Overtime inclusive Salary

Some employers, especially Chinese foreign invested companies, pay their staff comparably higher salary. They may agree with staff orally that the salary paid includes overtime hours without any written provision. This oral agreement may cause very high risk that, in the case of a labour arbitration, an arbitrator may request that the employer pay additional overtime salary based on the agreed salary if the employee denies the oral agreement.

An Overtime inclusive salary system may be a good solution. In practice, arbitrators and judges support the overtime inclusive salary system and furthermore an additional overtime salary claim shall not be supported if the overtime inclusive salary system exists.

The burden of proof for overtime inclusive salary falls on the employers. This means that an employer is obligated to prove there exists an overtime inclusive salary, or the claim of additional overtime salary shall be supported.

In the past, there were some courts such as the Shenzhen Courts,that stipulated that the inclusive overtime hours shall not be more than 36 hours as per the Chinese labour law and any extra hours shall not be included in the calculation. Currently, however, all courts have given up this practice and thus any hours beyond 36 will be valid for inclusive overtime.

There is an exception in the overtime inclusive rule. The provision of the agreed salary shall be invalid when, in a certain month, the hourly rate salary is back calculated from the agreed salary and is less than the local minimum hourly rate. Then the employee shall be entitled to use the local minimum salary to re-calculate his salary payable in that month.

How do you calculate the normal time salary in overtime inclusive salary? The formula is as follows: Normal time hourly rate = agreed salary ÷ (21.75 × 8 + agreed overtime hours in normal day × 150% + agreed overtime hours in weekend × 200%+ agreed overtime hours in holiday × 300%)

Therefore an employer needs to pay attention to the following;

1.Overtime inclusive salary shall be provided expressly in the labour contract or staff handbook if all staff’s salaries are overtime inclusive.

2.How many hours in different periods (normal days, weekends and holidays) are included in the agreed salary.

Salary slips should still include overtime hours in different periods (such as weekdays and weekends) as well as a note that the salary includes hours recorded in the slip so as to comply with the provision in the labour contract or staff hand book.