New rules on overtime pay

The Constitutional Court recognized that the current practice of paying overtime violates the rights of employees. The judges obliged lawmakers to amend Article 152 of the Labor Code and employers to apply the new work algorithm.

Document: Decision of the Constitutional Court No. 35-P of 27.06.2023

What’s new: overtime hours must be charged not only with increased pay from the salary, but also with other payments established for the employee.

The first two hours of overtime work are paid at least one and a half times the rate, and the following hours are paid at least double the rate (Article 152 of the Labor Code). Together with the additional payment from the wage rate, it is now necessary to calculate other labor payments established for the employee. This conclusion was made by the Constitutional Court. For example, it is mandatory to take into account monthly bonuses, the amount of which is known in advance, as well as additional payment for length of service. But do not take into account non-labor payments – material aid, dividends, compensation.

The CC pointed out that the principles of overtime payment the current labor legislation inherited from the CLLT. The judges noted that in the Soviet era, the term “one and a half or double” was understood to mean one and a half or double the tariff rate or the hourly part of the salary. Since in the Soviet system of labor remuneration “the tariff component of wages (tariff rate, wage rate, salary, official salary), as a rule, represented the largest and often the only part of earnings. Accordingly, an increase in the hourly tariff rate (salary calculated per hour of work) by one and a half or two times already provided payment for overtime work in an increased amount compared to remuneration for similar work within the established norm of working time”.

Since then, the wage rate or salary has ceased to be the main part of wages. Compensation and incentive payments, which the employer establishes independently, have become a significant part of it. The current wording of Article 152 of the Labor Code does not specify which parts of the salary are subject to a one-and-a-half or twofold increase when calculating overtime pay. If the salary consists only of a salary or wage rate, the employee will automatically receive more pay for overtime work than for work under normal conditions. And if the salary consists of several payments, this effect is not guaranteed.

New approach to remuneration

If the labor remuneration system includes not only the wage rate or salary, but also additional payments, allowances and bonuses, the calculation must be made according to a new algorithm from the CC.

Here is how the CC formulated the new rules for calculating payment for overtime work: “…at the rate of one and a half (for the first two hours) or double (for subsequent hours) the wage rate or salary (official salary) with all compensatory and incentive payments provided for by the labor remuneration system being charged to a single wage rate or single salary (official salary)”.

From what date to apply the new algorithm for overtime pay from the Constitutional Court

The CC Ruling No. 35-P entered into force immediately after the proclamation, that is, on June 27, 2023. It has no retroactive effect. The judges’ ruling should be applied to overtime that should be paid after June 27.

If in June an employee had overtime both before and after June 27, it should be paid according to the results of the month in accordance with the rules of CC Ruling No. 35-P. The same approach should be used when paying overtime in the case of summarized timekeeping for the accounting period ending in June.

Who must apply the new algorithm for overtime pay

If a company has independently included allowances and additional payments to salary after the CC ruling of 28.06.2018 No. 26-P came into force a few years ago, it does not need to change its procedure for calculating overtime pay.

The new algorithm for calculating overtime must be applied by those employers whose overtime payment procedure does not comply with the new algorithm. For example, if you pay overtime in the amounts set out in Article 152 of the Labour Code on the basis of salary (tariff) only, and it is only part of the salary.

What changes to make to work

If the method of overtime payment established in a company does not provide the level of guarantees that CC Resolution No. 35-P prescribes, it is necessary to change the documents that establish the calculation procedure.

In the text of the document, you can list the specific types of payments that are included in the calculation of overtime pay. At the same time, accruals for work in conditions that deviate from normal, for example, for work on weekends and non-working holidays, as well as bonuses, should not be taken into account. Apply the district coefficient to the entire amount of salary payments.