1) Big picture

Overtime (OT) pay is a statutory monetary benefit under the Labor Code of the Philippines. With limited exceptions, every covered, rank-and-file employee who works beyond eight (8) hours in a day must be paid an OT premium on top of the regular wage. There is no general “small business” exemption—micro and small enterprises must comply unless the individual worker is legally exempt (e.g., managerial employees, field personnel whose hours cannot be determined with reasonable certainty, family drivers, domestic helpers who are governed by a separate law, and certain government employees).

Rule of thumb: if you keep time records, set schedules, and can count the hours, you likely owe OT when work exceeds 8 hours in a day—regardless of business size.

2) Coverage and key exemptions

Covered: Private-sector employees in the Philippines, whether paid monthly, daily, or hourly; whether regular, probationary, project-based, or seasonal (so long as they are employees and not independent contractors).

Common exemptions:

Managerial employees (those who primarily manage the business or a department, exercise the power to hire/fire or effectively recommend such actions, and customarily exercise discretion and independent judgment).
Members of management staff who meet strict criteria similar to managers (not just “supervisor” in job title).
Field personnel and others whose work hours cannot be determined with reasonable certainty (e.g., certain outside sales with no fixed schedule or requirement to report to the office).
Domestic workers (kasambahay) are covered by a different statute with distinct rules.
Government workers are under the civil service system, not the Labor Code.

A “supervisor” who mainly performs the same work as rank-and-file staff and has no true discretion may not be exempt. Exempt status is based on actual duties, not job titles.

3) Normal hours vs. overtime

Normal hours: Up to 8 hours a day, exclusive of the 1-hour meal break (shorter breaks may apply by agreement, in which case the meal break can become compensable).
Overtime: Any work beyond 8 hours in a day. OT requires the employee’s consent, except in limited cases where OT can be required (e.g., emergencies, to prevent loss of life or property, urgent machine repairs, work on perishable goods, or when public interest so requires).

Night Shift Differential (NSD): Separate from OT, an additional 10% of the employee’s regular wage for every hour worked between 10:00 p.m. and 6:00 a.m. NSD is stacked with OT/premium pay when both apply.

4) Premium pay rates (summary)

These are the typical statutory minima used in payroll practice. Company policy or a CBA may grant higher rates but never lower.

Situation	First 8 hours	Overtime hours (beyond 8)
Ordinary working day	100% of hourly rate	+ 25% of hourly rate (i.e., 1.25× for OT hours)
Rest day (if worked)	+ 30% premium (i.e., 1.30×)	+ 30% of the rest-day hourly rate (i.e., 1.30× × 1.30 for OT hour’s premium component)
Special (non-working) day (if worked)	1.30×	OT: add 30% of the special-day hourly rate
Regular holiday (if worked)	2.00×	OT: add 30% of the regular-holiday hourly rate
No work on regular holiday (eligible monthly-paid/daily-paid with entitlement)	1.00× day’s wage	—

Stacking rules: If two premiums coincide (e.g., regular holiday that falls on a rest day), the base for the OT calculation becomes the already-premiumed rate (e.g., 2.0× × an additional 30% for rest day = 2.6× for the first 8 hours; OT would then add 30% of the 2.6× hourly rate per OT hour). NSD (10%) applies in addition to any of the above for hours between 10 p.m. and 6 a.m.

Special non-working days generally follow a “no work, no pay” principle unless a favorable company policy, practice, or CBA says otherwise; if worked, special rates apply.

5) Compressed workweek (CWW) and flexible arrangements

A compressed workweek redistributes the standard weekly hours (e.g., 48 hours for a 6-day operation or 40 hours for a 5-day) into fewer days with longer shifts (e.g., five 9.6-hour days, or four 12-hour days). Properly adopted CWWs may avoid OT on those longer days so long as total weekly hours do not exceed the normal weekly limit and the arrangement meets DOLE procedural safeguards (employee consent, health & safety assessment, written policy, and notice to DOLE).
Flexible work arrangements (e.g., reduced workdays, rotation, telework) require employee agreement and DOLE notification. If a day still exceeds 8 hours outside a properly adopted CWW, OT rules apply.

