Overtime refers to the situation when a worker works beyond his normal working hours. The overtime rate is always higher than the normal rate and is usually double the normal rate. The Factories Act and Shops and Establishments Act have fixed the normal working hours, defined what constitutes overtime, the rate of overtime and maximum hours of overtime.
Overtime consists of two elements viz. the normal cost and the extra payment or premium. The premium is known as overtime cost. The normal cost is allocated to the Production Order or cost centre/unit on which the worker is working. The treatment of overtime cost varies according to the circumstances.
Causes of Overtime
Overtime arises due to the following circumstances:
- For working due to seasonal rush;
- For making up time lost due to unavoidable reasons;
- For completing a job or order within a specified period as requested by the customer;
- For working due to policy decisions, i.e. when there is general pressure of work and labour shortage etc.
Disadvantages of Overtime
- Output is not proportionate to the extra time taken. Hence, there is decrease in productivity.
- It increases labour cost.
- If overtime is done during night, it increases lighting cost.
- Go slow tactics may be adopted during normal working hours to necessitate overtime.
- Workers may treat overtime wages as a part of normal wages and resist discontinuance of overtime.
- If the work is distributed unevenly, the workers may feel discontented.
- It affects the health of workers.
- Overtime over a long period leads to fatigue and increase in defective products.
Overtime is helpful in clearing backlog of work and in emergencies or when it is necessitated by uncontrollable causes. Existing resources are fully utilized.
