Understanding how to calculate overtime pay is essential for businesses to ensure employee rights and comply with labor laws. Yet many employers and HR teams still struggle to determine accurate pay rates across various overtime scenarios. In this article, terra will walk you through overtime pay formulas, common applications, and how to avoid miscalculations.
What Is Overtime Pay?
Overtime pay (also known as “extra pay” or “after-hours compensation”) refers to the additional wages an employee receives for working beyond the standard working hours outlined in their contract or labor law.
In most cases, working overtime means clocking in more than 8 hours a day or 48 hours a week. These are the typical limits set for standard working time. Unlike regular wages, overtime salary is paid at a higher rate to compensate employees for the extra effort and time they put in beyond their normal shift.
According to Articles 90 and 98 of the 2019 Labor Code, employees who work overtime must be paid at a rate between 150 percent and 300 percent, depending on when the overtime occurs such as on a weekday, a day off, or a public holiday.
Different types of overtime pay in a company
Depending on the payroll method being used, each company may apply a different way to calculate overtime pay. Below are three common approaches along with how the overtime salary is calculated in each case.
Time-based pay
This is the most widely used method, especially in office environments or manufacturing businesses that track attendance by shift. The overtime salary is calculated based on the hourly, daily, weekly, or monthly wage rate. Here is how it works:
- Hourly based:
| Overtime salary = Hourly wage rate x Overtime % based on labor regulations |
(Example: Weekday overtime is paid at 150%, weekend at 200%, and holidays at 300%)
- Daily, weekly, or monthly base:
First, the wage must be converted into an hourly rate based on the total daily, weekly, or monthly salary. After that, apply the same overtime pay formula as above.
Product-based pay
This method is suitable for large-scale manufacturing businesses where productivity is measured by the number of units completed. In the case of working overtime:
| Overtime salary = Number of overtime products x Product unit price x Overtime % (same regulation as hourly overtime) |
This ensures that workers are compensated not only for the quantity of products completed but also for the extra effort during nonstandard hours.
Since the way overtime is calculated and the applicable percentage can vary depending on the company’s payroll system, it is easy for businesses to make mistakes. That is why many companies choose terra payroll service to streamline the process and ensure full legal compliance.
Task-based pay
In a task-based system, wages are paid based on the volume of completed work rather than hours worked. However, if an employee works extra hours to finish the assigned task, the company is still required to negotiate and pay overtime separately. This overtime can be calculated using an hourly rate converted from the task-based pay.
Overtime salary = Hourly rate (converted from task pay) x Overtime hours x Overtime % |
This method assures that employees are not underpaid when working beyond normal hours to meet deadlines. At the same time, it helps employers remain compliant with legal regulations on overtime work and working time limits.
How to calculate overtime pay in specific cases
How is overtime salary calculated? According to Article 98 of the 2019 Labor Code, employees who work extra hours must be paid more than their regular hourly rate. The exact multiplier depends on when the overtime occurs, as outlined below:
On regular working days: at least 150% of the hourly wage
On weekly rest days: at least 200%
On public holidays or paid days off: at least 300% (not including holiday pay if the employee is on a monthly salary)
Below are detailed examples of how to calculate overtime pay in each case.
Working overtime on a regular weekday
This is the most common case, usually happening when a company needs to speed up workflow or handle urgent orders. Here’s how to calculate overtime pay based on the employee’s basic salary.
Overtime pay formula:
Regular overtime salary = Actual hourly wage x 150% x Overtime hours |
Where:
Actual hourly wage = Monthly salary / Working days per month / Working hours per day.
Example:
An employee earns a base salary of 10,000,000 VND per month, the standard working schedule is 26 days per month, 8 hours per day. They work 2 extra hours on a weekday.
- Actual hourly wage = 10,000,000 / 26 / 8 = 48,077 VND
- Overtime salary for that day = 48,077 x 150 percent x 2 = 144,231 VND
So for just those 2 overtime hours on a regular day, the employee will be paid 144,231 VND. This excludes other earnings such as bonuses, allowances, etc.