6) Determining the hourly rate

Because Philippine payroll systems vary, choose the correct divisor consistent with your pay policy:

Monthly-paid employees (paid for all days of the month including rest days, special days, and regular holidays): Many payroll systems derive a daily rate using a factor of 365 days and then convert to hourly; others use 26 working days/month (for 6-day operations) or 22 (for 5-day). What matters is consistency with your written pay policy and DOLE-recognized formulas.
Daily-paid employees: Hourly rate is typically daily rate ÷ 8.
Hourly-paid employees: Use the contract rate.

For compliance, document your chosen divisor in the employee handbook or written policy, and apply it uniformly. In disputes, DOLE will look for clarity and consistency with the employee’s actual pay coverage (e.g., whether monthly pay already includes rest days/holidays).

7) Computation examples

A) Ordinary weekday OT

Monthly-paid worker with a computed hourly rate of ₱80.00.
Works 10 hours on a regular workday (2 OT hours, all before 10 p.m.).

Computation:

Regular 8 hours = 8 × ₱80.00 = ₱640.00
OT hours = 2 × (₱80.00 × 1.25) = 2 × ₱100.00 = ₱200.00
Total for the day = ₱840.00

B) Rest day + OT + NSD

Hourly rate: ₱80.00. Employee works 10:00 p.m. to 8:00 a.m. on a rest day (10 hours; 2 hours OT; 8 hours fall within 10 p.m.–6 a.m. window).

Computation (step-by-step):

Rest-day premium base (first 8 hours): ₱80.00 × 1.30 = ₱104.00
Eight hours regular (at rest-day rate): 8 × ₱104.00 = ₱832.00
OT hours on rest day: 2 × (₱104.00 × 1.30 OT premium) = 2 × ₱135.20 = ₱270.40
NSD (10 p.m.–6 a.m.) = 8 hours × (₱104.00 × 10%) = 8 × ₱10.40 = ₱83.20 Total = ₱832.00 + ₱270.40 + ₱83.20 = ₱1,185.60

C) Regular holiday + OT

Hourly rate ₱80.00; worked 9 hours on a regular holiday (1 hour OT).

Computation:

First 8 hours: 8 × (₱80.00 × 2.00) = ₱1,280.00
OT hour: 1 × (₱160.00 × 1.30) = ₱208.00
Total = ₱1,488.00

8) Consent, documentation, and timekeeping

Consent: OT generally requires the employee’s agreement, except in the statutory exceptions (emergency, machine breakdown, perishable goods, public interest, etc.). Best practice: use OT request/approval forms or digital workflows showing both the assignment and the employee’s assent.
Time records: Keep accurate daily time records (DTRs) (clock-in/out, breaks, schedules, OT approvals). DOLE may inspect these. Keep for at least three (3) years, aligning with the prescriptive period for money claims.
Payslips: Show regular hours, OT hours, premiums, and NSD as separate lines with rates and amounts.

9) Interplay with minimum wage and allowances

OT is computed using the employee’s regular wage, which includes the basic salary plus wage-integrated allowances that form part of the wage (not purely discretionary benefits). Ensure the resultant pay never falls below the regional minimum wage for the relevant hours worked.
Service charges (e.g., in hospitality) and COLA may have special treatment; follow your region’s wage orders and your pay policy’s definitions of wage vs. benefits.

10) Special notes for small businesses

No blanket exemption: Micro and small enterprises must pay OT if they employ covered workers.
Holiday pay exemptions: Some very small retail/service establishments historically had holiday pay exemptions in specific circumstances. These are narrow and do not eliminate OT for hours worked beyond eight in a day; verify if you fit any narrow exemption before relying on it.
Cash-flow planning: If business demand fluctuates, adopt shift planning, flex-time, or a properly-documented CWW to manage OT exposure lawfully.
Training time: If training is required or job-related and occurs outside normal hours, it is generally hours worked and can trigger OT.

