Overtime Calculation in UAE: How to Calculate

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Overtime payments are standard worldwide, including in regions like UAE. However, a business must know a specific set of regulations in UAE labor law before calculating overtime payments.

A basic rule you need to understand for overtime calculation in UAE is how many hours an employee can work regularly and what overtime is. As per UAE labor law, every organization with more than 50 employees must comply with working hours, rewards, health, and safety policies.

Calculating overtime pay in the UAE can be complex due to specific local labor laws. This guide will simplify the process of computing overtime payments for your employees. For instance, each employee can work 8 hours per day or 48 hours per week. Anything employees work beyond 48 hours will be paid as overtime.

What is Overtime?

When an employee works extra hours beyond their regular schedule, that’s called overtime. According to UAE labour law, these additional hours must be paid at a higher rate than regular hours. The pay for overtime depends on the company’s payroll policy.

This guideline for overtime calculation is based on Article 17 of Federal Decree-Law No. 33 of 2021. Any work done outside regular work hours is considered overtime. Such extra work hours must, in any case, be paid in addition to the average pay.

Workers in trade, hotels, and cafés can work up to 9 hours a day. Any hours worked beyond this are called overtime. Work regulations require employers to pay a higher rate for these extra hours. Calculating overtime ensures that workers are paid correctly and prevents employers from misusing their power.

How to Calculate Overtime in UAE?

In UAE work rules, if you work extra hours, your extra pay is based on your regular pay. Here’s how to figure out your extra pay:

Start with the yearly pay.
Divide by 365 to find your daily pay, then again by 8 for your hourly rate.
Multiply by the total hours you worked extra and then by 1.25.

That’s your extra pay. If you work late from 10 PM to 4 AM, you get 50% more.

What Are Different Types of Overtime?

1. Force Majeure Overtime pertains to emergent situations necessitating immediate action to avert or repair unforeseen and significant damages.

2. Structural Overtime is attributed to unanticipated tasks arising from operational difficulties, such as sudden workload surges.

3. Planned Overtime attracts basic wage plus 25% if that wage in the case

Each nation’s labour law caps the permissible additional working hours per week for employees, typically for structural overtime. In contrast, due to its urgent nature, force majeure over time is not constrained by these legal limits.

UAE Overtime Calculation Formula

The methodology for overtime calculation in UAE is delineated in Articles 67-72 of the UAE Labour Law, involving these key elements:

– Employee’s Basic Salary

– Number of Overtime Hours

– Overtime Formula Type (Normal / Fridays / Other Public Holidays)

Under various circumstances, let’s explore the specifics of overtime calculation in the UAE.

1. Overtime Calculation on a Regular Working Day

If you work more than the usual hours, you will receive your normal pay plus 25% for the extra time. The more hours you work daily, the more money you make.

Employees who work these extra hours in the UAE receive their usual hourly rate and an additional 25%. That means that for every hour of overtime, a worker earns 1.25 times their regular pay.

For example, if a worker draws an hourly wage of AED 100, then for overtime worked above the normal number of hours, he is paid AED 125 for every overtime hour worked. Employers need to account for overtime.

They ensure that the worker’s overtime is calculated based on his regular pay. They do not add all other extra money, like allowances or bonuses, to avoid labour laws and thus a potential dispute.

Formula for Overtime Calculation

Wage Per Day: Basic Salary × 12/365

Normal Hour Payment: Per Day Wage ÷ 8

Overtime Payment: Number of overtime hours × Per Hour × 1.25

Example of Overtime Calculation in UAE:

Assume an employee has a basic salary of AED 3,200 monthly and works 100 overtime hours monthly.

Wage Per Day: (3,200 × 12) / 365 = AED 105.20

Per Normal Hour Payment: 105.20 ÷ 8 = AED 13.15

Per Hour Overtime: 13.15 + 13.15 × 25% = 16.43

Total Overtime Pay: 100 × 16.43 = AED 1,643

Total Monthly Salary: Basic Salary + Overtime Pay = AED 3,200 + AED 1,643 = AED 4,843

The compensation for overtime between 10 PM and 4 AM is average pay plus 50%.

Formula

Per Day Wage: Basic Salary × 12/365

Per Hour Payment: Wage Per Day ÷ 8

Overtime Remuneration: Number of overtime hours × Per Hour Payment × 1.5

Using the Same Salary Example for Night Shifts:

Wage Per Day: (3,200 × 12) / 365 = AED 105

Per Normal Hour Payment: 105 ÷ 8 = AED 13.12

Per Hour Overtime: 13.15 + 13.15 × 50% = AED 19.72

Total Overtime Pay: 100 × 19.72 = AED 1,972

Total Monthly Salary: Basic Salary + Overtime Pay = AED 3,200 + AED 1,972 = AED 5,172

2. Overtime Calculation in UAE on Public Holidays

Under Article 81 of UAE Labour Law, employees get extra time off for public holidays and a bonus equal to half their pay. If they don’t get the extra time off, the bonus is 150%. This rule determines the additional pay for employees working on these special days.

In the UAE, you are paid much more than usual if you work on a public holiday.

The worker needs to get:

A different day to relax instead, or
Their usual pay plus extra – at least half more for the day they worked.

So, someone gets paid AED 200 a day to work. If they work on a public holiday, they earn AED 300 instead. This is because they get their usual money, plus half more. Now, if they don’t get an extra day to relax, they could get paid 1.5 times their normal pay.

