Formula
| Term | Meaning |
|---|---|
| Overtime pay | Wages paid for approved overtime hours in the period, at the company's overtime multiplier. |
| Total gross wages | Gross earnings of all employees for the same payroll period, including the overtime pay itself. |
Worked example
A chemical plant in Vapi paid gross wages of ₹48,00,000 to 160 workers for September 2026, including overtime. Each overtime hour is paid at 2 times the hourly rate, which is monthly gross / 30 days / 8 hours. Operator Mahesh earns ₹24,000 a month and worked 10 approved overtime hours. Overtime paid across the plant came to ₹2,88,000.
- Mahesh's day rate = ₹24,000 / 30 = ₹800, so his hourly rate = ₹800 / 8 = ₹100
- Mahesh's overtime pay = ₹100 x 2 x 10 hours = ₹2,000
- Plant overtime cost percentage = ₹2,88,000 / ₹48,00,000 x 100 = 6%
- Base wages without overtime = ₹48,00,000 minus ₹2,88,000 = ₹45,12,000
- Overtime against base wages = ₹2,88,000 / ₹45,12,000 x 100 = 6.38% (6.383 rounded to 2 decimals)
Choosing the base and sticking to it
Some companies divide overtime pay by total gross wages including overtime; others divide by base wages without overtime, which gives a higher figure for the same spend. Either is fine if the choice is written into the report and kept every month. Include employer contributions in the base only if you also add them to overtime pay. For budgeting, the most useful view is overtime cost per department compared with the same month last year.
When overtime costs more than a hire
Paid at twice the ordinary rate, a steady stream of overtime can cost more than one more employee on the rolls, even after PF, ESI and other costs of employment. Work out the break-even for each department by comparing its monthly overtime pay with the full monthly cost of one more person in that role. If overtime has stayed above that line for several months, the roster is short rather than busy. The legal basis for the rate is explained in the OSH Code overtime rules.
- Overtime cost by department and cost centre.
- Overtime cost per employee who worked overtime.
- Break-even overtime pay compared with the cost of one additional hire.
Pitfalls in the numbers
Paying overtime in a later month than it was worked mixes periods, so tie overtime pay to the month it was worked where payroll allows, or at least note the lag. Comp-off granted instead of pay also has a cost, since the employee takes paid time off later, so report it beside the cash figure. Finally, check that the multipliers used in payroll match the policy for working days, weekly offs and holidays.
How to improve it
- Set monthly overtime budgets by department and review the actuals every week.
- Rebalance rosters so predictable peaks are covered by regular shifts rather than extra hours.
- Approve overtime before it is worked wherever operations allow.
- Compare overtime cost with the cost of an additional hire every quarter.
- Offer comp-off where the employee prefers it and the roster can absorb the time off later.
Tracking it in ZeniaHR
In ZeniaHR, approved overtime becomes a Direct Payroll earning at the gross day rate (monthly gross / 30) / 8 x hours x the multiplier set in the overtime policy, with separate multipliers for working days, weekly offs and holidays, or it becomes a comp-off credit instead. There is no ready overtime cost report, so take overtime earnings and gross wages from the finalized payroll run and calculate in a spreadsheet.
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How do you calculate overtime cost as a percentage of payroll?
Divide the overtime pay for the period by the total gross wages for the same period and multiply by 100. For example, ₹2,88,000 of overtime in a payroll of ₹48,00,000 gives 6 percent. Say whether the base includes overtime, because dividing by base wages alone gives a higher figure.
How is overtime pay calculated per hour in India?
The OSH Code sets overtime pay at double the ordinary rate of wages. Many companies work out an hourly rate by dividing the monthly wage by the days in their pay basis and then by 8 hours, and multiply that by 2 and by the overtime hours. Check which wage your policy uses.
Is overtime cheaper than hiring more staff?
For short peaks, usually yes, because you avoid hiring and training costs. For steady demand, not necessarily: at twice the ordinary rate, regular overtime can exceed the full cost of an extra employee. Compare a department's monthly overtime pay with the monthly cost of one more person in that role to find the break-even.