Overtime Premium Rate Formula

Overtime Premium Rate Formula

Formula for overtime premium rate has been given below. This formula has been elaborated with different examples.

Overtime Premium Rate =Basic Rate (1+ % of basic Rate)

Overtime Premium Rate Formula Example

Basic Rate= 12 $

Premium Rate @ 60% of basic Rate

Calculate overtime premium rate & amount for 10 Hours

Solution

Overtime Premium Rate=Basic Rate (1+ % of basic Rate)

 12 (1+ 60%)

= 19.2 $ (Rate of overtime Premium)

Amount of overtime = Hr x overtime rate

= 10 Hrs x 19.2

=192 (Amount of overtime)

Overtime Premium Rate (Based on Labour Hour Rate)

Overtime premium rate may be calculated on the bases of basic hour rate of labour, alternatively premium rate can be calculated on the basic rate offered on output or unit produced. Concept of Overtime rate based on basic labour hour has been explained with an example (Above).

Overtime Premium Rate (Based on Unit Produced)

Overtime premium rate may also be calculated on the bases of unit produced. Concept is same as explained above; however, this time premium rate is calculated on the bases of basic rate of unit produced. Concept of overtime premium rate bases on unit produced has been explained with below example.

Example

Unit Produced = 100

Rate = $ 5

More than 100 unit rate is 40% of basic rate

Solution

Premium Rate= $ 5 (1+40%)

=7

Basic 100 units @ 5= 500

Premium Rate 20 @ 7 = 140

Total Labour cost (500+140) = 640

Reason for using Overtime Premium Rate

Reason for using premium rate for overtime is very logical, because labour would only work for more hours, if labour is offered some lucrative rate i.e. (Premium Rate), otherwise labour would prefer to utilize his time in other activities. (Rest, social engagements, playing games)

Overtime Premium Rate Considerations

Premium rate should be clearly define and offered for the labour, labour cost should remain within range, and similarly premium rate should be acceptable for labour to work more. Therefore a well calculated and balanced rate should be offered.


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