How to Calculate Overtime in the UAE
by
Anna Fischer
Published 4 Sep 2024
Calculating overtime is critical for businesses with employees eligible for overtime pay, especially considering that overtime occurs when an employee works beyond the standard schedule set by the employer. The method of calculating overtime may vary depending on local regulations and specific company policies.
This article will explore the intricacies of overtime pay, focusing on its application and exceptions under UAE Labor Law. Understanding and complying with these regulations are key to preventing legal issues and avoiding fines in the UAE.
This article will explore the intricacies of overtime pay, focusing on its application and exceptions under UAE Labor Law. Understanding and complying with these regulations are key to preventing legal issues and avoiding fines in the UAE.
Contents
Understanding Overtime Calculation in the UAE Payroll Process
The UAE Labor Law sets strict guidelines for working hours and overtime compensation. Employees typically must not work more than 8 hours per day or 48 hours per week. However, exceptions exist for trades, hospitality, and security roles where working hours can extend to 9 daily. Travel time, one-hour meal breaks, and commuting are not considered working hours.
When employees work beyond these standard hours, the compensation can vary depending on the situation. For instance, during Ramadan, the workday is reduced to 6 hours. Any hours worked beyond this are considered overtime.
When employees work beyond these standard hours, the compensation can vary depending on the situation. For instance, during Ramadan, the workday is reduced to 6 hours. Any hours worked beyond this are considered overtime.
Key Regulations
According to Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations in the Private Sector, key regulations include:
The employer can ask the worker to work overtime, but no more than two hours extra per day.
Overtime pay is the regular hourly rate plus 25%. It increases to 50% for hours worked between 10 PM and 4 AM.
Employees required to work on their day off must receive either a compensatory rest day or pay at 150% of the regular rate.
Positions like senior executives, administrative supervisors, and naval and marine crew may be exempt from overtime rules.
Exceptions
In the UAE, some positions are exempt from usual overtime rules due to their flexible or long working hours:
Executive or managerial positions. Senior executives and managers, with employer-delegated authority, typically have overtime exemptions due to the flexible hours their roles demand.
Employees working on a commission basis. Commission-based workers, like sales representatives, may be exempt from overtime rules since their pay depends on performance, not hours.
Shift workers. Employees who work on a shift basis, particularly in industries that operate 24/7 like healthcare, hospitality, and security, may have different overtime rules, especially if their shifts extend into night hours.
Workers in specific industries. In some specific industries, such as construction, tight deadlines may necessitate working beyond normal hours, but this shouldn't surpass a legal cap of 2 overtime hours daily, except under circumstances that are approved by MOHRE. Strict health and safety rules (especially for working in extreme weather), also affect overtime scheduling and calculation.
Legal Issues
Employers must ensure compliance with these regulations to avoid legal issues and ensure fair compensation for their employees. Legal issues include:
Fines. Companies breaking the rules, like not paying overtime, can be fined by the UAE Ministry of Human Resources and Emiratisation (MOHRE).
Court cases. Workers can complain to the MOHRE or sue companies for not following labor laws. These cases are settled in UAE labor courts.
Checks by the government. The UAE government checks businesses to make sure they're following the labor laws. If they're not, it can mean big problems, including closing down the business.
Losing licenses. Not sticking to the rules can mean losing the permits and licenses a company needs to operate in the UAE.
Types of Overtime
Overtime falls into two main types:
Emergency overtime. This occurs when urgent, critical issues require immediate action. While various countries limit weekly overtime hours, the UAE's emergency overtime pay and hours can be different from usual standards. It depends on the urgency, the employee's contract, and company policy.
Regular overtime. This type is for extra tasks that come up without warning, like when there's a lot of work all at once or other special situations that affect the company's usual operations.
Manual Calculation of Overtime
To correctly figure out overtime pay, first know the rules for your employees. As we previously mentioned, overtime usually means getting paid an extra 25% for hours worked. If these hours are between 10 PM and 4 AM, the extra pay goes up to 50%. For manual calculations, begin with the following steps:
Identify the overtime rate. Determine the multiplier for overtime hours (e.g., 0.25x or 0.5x).
Determine the standard workweek. Identify the number of standard hours in a workweek (e.g., 40 hours).
Calculate overtime hours. Subtract standard hours from total hours worked in the workweek.
Compute overtime payment. Multiply the overtime hours by the overtime rate.
Formula for Calculating Overtime in the UAE
Let's calculate an employee's overtime payment as an example. Suppose the employee's monthly salary is AED 3,200, and the overtime work is 20 hours.
