How to calculate overtime without payroll mistakes
Guide to overtime calculation: ordinary working time, collective agreement, compensation, limits, time records and payroll handoff.
DG
Daniel García
Co-founder · CTO @ Orquiva · Upd. 12 Jun 2026
Overtime is not calculated by simply counting hours worked. You need to compare agreed working time, collective agreement, calendar, absences and compensation rules.
Step 1: define ordinary working time
Start with the contract and collective agreement. Not everyone has the same annual working time or weekly distribution.
Step 2: cross attendance and calendar
Time records show presence, but you must cross them with holidays, time off, sick leave and planned shifts.
Step 3: apply compensation rules
- Payroll payment
- Time-off compensation
- Hours bank
- Agreement-specific rules
Step 4: export to payroll
The monthly close should generate reviewable variables before sending them to the payroll provider: overtime, absences, bonuses and adjustments.