Lessons · Accounting · overtime and premium hours
Overtime, and the rate it is paid at
Hours above a threshold are usually paid at a higher rate: the ordinary rate multiplied by a premium factor. The threshold and the factor are set by law or by contract, and they differ everywhere, so the calculation is always the same shape and never the same numbers.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
It is the commonest arithmetic in payroll and the commonest place a worker is short-changed by accident. Paying forty-five hours at the ordinary rate looks like a reasonable mistake and is a underpayment that has to be corrected, usually with interest and always with an apology.
How to think about it
Split the hours at the threshold. Ordinary hours at the ordinary rate, the excess at the ordinary rate times the factor. Add the two. Never average the rate across all hours.
Worked example
Worked 46 hours; the threshold is 40 and the factor is 1.5Both are given, because both vary.
Ordinary: 40 x rateThe hours up to the threshold.
Premium: 6 x rate x 1.5The excess, at the higher rate.
Gross is the sum of the twoNot 46 hours at some blended rate.
Your turn
Worked 46 hours with a threshold of 40. Write the line for the premium hours.
Premium hours = 46 - = 6
Solve one, graded on the server
The trap
Multiplying all the hours by the premium factor. It overpays, which is caught quickly and is still an error, and the mirror mistake of paying every hour at the ordinary rate is the one that survives for months because nobody complains about being paid what they expected.