One Hour Payment
Formula: (Basic Salary * 12) / (365 days * 8 hours)
Calculation: (3,200 AED * 12) / (365 * 8) = 13.15 AED per hour
One Hour Overtime Payment
Formula: One hour payment + (25% of one hour payment)
Calculation: 13.15 AED + (0.25 * 13.15 AED) = 16.44 AED per hour
Total Overtime Payment
Formula: Total overtime hours * one hour overtime pay
Calculation: 20 hours * 16.44 AED = 328.8 AED
Monthly Payment
Formula: Monthly payment = basic salary + total overtime payment
Calculation: 3,200 AED + 328.8 AED = 3,528.8 AED per month
Overtime Payment on Public Holidays
Formula: Total Overtime Pay = Basic Salary * 12 / 365 / 8 * Total overtime hours * 150%
Calculation: (3,200 AED * 12) / (365 * 8) * 20 * 1.5 = 394,5 AED
The employee must also get compensatory leave for the days worked. If the employer fails to provide it, the employee gets paid an additional 150% of his usual pay for those working days.
Why Automate Overtime Calculations with ERP
Automating overtime calculations is a wise decision for construction businesses of any size. Among the options available, ERP systems are particularly effective. It reduces errors compared to manual calculations, helps ensure compliance with UAE Labor Law, and streamlines the workflow by:
Efficiency. Saves time and reduces the workload on payroll staff.
Accuracy. Minimizes errors in calculating overtime pay.
Compliance. Helps maintain compliance with changing labor laws.
Insights. Provides valuable data for analyzing labor costs and improving workforce efficiency.
Among other things, ERP helps you achieve long-term cost savings. Let's say you're running a construction project and have workers who sometimes work extra hours. Paying for this overtime can get expensive quickly, so you want to ensure every dirham spent is absolutely necessary and that calculations are spot-spot on.
With automation, your project manager can track hours more accurately. However, mistakes can still occur, such as accidentally paying for 10 extra hours of overtime that didn't happen. If your overtime rate is 100 AED an hour, this mistake could significantly waste money due to a simple error.
ERP modules, such as Project Costing integrated with HR & Payroll, allow for the efficient allocation of overtime, preventing unnecessary extra pay before they happen. With this, you can make reports that help you find mistakes and make wise choices to avoid spending too much.
With automation, your project manager can track hours more accurately. However, mistakes can still occur, such as accidentally paying for 10 extra hours of overtime that didn't happen. If your overtime rate is 100 AED an hour, this mistake could significantly waste money due to a simple error.
ERP modules, such as Project Costing integrated with HR & Payroll, allow for the efficient allocation of overtime, preventing unnecessary extra pay before they happen. With this, you can make reports that help you find mistakes and make wise choices to avoid spending too much.
ERP Overtime Setup
Setting up overtime in an ERP system involves:
Defining overtime policies. Input local labor laws and company-specific rules regarding overtime, including overtime rates and thresholds.
Employee classification. Ensure employees are correctly classified in the system based on their eligibility for overtime.
Integration with time tracking. Start tracking attendance with time cards to accurately capture hours worked.
Overtime Calculations with FirstBit ERP System
First Bit ERP includes the HR & Payroll module that will help you to do these calculations smoothly and easily.
Overtime data is collected from time cards at the site. This information is then entered into a time sheet to process payroll. You can do it manually, through resource allocation, or by uploading an Excel file.
Overtime data is collected from time cards at the site. This information is then entered into a time sheet to process payroll. You can do it manually, through resource allocation, or by uploading an Excel file.
Time Sheet in FirstBit ERP
Payroll Sheet in FirstBit ERP
To view the master records for payroll calculations easily, navigate to HR & Payroll in FirstBit ERP system, then click on “See also” followed by “Calculation Parameters.”
Calculation Parameters in FirstBit ERP
Toolbar Buttons for Quick Actions
To add a new parameter simply click on “Create” on the toolbar. There you can specify the value in the payroll calculation document.
To edit an existing parameter, make a double-click on the desired parameter line or select the line, then click “More” on the toolbar, followed by “Edit.”
To edit an existing parameter, make a double-click on the desired parameter line or select the line, then click “More” on the toolbar, followed by “Edit.”
FAQs
Why is calculating overtime crucial in the UAE?
Calculating overtime accurately is vital to ensure employees are compensated appropriately for their extra work hours beyond the standard schedule. This practice helps employers adhere to UAE labor laws and guarantees that employees are paid correctly for their efforts.
How do you calculate overtime pay on a regular workday?
You first determine the hourly wage to calculate overtime pay during a regular workday. Then, the hourly wage is multiplied by the overtime hours worked and adjusted by a specific percentage in accordance with UAE labor laws.
Who is exempt from overtime rules in the UAE?
In the UAE, certain positions, including senior management, administrative staff, and certain maritime roles, are exempt from overtime provisions. Moreover, periods spent on commuting, breaks, and meals do not count towards overtime.
What are the risks of incorrect overtime calculations in the UAE?
Incorrect overtime calculations can lead to payroll errors, resulting in potential legal issues for businesses. Companies must use accurate methods of overtime calculations to avoid legal penalties and maintain fair labor standards. The penalties include fines, government checks, and license loss.
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