, calculating overtime and night shift differential accurately is critical for statutory labor compliance. Articles 86 and 87 of the Labor Code of the Philippines establish the strict rules and minimum multipliers governing compensation beyond normal working hours.
1. Overtime Pay Rules (Article 87)
Under Article 83 of the Labor Code, normal working hours must not exceed eight (8) hours per day. Work rendered beyond eight hours is considered overtime and commands premium pay:
- Ordinary Working Day Overtime: Regular Hourly Rate plus 25.0% (
Hourly Rate × 1.25). - Rest Day or Special Holiday Overtime: Hourly rate on that day plus 30.0% (
Hourly Rate × 1.30 × 1.30 = 169%). - Regular Holiday Overtime: Hourly rate on that day plus 30.0% (
Hourly Rate × 2.00 × 1.30 = 260%). - No Offsetting Rule (Article 88): Undertime work on any particular day shall not be offset by overtime work on any other day. Permission given to an employee to leave work early shall not be compensated by requiring overtime work on another day.
2. Night Shift Differential (Article 86)
Night Shift Differential (NSD) refers to the mandatory additional compensation of not less than ten percent (10%) of an employee's regular wage for every hour of work performed between 10:00 PM and 6:00 AM.
- Coverage: Article 86 applies to all employees except government employees, managerial staff, field personnel, and domestic workers.
- Base Rate: The 10% premium is computed on the applicable hourly rate for the day. If work occurs on a holiday or rest day, the 10% differential applies to the holiday hourly rate.
3. Compounding: Overtime during Night Shift Window
When an employee renders overtime between 10:00 PM and 6:00 AM, the premiums compound:
- Ordinary Day Overtime + Night Differential:
Overtime Hourly Rate = Hourly Rate × 1.25
Night Differential OT Rate = Overtime Hourly Rate × 1.10 = Hourly Rate × 1.375 (137.5%) - Rest Day / Special Holiday Overtime + Night Differential:
Special OT Rate = Hourly Rate × 1.69
Special Night Differential OT Rate = 1.69 × 1.10 = Hourly Rate × 1.859 (185.9%) - Regular Holiday Overtime + Night Differential:
Holiday OT Rate = Hourly Rate × 2.60
Holiday Night Differential OT Rate = 2.60 × 1.10 = Hourly Rate × 2.86 (286.0%)