11) When is “waiting” or “travel” time compensable?

On-call at the workplace or where movement is severely restricted → generally hours worked.
Standby at home with freedom to use time effectively → often not hours worked (context matters).
Travel during the workday (from one client to another) → hours worked.
Home-to-work commute → generally not compensable, unless the employer requires special assignments that convert it into work time.

12) Independent contractors vs. employees

Labeling a worker “contractor” does not control. DOLE applies the four-fold test (selection and engagement, payment of wages, power to dismiss, and control over conduct of work) and the control test. If the relationship is truly employment, OT rules apply, including to “freelancers” who function as employees.

13) Penalties, claims, and prescription

Non-payment/underpayment of OT can lead to DOLE compliance orders, money claims, administrative fines, and potential criminal liability for willful violations.
Employees may file claims with DOLE or the NLRC. The usual prescriptive period for money claims is three (3) years from when the cause of action accrued.
Company officers who actively cause violations may be held liable in certain cases.

14) Practical compliance checklist (small business)

Classify employees correctly (exempt vs. non-exempt), based on actual duties.
Adopt a clear work hours and OT policy (include consent, approval flow, and emergency OT rules).
Choose and publish your pay divisors and computation formulas; apply consistently.
Maintain DTRs, OT approvals, and itemized payslips.
If using CWW/flex-work, secure employee consent, conduct a basic OSH review, and notify DOLE.
Budget and schedule to minimize unnecessary OT; monitor weekly hours.
Train supervisors to avoid off-the-clock work (after-hours chats, calls, messaging that become work time).
Review regional wage orders and update payroll when they change.
Keep records 3+ years; respond promptly to DOLE inspections.
When unsure, err on the side of paying the premium—it’s cheaper than a claim.

15) FAQs

Q: We’re a 7-employee sari-sari/retail shop. Do OT rules apply? Yes, unless workers are exempt (e.g., true managerial). Otherwise, OT for hours beyond 8 applies, plus NSD, rest-day, and holiday premiums where applicable.

Q: Can we require OT? Only with employee consent, except in statutory exceptions (emergency, urgent repairs, perishable goods, public necessity, etc.), which are construed narrowly.

Q: Does a “no OT without prior approval” policy shield us if someone works extra hours? It helps manage exposure, but if management knows or should know work was performed, those hours are usually compensable. Enforce the policy by disciplining unauthorized OT—not by withholding pay.

Q: Are meal breaks paid? The standard 1-hour meal break is unpaid and excluded from hours worked. If shortened or employees are not relieved of duty, it may become compensable.

Q: Can we average hours over a week to avoid OT? Not under ordinary rules. Daily work beyond 8 hours triggers OT unless a valid compressed workweek is in place.

16) Model policy language (you can adapt)

Work Hours: Normal hours are eight (8) per day, exclusive of a one-hour meal period, scheduled by management.
Overtime: OT requires prior written approval except in emergencies. OT is paid per law; premiums for rest days, special days, regular holidays, and NSD apply.
Timekeeping: Employees must truthfully record time. Off-the-clock work is prohibited; any such time must be reported and will be paid.
Flexible Arrangements: The company may implement CWW or other flexible work setups with employee consent and DOLE notice.
Recordkeeping: Payroll records, DTRs, and payslips are retained for at least three (3) years.

Final notes

This overview distills Philippine overtime rules as they generally apply to small businesses. Because pay practices (divisors, allowances, service charges) and regional wage orders differ, align your payroll formulas and policy documentation with your actual setup. When in doubt on edge cases (e.g., holiday-rest-day overlaps, unusual allowances, or CWW adoption), it’s prudent to document, pay conservatively, and seek professional advice.