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Employee Overtime Policy: How to Draft A Strategic and Encouraging Policy?

Some of the world’s most successful companies have favorable employee policies. Among these rules, the overtime policy is a crucial aspect. Surprisingly, many employers are oblivious to employee rights and labor laws governing the overtime policy.

Most common is the private sector, employees often work overtime past their working hours to achieve the company’s target and increase productivity. As a competitive corporate and business environment demands hard work from the workforce, companies must not overlook the need for a well-structured overtime policy.

Overtime is the period for which employees work after their regular working hours. In India, legally, an employee can be subject to 8-9 working hours a day, that’s 48-50 hours a week.

As per the overtime policy in India, any employee working for more than the established working hours must receive the remuneration for the period worked beyond the mandatory working hours. Companies must have an overtime policy in place to set ground rules.

Why does your company need an overtime policy?

As part of employee-friendly work culture, companies must clearly define the overtime policy and procedure to help employees know whether working overtime is optional, mandatory, limited, or prohibited.

It would help if you outlined the policies to address how you handle overtime hours. In India, the remuneration for overtime hours is 200% (twice the regular hourly rate), implying high costs. For full-time and contract workers, overtime policy differs.

Usually, contract workers are not paid overtime. An overtime policy is essential to address how the company handles overtime hours for exempt and nonexempt employees.

How to draft an overtime policy?

Your employees must be aware of the overtime management policy at the company. It will provide them with all the essential reference points if they have any questions about the company’s overtime procedures or management policies.

The overtime policy must clearly explain the employee overtime rules and procedures. There should be no ambiguity in the terms and conditions. Any comprehensive overtime policy must have the following information:

1. Who are exempt employees are and who are non-exempt employees?

Exempt employees are those who do not receive overtime pay, nor do they qualify for minimum wage. Exempt primarily means employees who are exempt from receiving overtime pay. Nonexempt employees are entitled to receive federal minimum wage and qualify for overtime.

2. What are the essential working hours?

In principle, essential working hours must not exceed 40 hours per week or eight hours per day, excluding breaks for US employees. As per the UAE Labour Law, private sector working hours are 8 hours per day or 48 hours per week and according to the Factories Act 1948, in India employees cannot work for 48 hours a week or nine hours per day.

The Indian state of Maharashtra has amended Section 65(2) of the Factories Act 1948. Under this amendment seeking the state’s permission before giving overtime to workers is no longer compulsory. Furthermore, the management can extend overtime hours as they deem fit.

3. Whether overtime is optional, mandatory, or prohibited

You can make overtime mandatory, optional, or ban it entirely, depending on your business. If your company has hectic weeks when the demand to deliver is high, you can set up weeks with mandatory overtime hours.

Some businesses do not need employees working overtime, but they don’t ban it and make it optional. In some scenarios, overtime costs can be too high, prompting employers to prohibit it.

4. What are the overtime limitations, if any?

Altogether banning employees from working overtime can be counterproductive. To reduce cost, you can put limitations.
For example, you can specify how many hours an employee can work overtime a week. It will help you control the cost.

5. Procedures to follow for working overtime

Do employees need permission to work overtime? If so, how can they request to work overtime? How can employees report overtime? 

These are some examples of procedures to include in your overtime policy draft.

6. How much is the overtime pay?

While overtime pay is generally 1.5-2x times an employee’s normal salary per hour, you can also choose to reward salaried employees working extra hours with additional perks.

7. How is overtime paid?

Will the overtime pay be included in regular wages, or will the company run a separate payroll for overtime hours?
It must be answered in the policy.

8. Disclaimer specific to the company, outside the applicable labor laws

Depending on the type of industry, companies can have specific disclaimers on how they handle events during overtime hours like food privileges, traveling allowance, etc.

These are the general guidelines to help you draft an overtime policy for a company. A viable employee overtime policy must include all the elements listed above and applicable rules and procedures depending on the industry and the local law.

Accurate overtime tracking is a must

Tracking overtime hours is not only a legal requirement, but it also makes your company a better place to work. When you are tracking over time, you can better manage team resources and adjust workloads to ensure the well-being of the employees. For companies, accurate overtime tracking is the only way to compensate employees for their overtime hours.

As employees and employers have rights and entitlements in the context of overtime policy and procedure, accurately tracking overtime is in the interests of both.

Before the pandemic struck, an average employee worked a little over four hours of overtime, and 59% of the distributed workforce worked overtime at least a week. As the crisis unfolded, these numbers increased substantially. Recent research found that one in four public healthcare managers worked more than 20 hours overtime during the pandemic crisis.

Benefits of tracking overtime hours for employers

These numbers indicate that keeping track of overtime hours is more important than ever. Tracking overtime hours is mandatory for companies to ensure compliance with labor laws. Furthermore, it lets companies keep track of one of the most significant ongoing expenses.

Employers must commit to maintaining overtime visible and accountable to provide compensation accordingly. For HR, tracking helps with effective resource management. Managers can better review company-wide work patterns and improvise to split work effectively between employees.

It has tremendous value for the employer brand as it can prevent employee burnout, disengagement, and unhealthy workplace culture.

Benefits of tracking overtime hours for employees

Accurate overtime tracking ensures proper compensation. It is effective in protecting against wage theft. Furthermore, employees get paid faster as time tracking updates the payroll department about the number of overtime hours in real-time. It helps employees fight unsustainable and unfair working practices.

With overtime tracking, employees become more aware of their weekly capacity. It helps them make more intelligent and more efficient decisions about using their time.

Automate Overtime Tracking with Truein

Truein is an advanced attendance system based on touchless face recognition technology. It is a centralized attendance management system designed for employees, contractual, and distributed workforce. The software also has overtime tracking feature.

Some of the biggest brands and most prominent companies use Truein to automate time tracking and enforce overtime policy. The app can capture overtime hours in the background without any interference from the employee or employer. Truein uses AI at its core, helping companies automatically draft timesheets.

Employers can set the app to track overtime accurately based on the company’s overtime policy. Truein calculates overtime based on preset inputs by the companies. It allows for rules such as what counts as overtime, when to count weekly offs, and how to calculate overtime hours based on the employee’s department.

Overtime Policy Rule in Truein Dashboard

Employers and HRs can also download the monthly overtime report directly from the Truein dashboard.

Overtime Report in Truein

Sign up for a free demo and automate the overtime attendance capturing and it’s calculation at your organization.

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A comprehensive overtime policy is in the interest of both employers and employees. Well laid out employee overtime rules and procedures help companies justify remuneration for the extra work. It also empowers employees with indisputable evidence for addressing wage theft or unsustainable working practices.

Employers or employees can’t protect against abuses or inequalities without accurate overtime tracking. Truein offers the capabilities to track over time as part of its wholly automated attendance system solution.

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