Most industrialised nations with capitalist economies recognise the importance of paying their workers overtime and have laws to enforce this fact. Whether those laws are implemented or not is another matter altogether!
What is Overtime?
Overtime pay, as it’s properly called, refers to payments made in excess of an employee’s regular pay, to compensate for working past their usual work hours.
As an employer, you are no doubt concerned about your employees’ satisfaction and well-being, while also trying hard to balance your business budget. This is a tough line for most employers to walk, so you’re definitely not alone! When determining when and how much overtime to pay your employees, you will have to consider state and federal overtime laws, which falls within the purview of labour law.
Overtime laws in India
The Minimum Wages Act of 1948, The Factories Act of 1948 and The Shops and Establishments Act together define the upper and lower limits of the total amount of time that an employer can expect her employees to spend on the job. These laws also outline how to calculate overtime pay based on whether the employee is salaried or is paid by the hour, or on a piecemeal basis. In factories, the upper limit is 9 hours a day or 48 hours a week, exceeding which the employer is obliged to pay the employee for the extra work. The SEA was drafted specifically for non-factory salaried workers, and their upper limit is 8 hours a day or 200 hours per year of overtime.
The question of how to calculate overtime pay is best addressed on a country by country basis as each have their own formulae and rules.
Budgeting for overtime pay
Seek legal advice: Talk to a lawyer or visit your State’s labour board to familiarise yourself with how much you’re legally required to pay when it comes to overtime. This should help you when you start drafting your yearly budget.
Determine your master budget: Put together a master budget that includes all your expected expenses. Divide your expense outlay into easily identifiable sections such as ‘manufacturing’ and ‘non-manufacturing’ (or ‘overheads’) for example. Include manufacturing labour costs under the first category, and staff and administrative costs in the second, along with.
Calculate expected revenues: Based on projected sales and revenue from earned interest and investments, ascertain how much you expect to make. Add these figures to the master budget.
Assemble a separate labour budget: In this budget, do a detailed enumeration of the cost of labour by department. Make a note of salaries, allowances, compensation and benefits packages, and number of overtime hours you expect your employees to put in.
Compare and contrast labour and master budgets: See if there are any discrepancies between the master budget’s allocation of funds to meet labour costs, and the more detailed labour budget.
Calculate cash flow: Once you’ve updated your master budget, calculate your cash flow on a monthly basis and see how and if you can balance expected costs with expected revenues.
Having an overtime policy and payment strategy in place is critical to ensure that you are running a sustainable small business.