3 of February, 2025

All companies, regardless of the sector they serve, experience different work peaks throughout the year. This may lead to the need to ask our employees to put in extra hours. Therefore, it is essential to know how to compensate for overtime to keep the team content.

When such overtime is accumulated, the worker will want to see their work valued. The most common option is to pay for these extra hours based on what the agreement mandates. However, it is possible to generate a bank of overtime hours.

But, how can I carry out the compensation for overtime? To clear all your doubts, in this article, we tell you everything your company needs to know.

What is overtime compensation

In the world of work, overtime is a frequent reality. For this reason, HR must know how to compensate for overtime for its staff. But let’s start at the beginning, what is an overtime compensation?

The term overtime compensation refers to the process in which the worker receives retribution for the additional time dedicated to the performance of their work. A time that goes beyond your regular schedule. This reward can be economic or an immaterial advantage, as agreed upon.

Why is it important to compensate for overtime?

When employees work beyond their established schedule, they do so expecting something in return. This additional effort must be rewarded by the company for several reasons that can affect the work productivity of our entity.

Some reasons for compensating for overtime are:

Acknowledgment of effort. Employees who dedicate additional time to their tasks show exceptional commitment and dedication. Therefore, their efforts must be recognized and valued; otherwise, they may become discouraged.
Motivation and talent retention. When workers feel that their additional work is recognized and valued, they tend to be more committed. If you have an involved workforce, in addition to maintaining productivity, talent drain can be prevented.
They allow generating a balance between work and personal life. Poorly compensated overtime can generate stress, exhaustion, and affect the quality of life.
Improves productivity. By compensating overtime with breaks, the worker can relax, recharge, and maintain their level of commitment and performance.
Complying with labor regulations, respecting the rules and avoiding possible legal sanctions.

Ways to compensate for overtime in a company

You are probably wondering how to compensate for overtime in a company. Several formulas exist, although the one that best suits each entity and employee should be chosen.

Next, you’ll discover the 3 most common ways to compensate for overtime.

Economic bonus

Among the options that the company can offer is to pay for overtime, based on what is established in the collective agreement, company agreement, or according to the contract. For this, the bonus is calculated based on the additional hours worked, which could be a percentage of the salary or a fixed amount.

This form of managing overtime compensation is one of the most used, as it serves as motivation for the team, making them more efficient in their regular working day.

Offer rest days as holidays

Rest is crucial for our team, making them stay healthy and relaxed. This translates into better performance on their part. For this reason, when compensating for overtime with rest can be a good option for those companies with work peaks.

This form of overtime compensation can be given right after that period of higher work or up to four months later. Sometimes, the worker is allowed to choose when they want to enjoy them, generating greater trust in the organization. For all of this, having a vacation manager can be helpful.

Reduced working days or flexible hours

Another option, if you don’t know how to compensate for overtime, is to regulate the working day until the worker has recovered that time. This means that our staff have greater control over their working hours, being able to adjust the hours according to their needs.

This is a form of compensation for the additional hours that can facilitate work-life balance, significantly increasing satisfaction and therefore, performance.

Whatever option your company chooses, the Human Resources department can use software for a sound management of these hours, such as the one Sesame HR offers.

The overtime bank: an increasingly sought-after option

While all of the above explain some of the most common methods on how to compensate for overtime, nowadays, more and more companies are using the overtime bank.

The overtime bank consists of distributing working hours irregularly. This way, hiring workers at production peaks and laying them off when there’s less activity is dodged.

This overtime bank is generated despite having in the bank more hours than stipulated in the contract. This method of overtime compensation is regulated by the RD-Law 3/2012.

How does the overtime bank work?

The entity will have to compensate for overtime found in that worker’s bank. However, certain factors must be followed:

The contract must include a number of ordinary hours daily, weekly, monthly, or yearly and the distribution indicated by the agreement.
Both the employee and the company must be aware of the hours distribution agreement and in case of any change, this is notified 5 days in advance.
They should never exceed working hours; therefore, usually, 10% of the annual working hours are redistributed.
They are distributed from Monday to Friday, as weekends do not count.

These are some of the options available at present and are of great use for organizations.

Are you interested in learning more about how to compensate for overtime in your organization? On the Sesame HR blog, you will find much more information on this topic. We are your go-to HR software provider.

Ricardo López has built a solid career in the field of human resources, excelling in payroll administration, labor relations management, and employment advisory services. His academic background in labor law and human resources, combined with his experience in companies such as Zeus - Smart Visual Data, Sesame HR, and Grupo Noa's, has allowed him to develop a comprehensive understanding of workforce dynamics and personnel management. With over 10 years of experience, he has demonstrated strong expertise in benefits administration, HR documentation, and career counseling. Ricardo continues to contribute to the efficient and people-centered development of the organizations he works with.

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ricardolopez

HR Content Specialist

3 ways the HR department can compensate for overtime hours