(Philippine labor law context; practical, compliance-focused legal article)

1) Governing legal framework

Overtime and rest day work in the Philippines are primarily regulated by:

The Labor Code of the Philippines (Book III on Conditions of Employment), as amended; and
Implementing Rules and Regulations (IRR) of the Labor Code; and
Department of Labor and Employment (DOLE) issuances that clarify computation and enforcement; and
Jurisprudence (Supreme Court decisions) interpreting the above.

These rules apply within the broader constitutional policy of protecting labor and ensuring humane working conditions.

2) Coverage and common exemptions

2.1 General coverage

The overtime and rest day pay rules generally apply to rank-and-file employees covered by the Labor Code’s working conditions standards.

2.2 Typical exemptions (not entitled to statutory overtime premiums)

Certain categories are commonly excluded from statutory overtime pay because they are not covered by the Labor Code’s hours-of-work provisions, such as:

Managerial employees (those who manage and have authority over hiring/firing or whose recommendations carry weight);
Officers or members of a managerial staff (subject to strict tests);
Field personnel (those who perform work away from the employer’s premises and whose actual hours cannot be determined with reasonable certainty);
Certain family members dependent on the employer for support; and
Other categories recognized by law/IRR.

Important practical point: job titles alone don’t control. Coverage depends on actual duties and degree of supervision.

3) Core concepts: hours of work, overtime, rest day, and premium pay

3.1 Normal hours of work

For most private sector employees, the normal hours of work are 8 hours a day. Work beyond 8 hours in a workday triggers overtime (subject to rules below).

3.2 What counts as “hours worked”

As a rule, hours worked include:

All time the employee is required to be on duty or on the employer’s premises or at a prescribed workplace; and
All time the employee is suffered or permitted to work, even if not expressly ordered, when the employer knows or should know the work is being performed.

Certain waiting time, travel time, and on-call arrangements can be treated as compensable depending on control and constraints, but the analysis is fact-specific.

3.3 Overtime work

Overtime is work performed beyond 8 hours in a day. Statutory overtime pay is a premium on top of the employee’s hourly rate.

3.4 Rest day

A rest day is typically one day off per week. Many establishments implement a six-day workweek with one rest day. The rest day may be fixed (e.g., Sunday) or scheduled per operations and agreements, subject to legal standards and reasonableness.

3.5 Premium pay vs overtime pay

Philippine rules distinguish:

Premium pay: extra pay for work on special days (rest day, special non-working day, regular holiday, or combinations), generally within the first 8 hours; and
Overtime pay: extra pay for work beyond 8 hours, computed on the applicable day’s rate.

In practice, if an employee works on a rest day:

The first 8 hours are paid with rest day premium (premium pay), and
Any hours beyond 8 are paid with rest day overtime premium (overtime pay on top of the day’s premium rate).

4) Statutory pay rules (typical private sector rates)

Rates below are the commonly applied statutory minima for covered employees. Company policy/CBAs may provide higher benefits.

4.1 Overtime on an ordinary working day

Overtime pay: at least 125% of the hourly rate for each hour of overtime on a regular working day.

4.2 Work on rest day (or special day) — first 8 hours

Rest day premium pay: at least 130% of the daily rate for the first 8 hours (i.e., “work performed on the scheduled rest day”).

4.3 Overtime on a rest day — beyond 8 hours

Overtime on a rest day is paid with an additional premium, commonly expressed as an additional 30% of the hourly rate on said day. In computation practice, that translates to the rest day hourly rate multiplied by 130% for each hour beyond 8.

4.4 When rest day coincides with other special days or holidays

When a rest day overlaps with a special non-working day or regular holiday, or multiple entitlements stack (depending on the calendar classification), the premium can be higher. Actual rates depend on:

Whether it is a regular holiday or special non-working day (including “special working day” classifications);
Whether the employee worked and for how many hours; and
Whether the day is also the employee’s rest day.

Because this article focuses on overtime offset and rest day work, the key takeaway is: the “base” day rate changes, and overtime is computed using the hourly rate for that day (which already includes the day premium), then applying the overtime premium.

