The payroll function of any company in the UAE involves many elements that employers must calculate before processing employee payments. For example, one of the most important ones is the overtime calculation in the UAE. But before calculating this payroll factor, it is important to know its value, legal aspect, and every other related detail.
In this article, you will learn everything you need to know about the correct calculation of overtime in the UAE. We will provide you with the exact amounts that you must be aware of when it comes to working hours. Plus, here you will also find some tips to accurately carry out the overtime calculation in the UAE in Excel.
- What should you know about overtime calculation in the UAE?
- What does the UAE law state about the overtime calculation in the payroll process?
- How should companies in the UAE calculate overtime on a normal day?
- What is the formula that companies must use to calculate overtime during public holidays?
- How should employers calculate overtime if an employee works on Public Holiday?
- How can Connect Resources help you calculate overtime to accurately pay your employees?
1. What should you know about overtime calculation in the UAE?
As you may know, overtime is known for being an additional payment that employees can receive for working extra hours. And companies must not only carry out the calculation of overtime in the UAE but also in many other countries. Therefore, it is a normal practice in several countries because employees must work no more than 8 hours a day (48 a week).
And if an employee is required to work additional hours that go beyond their normal schedule, overtime must be calculated. However, it is vital that employers know what the labour law in the country states regarding this important payroll element. And overtime calculation in the UAE labour law has clear rules to pay employees for the extra hours they worked.
All employers in the UAE must comply with the labour laws in order to prevent getting penalties, such as fines. Besides, the overtime calculation in the UAE labour law was introduced to prevent employers from forcing employees to work excessively. And in case they work long hours, they will get compensation for their hard work, which is overtime payment.
If you desire to learn how to proceed with the overtime calculation in the United Arab Emirates, you will find more information below. And we will explain how to calculate it with formulas that vary depending on different situations, including Public holidays, and Ramadan. But first, you will need to learn what the UAE labour laws say about overtime calculation.
How to calculate overtime on a working day?
To compute overtime on a regular working day in the UAE, follow these steps:
- Calculate the per day salary by subtracting the Basic Salary multiplied by 12/365 from the Basic Salary (Basic Salary x 12/365).
- Determine the per hour salary by dividing the per day salary by 8 (Per Day Salary/8).
- Find the overtime amount by multiplying the number of overtime hours by the per hour salary, with an additional factor of 1.25 (Number of overtime hours x Per Hour Salary x 1.25).
For example, let’s consider an employee with a basic salary of 3650 AED who worked 100 hours in a month:
- Per Day Salary: 3650 x 12/365/9 = 15 (normal hour payment)
- Per Hour Salary (including 25%): 15 + 25% of 15 = 18.75 per hour payment
- Total Overtime Pay: 18.75 x 100 = 1875 AED
Now, calculate the total salary by adding the Basic Salary and Overtime Pay:
- Total Salary: 3650 AED + 1875 AED = 5525 AED
2. What does the UAE law state about the overtime calculation in the payroll process?
The UAE Labour Law governs the working hours that employees must comply with, which must not exceed 8 hours a day or 48 a week. However, in case the employer requires an employee to work beyond their schedule, calculating the overtime compensation must be considered. And according to the laws, the overtime calculation formula in the UAE varies according to the circumstances in which the employee worked overtime.
For example, if the employee worked during the holy month of Ramadan, an overtime calculation must be applied. And there is an important rule when it comes to carrying out the overtime calculation in the UAE during Ramadan. During this month, employees do not work 8 hours a day but 6 hours only. Working more than 6 hours during Ramadan will be considered overtime.
2.1. Key rules related to the working hours in the UAE
Before learning about the overtime calculation in the UAE labour law, you should be aware of the official working hours. According to the Labour Law, these are some of the key rules that all employees and employers must comply with:
- Employees must work 8 hours a day or 48 hours a week unless they work in a trade, hotel, or security guard. In those cases, it is possible to increase their working hours to a maximum of 9 hours a day.
- The time that employees spend commuting from their places of residence to their workplaces will not be considered overtime. And the law does not consider their 1-hour break as overtime either.
- As we previously mentioned, the official working hours are 8 hours per day. But during Ramadan, employees only work 6 hours a day at most.
- Employers cannot force their employees to work overtime. And employees should not work more than the hours that they agreed upon in the employment contract. However, they can work beyond their schedule if they agree to do so in writing.
- In case an employee requests to perform their work remotely, the employer must specify their working hours.
- If an employee works 5 consecutive hours, he/she has the right to have one or more breaks. And these breaks must be at least 1 hour. Nonetheless, breaks will not be calculated within the working hours.
2.2. Key rules related to working overtime in the UAE
Just like there are rules that specify the official working hours, there are also some other rules regarding working overtime. So, we shall take a look at them before carrying out the calculation of overtime in the UAE:
- Employers may ask their employees to work overtime, but the number of extra hours must not exceed 2 hours per day.