How to calculate overtime pay on weekends
When employees work on weekends, such as Saturday or Sunday, employers must apply an overtime pay rate of at least 200% of the standard hourly rate. This does not include the regular weekend salary if paid monthly.
Overtime pay formula:
Weekend overtime salary = Hourly wage x 200% x Overtime hours |
Example:
An employee receives a monthly salary of 12,000,000 VND. The standard working schedule is 26 days per month, 8 hours per day. They work 3 overtime hours on Sunday.
Hourly wage = 12,000,000 / 26 / 8 = 57,692 VND
Overtime salary = 57,692 x 200% x 3 = 346,152 VND
So, overtime pay for those 3 Sunday hours is 346,152 VND.
How to calculate overtime pay at night
Working overtime at night (between 10:00 PM and 6:00 AM) qualifies for an additional 20% on top of the regular overtime rate. Here’s how to calculate night shift overtime:
Important notes:
Regular night shift: follow company wage policy
Overtime during a night shift: add 20% to the standard overtime rate
Overtime rates at night:
Regular day: 150% + 20% = 170% minimum
Day off: 200% + 20% = 220% minimum
Holiday: 300% + 20% = 320% minimum
Overtime pay formula:
Night overtime salary = Hourly wage x Applicable rate x Night overtime hours |
Example:
Monthly salary: 10,400,000 VND
Work schedule: 26 days per month, 8 hours per day
Worked 2 extra hours (10 PM to midnight) on a regular weekday
- Hourly wage = 10,400,000 / 26 / 8 = 50,000 VND
- Night overtime rate = 170%
- Overtime salary = 50,000 x 170% x 2 = 170,000 VND
Overtime pay formula for piecework
For employees paid by piece rate, if products are completed outside of regular working hours, the overtime rate must still apply:
Weekday: 150%
Day off: 200%
Holiday: 300%
Overtime pay formula:
Piecework overtime salary = Number of overtime products x Product unit price x Overtime% |
Example:
A worker finishes 50 additional products on Sunday
Unit price: 10,000 VND
Weekend rate: 200%
Overtime salary = 50 x 10,000 x 200% = 1,000,000 VND
Companies need to clearly separate which products were made during standard hours and which were made overtime to calculate the correct overtime pay.
See more: Gross – Net salary calculator
How to calculate overtime pay on holidays
On official holidays (such as Lunar New Year, April 30, May 1, September 2,…) employees who work overtime must be paid at least 300% of the hourly wage, in addition to their monthly salary. Here’s a closer look at how this is applied.
Explaining the rate:
The 300% multiplier means the employee earns triple the regular hourly wage for working on a holiday, offering protection and extra compensation for working on special days.
Overtime pay formula:
Holiday overtime salary = Hourly wage x 300% x Overtime hours |
Example:
Monthly salary: 13,000,000 VND
26 working days per month, 8 hours per day
Worked 4 extra hours on April 30
- Hourly wage = 13,000,000 / 26 / 8 = 62,500 VND
- Overtime salary = 62,500 x 300 percent x 4 = 750,000 VND
Conditions for overtime to be considered valid
Not all additional working hours are legally recognized as overtime. To qualify for proper overtime pay, the extra hours must comply with time limits, be mutually agreed upon, and follow labor regulations.
Standard working hours and overtime limits
According to Article 105 of the 2019 Labor Code, the standard working time is capped at 8 hours per day and 48 hours per week. If an employee works overtime, the total number of working hours in a day must not exceed 12 hours, including both regular and overtime hours.
For specific sectors such as seasonal manufacturing or jobs involving heavy or hazardous work, adjustments to working hours may be allowed as long as they remain within legal boundaries. Exceeding these limits may result in penalties for the employer and the employee’s ineligibility for overtime compensation.
To protect their rights, employees are encouraged to keep a daily record of actual working hours, especially when working overtime on a regular basis. This ensures discrepancies can be identified early and workers can claim the overtime pay they are legally entitled to.
Legal conditions for valid overtime pay
To ensure overtime hours are recognized and overtime salary is paid legally, the following conditions must be met:
There must be a clear agreement between the employer and employee before the overtime work takes place.