5) The central issue: “Overtime offset” (time off in lieu of overtime pay)

5.1 What “overtime offset” means in practice

“Overtime offset” usually refers to giving an employee compensatory time off (e.g., leaving early on another day, or a future day off) instead of paying the statutory overtime premium.

5.2 General compliance rule: offsetting cannot defeat statutory overtime pay

As a general labor standards principle, statutory monetary benefits (like overtime premium pay) cannot be unilaterally waived or replaced in a way that results in paying less than what the law requires.

In practical terms:

If overtime pay is legally due, an employer generally must pay the overtime premium in money.
Allowing an employee to “offset” overtime by undertime on another day (or by time off) does not erase the employer’s obligation to pay the overtime premium if the overtime work was performed and compensable.

5.3 “Offsetting” undertime against overtime is not allowed

A common (but non-compliant) practice is to net out:

Monday: employee worked +2 overtime hours
Tuesday: employee arrived late / left early -2 hours and treat it as “zero net overtime.”

Philippine labor standards treat overtime and undertime as distinct. Undertime cannot be offset by overtime, and overtime hours worked remain overtime hours that must be compensated accordingly (assuming the employee is covered and overtime is compensable).

5.4 When compensatory time off may be lawful

There are limited situations where “time off” is used as part of work scheduling without violating labor standards, but it must be handled carefully:

(a) Flexible work arrangements (FWAs) / compressed workweek (CWW) If a company validly implements a compressed workweek or other DOLE-recognized flexible arrangement where the normal workday is longer than 8 hours on certain days (e.g., 10–12 hours/day) in exchange for fewer workdays, the extra hours within the agreed normal workday may not be treated as overtime, provided legal requirements are satisfied (consultation/voluntariness, no diminution of benefits, health/safety, and proper documentation/notice where required by DOLE policy).

Key difference: under a valid CWW, the additional hours are part of the normal hours by arrangement; they are not “overtime” to be offset.

(b) Voluntary time-off arrangements on top of overtime pay An employer may grant time off as an added benefit (e.g., “comp time”) but should still pay the statutory overtime premium if legally due. Time off should not be used as a substitute that reduces statutory pay.

(c) CBA/Company policy with more favorable terms A CBA may provide a different method so long as it does not result in less than the statutory minimums. If the “offset” results in receiving less than what overtime law guarantees, it is vulnerable to challenge.

5.5 Why “offsetting” is risky even with employee consent

Even if an employee “agrees” to offset overtime, labor standards rights are often treated as protected; waivers are generally viewed with skepticism, especially if the result is the employee receiving less than statutory entitlements. Consent is not a cure for a structure that underpays required premiums.

6) Rest day work: when can an employee be required to work?

6.1 General rule: rest day is protected

The rest day is meant to provide weekly rest. Requiring rest day work should be the exception, and when it occurs, premium pay is required.

6.2 Circumstances allowing or justifying rest day work

Employers may require work on a rest day in certain circumstances recognized in labor standards practice, such as:

Urgent work to prevent serious loss, damage, or spoilage;
Emergency situations (e.g., calamities, accidents, breakdowns);
Work necessary to avoid interruption of operations where stoppage would cause substantial loss, subject to limits; and
Other analogous situations recognized by rules/IRR.

Even when rest day work is justified, the employer must still comply with premium pay, and the employee’s health and safety must be considered.

6.3 Employee right to refuse rest day work

Employees may generally refuse to work on rest day unless the request falls within lawful/urgent grounds and the employer observes legal standards. The exact application depends on the reason, prior agreements, industry norms, and operational necessity.

7) Interaction of rest day work with overtime offset

7.1 “Rest day offset” is especially sensitive

Some employers allow: “Work your rest day now, take another day off later.” This can be lawful only if it does not result in the employee losing the legally required rest day premium pay for the day they worked.

Minimum compliance approach:

If an employee works on their rest day, the employer should pay the rest day premium for the hours worked (at least the statutory premium).
Granting a “replacement rest day” later can be a scheduling accommodation, but it should not be treated as a substitute for premium pay.

7.2 Replacement rest day does not erase premium pay

Even if the employee later gets a day off, the earlier day worked was still a rest day worked, and the premium is due.

