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Over time pay: This is normally paid at a premium rate of pay e.g. a worker who works in excess of normal time on a week day may be paid as over time and half the normal rate.
The rate may double on a Sunday.
Example:
Consider a situation where a worker works 10hrs on job when his normal working day is 7 hrs with a basic pay of £3 and overtime which is £1.5 sh the normal rate. His gross earning per day may be calculated in the following two ways.
1. Method 1
Normal pay £3 x 7 hrs = 21
Overtime £4.5 x 3 = 13.5
21 + 13.5 = £34.5
2. Method 2
(Assume job was taking 10hrs)
Normal pay = 3 x 10 = £30
Premium 1.5 x 3 = 4.5
30+4.5= 34.5
Explanation
- Although the total overtime paid is £13.5, it may be that the relevant cost to the company is £ 4.5 which was paid because the last three hours spent on the job were during overtime hours. This is known as the premium pay element of overtime payment.
- The assumption is that the job was expected to take 10hrs with a labour cost of £30. The problem relates to the reason of 3hrs being during overtime and who was responsible for this: The options are as follows:
a) Overtime was worked at the special request of the customer to have the job finished by a specific date. In this case the overtime premium is a direct labour cost of the job.
b) The overtime was worked because of lack of efficiency of department working on the job. In this case the overtime premium pay is an indirect labour and it is an overhead of the department.
c) The overtime was worked due to delay cost by another department in having the job available. In this case the overtime premium pay is an indirect labour cost which should be charged as an overhead of the department responsible for the delay.
d) The overtime was worked as a general company policy to work in excess of the normal hours. In this case the overtime pay is an indirect labour cost and should be charged to the general factors overhead of the department in which it is incurred.
Wilfykil answered the question on August 5, 2019 at 12:36
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