- In case the nature of the work requires employees to work beyond their official schedule, they must receive compensation. More precisely, they will be entitled to a payment equal to normal working hours’ remuneration plus 25% of that pay. In some cases, this number could increase to 50% if the employees work overtime between 10 pm and 4 am. However, keep in mind that this rule does not apply to employees who work on a shift basis.
- And in case the employer requires an employee to work on their day off, the employer must provide a substitute rest day. If the employee does not get a substitute rest day, he/she must receive a payment equal to normal working hours’ remuneration plus 50% of that pay.
In addition, it is imperative to keep in mind that overtime is not always applicable. For example, they are not applicable to senior positions and administrative supervisors. Also, overtime calculation in the UAE does not apply to the crew of naval ships and marine employees.
Furthermore, it is worth mentioning that time spent commuting, resting, and food breaks will not be included in calculating overtime.
3. How should companies in the UAE calculate overtime on a normal day?
In order to correctly calculate overtime on a normal day, make sure to follow these formulas: “basic salary × 12/365 days/8 hours = 1 hour payment” and “normal 1 hour pay + 25% = 1 hour overtime”. The best way to understand it is through an example. Let’s suppose that the basic salary of an employee is AED 2,600 and he worked 120 hours in a month. This is how overtime should be calculated:
2600 × 12/365/8 = 10.68 normal hour payment.
10.68 + 10.68 × 25% = 13.35 per hour overtime.
Now that we have this result, let us calculate total overtime hours × per hour overtime pay:
120 × 13.35 = 1602 total overtime pay.
Then, we calculate basic salary + total overtime pay:
AED 2,600 + AED 1,602 = AED 4,202 monthly payment.
3.1. Wrong formulas companies should not use
When it comes to overtime, most companies comply with the laws related to the calculation of overtime in the UAE. However, there are some other companies that fail to calculate overtime as they should, which can lead to legal issues.
For example, most companies use the correct overtime calculation formula in the UAE, which is “per day salary = basic salary/30 days”. Another correct formula that compliant companies use is “per hour salary = basic salary/30 days/8 hours”.
On the other hand, you can find UAE companies that do not use the right overtime calculation formula in the UAE. And these companies end up calculating overtime using these wrong formulas: “per day salary = basic salary × 12/365” or “per hour salary = basic salary × 12/365/8 hours”.
4. What is the formula that companies must use to calculate overtime during public holidays?
Carrying out overtime calculation in the UAE on a public holiday is also mandatory. In this case, we use the following formula: “basic salary × 12/365/8 × total overtime hours × 1.5 = total overtime pay”. Additionally, there must be one day off. But if the employer does not provide it, the employee must receive a bonus equal to 150% of their basic payment.
Using the previous example, an employee has a salary of AED 2,600 and did 8 hours of overtime. In this case, the public holiday overtime calculation in the UAE goes like this:
2600 × 12/365/8 × 8 × 1.5 = 128 (8 hours pay + 1 day off)
In case the employer does not provide the additional day off, the employee receives a 150% bonus. Therefore, this is how the public holiday overtime calculation in the UAE goes:
2600 × 12/365/8 × 8 × 2.5 = 213 (8 hours overtime pay)
5. How should employers calculate overtime if an employee works on Public Holiday?
The overtime calculation in the UAE during Public holidays can be slightly different from the previous cases. If the employer requires an employee to work on Public holidays or their day off, the employer has two options. The first one is to provide another day off. But the employer cannot opt for the first option, then the second must be chosen.
The second option is opting for Public holidays overtime calculation in the UAE and paying the employee their basic salary plus 50% over normal working hours. The formula, in this case, is: “basic salary × 12/365/8 × total overtime hours × 1.5 = off day paid”. For example, an employee has a salary of AED 2,600 and did 12 hours of overtime:
2600 × 12/365/8 × 12 × 1.5 = 192 (12 hours overtime payment)
6. How can Connect Resources help you calculate overtime to accurately pay your employees?
Carrying out the overtime calculation in the UAE is a very important process that all companies must complete without mistakes. Therefore, in case your company needs help to complete it, you should request advice and services from Connect Resources’ specialists. And with our payroll outsourcing solutions, we will be able to take care of processes like calculating overtime and more.
In addition, if you desire to increase the efficiency of your overall HR processes, getting HR outsourcing services is your solution. By letting our experts take care of several HR tasks, you and your company can focus on more important activities. And you will also be able to enjoy many other excellent benefits and advantages that we can provide you with.
Do you desire to get more information about the calculation of overtime in the UAE? Then please, get in touch with Connect Resources so you can get full guidance on this topic and every detail that it involves. And if you desire to talk to one of our payroll specialists directly, make sure to call us at +971 43 316 688. Furthermore, you can also get more information and tips by sending us an email at firstname.lastname@example.org.
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