January 2023
Teresa Clarke how to calculate overtime using the two different methods required for the Elements of Costing (AQ2016 ) or Principles of Costing exam (Q2022).
Overtime is the number of hours that an employee works above their normal working hours.
For example, Tahira may work a basic week of 37 hours, but any additional hours are overtime hours. If she worked 42 hours in one week, then 37 would be standard, or normal, hours and five would be overtime hours. In general, overtime is paid at a higher rate, such as ‘time-and-a-half’ or ‘double time’. Time-and-a-half means 1.5 times the normal hourly rate. Double time means double the normal hourly rate.
Overtime premium is the amount of money paid above the normal hourly rate for those overtime hours.
Overtime payment is the total paid for the overtime hours.
It is important to understand the difference between overtime premium and overtime payment as you may be asked to calculate the pay using the two different methods.
Example
Tahira has a basic working week of 37 hours and is paid £10 per hour.
Any overtime hours are paid at time-and-a-half. This means 1.5 times her normal rate [£10 x 1.5 = £15]
Question 1: If Tahira worked 42 hours last week, calculate her pay for the week clearly showing the basic pay and overtime payment.
Question 2: If Tahira worked 42 hours last week, calculate her pay for the
week clearly showing the basic pay element and the overtime premium.
You can see that both methods arrive at the same total pay but have been recorded differently. Try this one for yourself.
Practice question
Donna is paid £12 per hour for a standard 35-hour week. Any additional hours are paid at double time. Donna has worked 38 hours this week.
Complete the following tables to calculate Donna’s gross wage for the week.
Remember that the gross wage will be the same using both methods. The answers are below.
Answers
• Teresa Clarke FMAAT. If you enjoy my way of explaining things, you might like my workbooks, which are all available from Amazon in both paperback and as eBooks. The links to all my workbooks can be found here: https://www.teresaclarke.co.uk/books/