8) Computation guidance (practical)

8.1 Basic formulas

Let:

Daily Rate (DR) = employee’s daily wage
Hourly Rate (HR) = DR ÷ 8

Ordinary day overtime (beyond 8):

OT per hour = HR × 1.25

Rest day work (first 8 hours):

Rest day pay for 8 hours = DR × 1.30
Rest day hourly rate (for computations) = HR × 1.30

Rest day overtime (beyond 8):

OT per hour on rest day = (HR × 1.30) × 1.30 = HR × 1.69

Note: These are minimum statutory standards commonly applied; always verify the correct day classification (rest day vs special day vs holiday) because the base multiplier changes.

8.2 Example (illustrative)

Employee daily rate DR = ₱800 Hourly rate HR = ₱800 ÷ 8 = ₱100

Worked 10 hours on rest day:

First 8 hours: ₱800 × 1.30 = ₱1,040
Overtime hours: 2 hours × (₱100 × 1.69) = 2 × ₱169 = ₱338
Total for the day = ₱1,040 + ₱338 = ₱1,378

If the employer instead gave “2 hours undertime credit” on a later day and paid only ₱800, that would underpay statutory premiums and be non-compliant.

9) Approval, documentation, and control

9.1 Must overtime be “authorized”?

Many policies require prior authorization. However, if the employer knows or should know overtime work is being performed and allows it to continue, the time can still be compensable.

Best compliance practice:

Keep clear written rules for overtime approval;
Enforce them consistently; and
Record actual hours worked accurately.

9.2 Time records are critical

The employer is generally expected to maintain accurate time records. In disputes, inadequate records can shift evidentiary risk and make employers vulnerable to claims for unpaid premiums.

10) Common problem areas and how Philippine practice resolves them

10.1 “Offsetting undertime vs overtime”

Not allowed as a way to avoid paying overtime premiums. Undertime may be deducted (subject to wage rules), but overtime must be paid as required.

10.2 “Comp time” or “time-off in lieu”

Permissible only if structured so employees still receive at least the legally required overtime/rest day premiums. If it replaces pay and reduces statutory entitlement, it is risky and often invalid.

10.3 Misclassification to avoid overtime (e.g., calling staff “managerial”)

Misclassification is a frequent violation. Coverage depends on actual functions and authority, not job titles.

10.4 Flexible arrangements used as disguise

Compressed workweeks and flexible arrangements must be genuine, voluntary/consulted, properly implemented, and should not reduce benefits. Otherwise, hours beyond 8 can revert to overtime liability.

11) Enforcement, liabilities, and remedies

11.1 Administrative and monetary exposure

Nonpayment or underpayment of overtime/rest day premiums can lead to:

Orders to pay wage differentials (unpaid premiums);
Possible penalties under labor standards enforcement; and
Additional exposure if the pattern indicates bad faith or violations across a workforce.

11.2 Where disputes are raised

Employees may file labor standards complaints through DOLE mechanisms for money claims within applicable thresholds/venues, while certain disputes may go through the appropriate labor adjudicatory bodies depending on the nature of the claim and current procedural rules.

12) Compliance checklist for employers (and what employees should look for)

12.1 Employer checklist

Identify who is covered by hours-of-work rules vs exempt.
Establish the employee’s rest day schedule clearly in writing.
Use reliable timekeeping and preserve records.
Pay at least 125% OT for ordinary day overtime.
Pay at least 130% for rest day work (first 8 hours).
Pay the correct rest day OT premium beyond 8 hours.
Do not net undertime against overtime.
If using flexible arrangements (CWW/FWA), document properly and ensure no diminution of benefits.

12.2 Employee checklist

Keep personal records of actual hours worked and schedules.
Confirm what day is designated as rest day and whether work on that day is reflected with premium pay.
Watch for “offset” practices that reduce pay below legal premiums.

13) Key takeaways

Overtime offset (time off in lieu of overtime pay) is generally not a lawful substitute for statutory overtime premiums if it results in underpayment.
Undertime cannot be offset by overtime to avoid paying overtime premiums.
Rest day work must be paid with premium pay, and overtime on a rest day gets an additional premium; granting a later day off does not erase the premium pay obligation for the rest day actually worked.
Proper classification, documentation, and time records are the backbone of compliance.