Before running the payroll in an organization, certain key pointers must be kept in mind to ensure that employees get the right payout. One such key pointer is Overtime Calculation in UAE. This blog helps you to understand every aspect of the overtime calculation in UAE.
Things you need to know about Overtime Calculation in UAE
Overtime refers to the extra time that workers devote to their jobs besides their regular working hours. Employees are also paid for overtime. Therefore, it is a normal practice not only in the UAE but also in other countries also.
The normal working hours of an employee are 8 hours per day or 48 hours per week. And if an employee has to work more than their normal working hours it is considered as overtime and payment shall be made for the overtime.
It is necessary for employers to abide by the UAE Labour Law to avoid any fines and penalties. If you wish to learn more about how overtime is calculated in the UAE stay till the end of the blog. We will discuss formulas to calculate overtime in vivid situations including the public holidays.
Key rules related to working overtime in UAE
There are certain key rules defined related to working overtime in the UAE:
1. Employers may ask their employees to work overtime but the number of extra working hours must not exceed 2 hours per day.
2. In case the employees are required to work beyond their normal working hours they are entitled to receive compensation which is a normal payout of a day plus 25% extra and this can go up to 50% if employees are required to work between 10 PM and 4 AM. This rule is not applicable to those employees who are working on a shift basis.
3. In case employees in UAE are required to work on their off days the employer should provide a rest day as a substitute and if the employer is not able to provide so he can provide normal compensation and additional 50% remuneration.
4. If an employee works for continuous 5 hours as overtime he should be provided with a break and this break must not be less than one hour.
5. The time spent by the employees to commute to their workplace for overtime must not be included in the overtime and the breaks provided between the overtime hours are not included in the overtime.
6. As previously stated the normal working hours in a day are 8 hours but during Ramadan, employees only work 6 hours a day.
In addition, it is necessary to keep in mind that overtime is not always applicable. For example – Overtime is not applicable to senior positions and administrative positions. Moreover, overtime calculation in the UAE does not apply to naval ships and marine employees.
Furthermore, it is necessary to understand that time spent on commuting, resting and food breaks will not be included in the overtime calculation.
How to calculate overtime on a normal working day?
To calculate the overtime on a normal working day, the overtime can be calculated as:
Per Day Salary – Basic Salary x 12/365
Per Hour Salary – Per Day Salary/8
Overtime Amount – Number of overtime hours x Per Hour Salary x 1.25
Let’s understand how overtime is calculated in UAE. Suppose the basic salary of an employee is 3650 AED and he worked 100 hours in a month
3650 x 12/365/9 = 15 normal hour payment
15 + 25% of 15 = 18.75 per hour payment
Let us calculate the total overtime hours x Per hour overtime pay:
18.75 x 100 = 1875 total overtime pay
Now calculate the total salary = Basic Salary + Overtime Pay
AED 3650 + AED 1875 = AED 5525
Avoid legal implications in your business!
Calculate the overtime pay during public holidays
It is necessary to calculate the overtime pay during the public holidays. In this case, the formula is
Basic Salary x 12/365/8 x Total overtime hours x 1.5 = Total Overtime Pay
There must be a day off provided additionally. But if employers are not able to provide so, they must receive a bonus equal to 150% of basic pay.
Using the previous example, an employee has a salary of AED 3,650 and does 8 hours of overtime. In this case, the public holiday overtime calculation in the UAE goes like this:
3650 x 12/365/8 x 8 x 1.5= 180
In case the employer does not provide additional off, the employee receives a 150% bonus. This is how overtime calculation in the UAE
3650 x 12/365/8 x 8 x 2.5= 300
Wrong Formulas that companies should avoid for calculating overtime
When it comes to complying with UAE Labour Law regarding overtime most companies follow the rule but some fail to do so which can result in legal implications.
Most companies use the correct formula to calculate the overtime which is:
Per Day Salary Basic Salary/30 days
Another correct formula that companies use is:
Per Hour Basic Salary/ 30 days/ 8 hours
On the other hand, some UAE companies use the wrong formula to calculate overtime in the UAE. They may use the wrong formula i.e.
Per day salary x 12/365 or per hour salary Basic Salary x 12/365/8 hours
FAQs (Frequently Asked Questions)
The formula to calculate the overtime in UAE is:
Per Day Salary– Basic Salary*12/365
Per Hour Salary– Per Day Salary/8
Overtime Amount– Number of overtime hours* Per Hour Salary* 1.25
1.25 overtime refers to normal payout of rate+ 25% extra renumeration paid to an employee. It can be 1.5 or 2.0 in some cases which means normal payout+ 50% or 100% overtime.
Divide the weekly salary by the total number of hours the employee worked. Then calculate the overtime hourly rate. You have already calculated for the overtime hours once in the regular hourly rate. Because of this, you will multiply the regular hourly rate by 0.5 (instead of 1.5) to get the overtime hourly rate.
Calculating overtime for those employees who are paid on hourly basis is usually easiest. Multiply regular pay by 1.5 and multiply rest by total number of hours worked.