Accurate overtime calculation in UAE ensures that workers are paid fairly for their jobs. This is especially true on days meant for rest and fun, as set by UAE labour laws.

Short Formula:

Total Overtime Pay: Basic Salary × 12/365/8 × total overtime hours × 1.5 plus one compensatory day off.

Example Calculation for a Public Holiday With Eight Overtime Hours:

If compensatory leave is given: 3,200 × 12/365/8 × 8 × 1.5 = AED 157

If no compensatory leave is given: 3,200 × 12/365/8 × 8 × 2.5 = AED 263

Common Mistakes in Overtime Calculation

By knowing about these usual slip-ups and implementing strong payroll process, bosses in the UAE can adhere to labour laws, protect their staff’s rights, and reduce the chance of fights or legal issues about overtime pay.

Here are a few things bosses should watch out for to make sure they follow work laws:

1. Incorrect Application of Overtime Rates

Employers must ensure they pay extra for overtime. This extra is usually 25% more than the normal pay for additional hours. If companies mess up this math, they can avoid paying workers more, which can break the labour laws of the UAE.

2. Calculating Overtime Based on Gross Salary Instead of Basic Salary

Paying overtime should be based on the worker’s usual pay. Don’t include extra perks or benefits. Following this rule helps bosses avoid paying the wrong amount for overtime. This can stop problems or fines.

3. Neglecting to Monitor Overtime Work

Some companies need to monitor their workers’ extra hours. By doing this right, they can pay their employees fairly. Failing to pay rights can lead to complaints and even legal trouble.

4. Lack of Clarity in Employment Contracts Regarding Overtime

Employers sometimes do not specify overtime requirements or payment terms in employment contracts. This lack of transparency can lead to misunderstandings or disputes over overtime obligations and compensation.

5. Misclassifying Employees

Misclassifying employees in terms of their eligibility for overtime pay, particularly for roles that may be exempt, can cause significant compliance issues. Certain senior and supervisory positions, as defined by labour regulations, may not be entitled to overtime payment; misunderstanding these classifications can lead to financial penalties.

6. Inclusion of Breaks in Overtime Calculation

Some employers can factor lunch or any other breaks in when calculating overtime. According to the United Arab Emirates labour Act, lunch break is not considered part of working hours and, as such, cannot be included in the computation of working extra hours.

7. Failing to Provide Compensatory Days Off for Overtime on Rest Days

According to UAE labour laws, employees must either be compensated with an alternative day off or paid at an increased rate if asked to work on their designated rest days. Employing incorrect handling of overtime pay on rest days can lead to legal repercussions.

Note: Errors in following the correct overtime formulas can lead to legal issues.

Correct Formulas Include:

Per Day Salary: Salary ÷ 30 days
Per Hour Salary: Basic Salary ÷ 30 days ÷ 8 hours

Overtime Calculation As Per UAE Labour Law

Employers may request up to 2 additional working hours per day from employees, compensated at 25% extra, increasing to 50% for work between 10 PM and 4 AM. Working on off days requires compensatory leave or 50% extra pay.

Employees working 5+ continuous overtime hours must get a one-hour break, excluded from overtime calculations. Regular working hours are 8 per day, reduced to 6 during Ramadan.

Some positions (e.g., senior and administrative supervisors) are exempt from overtime rules. Employees on maternity/paternity leave or night shifts may also be exempt. Maritime workers and commute/break times are not considered overtime.

Conclusion

Labour laws in the UAE have specific guidelines that every organization must follow. These guidelines include following the local population, their ways of living, and their ethnicity.

While the labour laws in the UAE accommodate all the necessary provisions for a collaborative environment, they mandate overtime pay for employees. The above article provides critical formulas, examples for calculating overtime, and mistakes you can avoid.

However, making all the effort to calculate overtime payments can be a hassle for an organization, and that is where factoHR’s payroll software can help. It can help you automate overtime payment calculations, making it easier for your business to comply with labour laws in UAE.

Frequently Asked Questions

What Does 1.25 Overtime Mean?

When you work extra hours beyond the average, you get paid 25% more than your usual hourly rate for every overtime hour. This additional pay ensures you’re fairly paid for your work hours over the standard limit.

Does Overtime Pay Come From Your Basic Salary?

When you work extra hours, you are paid more based on your regular pay. This means extra perks or benefits don’t count in this extra pay. So the extra money you get just reflects your basic pay without the additional stuff.

What Can Employees Do If They Don’t Get Paid for Overtime?

Workers who don’t get the proper pay for extra hours can make an official complaint to the Department of Human Resources. This department handles work-related issues and ensures the rules about work are followed.

Is It Allowed by Law for Bosses to Require Compulsory Extra Work Hours in the UAE?

In the UAE, making employees work extra hours is only allowed if the job contract clearly says so. This rule helps protect workers from working more hours than planned without an earlier agreement.

Do Lunch Breaks Count as Work Hours in UAE?

When discussing work hours and extra work in the UAE, lunchtime isn’t counted as part of the whole workday. So, the time you take for lunch doesn’t add to the extra pay you get for working overtime.

Which Types of Workers Do Not Have to Get Paid Extra for Overtime?

Some jobs don’t have to pay for overtime. This mainly applies to high-level or boss roles. Work laws list these jobs and explain why they don’t get overtime pay. It’s usually because of what they do or their position in the company.

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