Total overtime hours must not exceed:
50 hours per month
200 hours per year for most industries
300 hours per year for specific industries (as listed in Decree 145/2020/NĐ-CP)
The employer must arrange appropriate compensatory time off if overtime pay cannot be provided in money.
For night shifts (from 10:00 PM to 6:00 AM), employees are entitled to an additional 20% on top of the applicable overtime pay formula.
Overtime salary calculation sheet template
An overtime salary calculation sheet is essential for businesses to accurately track extra working hours, manage payroll costs, and maintain transparency with employees. A valid overtime pay template typically includes:
Employee full name
Overtime hours (categorized by date, daytime, and nighttime)
Applicable pay rates or coefficients
Total amount
Signatures of both the employee and the preparer
Download now: Overtime salary calculation sheet template
Companies can refer to the payroll templates in Circular 133/2016/TT-BTC or Circular 200/2014/TT-BTC, depending on the accounting system in use.
Frequently asked questions about overtime salary
How is overtime salary calculated? Below are common questions that both employees and employers often ask when it comes to overtime pay:
Is overtime salary calculated with allowances?
This is a common question when employees work extra hours outside regular office time. Under current labor regulations, allowances are not automatically included in overtime pay unless clearly stated in the labor contract or a collective labor agreement. In other words, if there’s no specific agreement, allowances such as transportation, meal, or responsibility bonuses are not added to overtime salary.
What time frame qualifies as night shift overtime?
Under Article 106 of the 2019 Labor Code, night-time work is defined as between 10:00 PM and 6:00 AM. If employees work overtime during this period, in addition to the regular overtime pay formula (150%, 200%, or 300%), they are entitled to an extra 20% on top of their normal hourly wage.
What’s the fastest and most accurate way to calculate overtime pay?
To calculate overtime quickly and accurately, businesses can apply the standard overtime pay formula using the employee’s hourly wage and the legally required overtime rates (150%, 200%, 300%). However, for companies with rotating shifts or mixed payment structures (e.g. time-based, by product, or by quota,…), it’s advisable to build automated timesheets or use specialized payroll software to ensure compliance and accuracy.
Can employees take time off instead of receiving overtime pay?
Yes. Employers and employees can agree to substitute overtime pay with compensatory time off. However, the time off must be equal to the overtime hours worked and must be scheduled within a reasonable period. If no mutual agreement is reached or the company cannot arrange suitable time off, the employer is required to pay overtime salary using the correct multiplier rates as per labor regulations.
terra’s payroll service in Vietnam – Overtime payroll solution for every business model
For businesses with shift-based operations or frequent overtime such as factories, production lines, or retail chains,… managing overtime payroll can be a complex challenge.
That is why terra offers a comprehensive overtime payroll service to help businesses ensure timely and accurate payments while staying fully compliant with labor regulations. With payroll outsourcing services designed for all business models, we guarantee both efficiency and compliance.
Smart time tracking and precise overtime identification
Automatically collects and classifies timekeeping data including regular hours, overtime, and night shifts, fully integrated with terra HR system at no extra cost.
Payroll specialists manually verify and cross-check data to ensure no miscalculated hours, no overlapping shifts, and no missed overtime
Payslips are generated and sent via email and updated in real time on the terra HR platform so both employees and HR teams can easily review
Unlike basic payroll providers, terra offers outsourced payroll services through a BPaaS model (Business Process as a Service). This is a combination of cloud-based HR software (SaaS) and professional payroll outsourcing (BPO). These payroll solutions help businesses:
Automate payroll processes
Reduce operational costs
Ensure legal compliance, data accuracy, and confidentiality
In addition to managing payroll, terra provides support for foreign employee in processing one-time social insurance claim, ensuring a smooth, compliant, and time-saving experience.
Contact terra for pricing or a service consultation for your business!
Summary
How to calculate overtime pay is not just a technical matter. It directly affects employee rights and a company’s legal responsibilities. Understanding and applying the correct regulations helps minimize risks and promotes transparency and trust in HR management.
If you need support with standardizing your overtime pay calculations and payroll system, don’t hesitate to contact terra for consultation based on your business needs.
