Overtime premium
Overtime premium is the extra pay above the basic hourly rate for overtime hours; it is normally overhead unless the overtime was worked at a specific customer's request, when it becomes a direct job cost.
See it move
An assembly worker on a €12 basic rate works 8 overtime hours at time-and-a-half, €18 an hour: €96 basic-rate equivalent plus a €48 premium, €144 in total. If the overtime was routine production, the €96 is direct labour and only the €48 premium goes to overhead. If a customer specifically requested the rush job, the entire €144 becomes a direct cost of that job instead.
The formula
Variables
- Overtime premium (€)
- Overtime hours worked (hours)
- Overtime rate per hour (€)
- Basic rate per hour (€)
Gives the extra cost of overtime above the basic rate; this premium is normally charged to overhead unless the overtime was worked for a specific customer's order.
Check yourself
An assembly worker's basic rate is €15 per hour. In one week she works 40 regular hours plus 8 overtime hours, with overtime paid at time-and-a-half (€22.50 per hour); the extra hours were worked simply to keep up with routine production, not at any customer's request. What overtime premium is charged to manufacturing overhead for the week?