Here is something most payroll teams in the UAE do not realise until an audit forces the issue.
The overtime formula is not wrong. The salary figure fed into it is.
UAE labour law is clear: overtime is calculated on basic salary only. Not gross salary. Not a total package. Not CTC. Basic.
But most payroll systems and almost every Excel template in circulation default to pulling the total monthly salary. The result is a figure that looks right, passes without question, and quietly exposes the business every single month.
That is the first error. There are 3 others just like it.
This guide covers all of them, along with the exact calculation for regular overtime, rest day overtime, public holidays, and Ramadan so you can confirm whether your current process holds up before MOHRE does it for you.
Why "just follow the formula" is not enough
The formula is simple. The variables are not.
Article 19 of Federal Decree Law No. 33 of 2021, the current UAE Labour Law, sets out the overtime framework for all private sector employees. But the law assumes your inputs are correct. It does not protect you from feeding it the wrong numbers.
Here is what the law actually governs:
- Standard hours: 8 hours per day, 48 hours per week
- Maximum overtime: 2 hours per day (exceptions require employer documentation)
- Overtime rate on a regular working day: 125% of the hourly basic rate
- Overtime rate on a rest day or Friday: 150% of the hourly basic rate
- Public holiday work: 150% of the daily basic rate or a compensatory day off
- Ramadan: working hours are reduced by 2 hours per day, overtime kicks in after 6 hours, not 8
That last point eliminates more disputes than any other single fix. But most payroll runs during Ramadan still use the 8-hour baseline.
The exact UAE overtime calculation formula (step by step)
Step 1: Isolate the basic salary
Strip out housing allowance, transport allowance, food allowance, and any other component that is not labelled as basic salary on the employment contract.
If your contract does not separate these components, you have a different problem to solve before touching the overtime formula.
Step 2: Calculate the hourly basic rate
Hourly rate = Monthly basic salary ÷ 30 ÷ 8
Example: AED 9,000 basic salary
AED 9,000 ÷ 30 = AED 300 daily rate AED 300 ÷ 8 = AED 37.50 hourly rate
Step 3: Apply the correct multiplier
| Overtime type | Multiplier | Formula |
|---|---|---|
| Regular working day | 1.25 | Hourly rate × 1.25 × overtime hours |
| Rest day or Friday | 1.50 | Hourly rate × 1.50 × overtime hours |
| Public holiday | 1.50 (daily rate) | Daily rate × 1.50 for the full day |
Regular day worked example: Employee works 2 extra hours on a Wednesday.
AED 37.50 × 1.25 × 2 = AED 93.75
Rest day worked example: Employee works 4 hours on a Friday.
AED 37.50 × 1.50 × 4 = AED 225.00
Overtime calculation in the UAE for public holidays: where most businesses apply the wrong rate
Public holidays are not rest days. They have their own rule, and it is stricter.
Under UAE labour law, an employee who works on a public holiday is entitled to one of the following. The employer cannot substitute one for the other without the employee's agreement:
Option A: A substitute day off plus normal daily pay for the holiday worked
Option B: Payment at 150% of the daily basic rate for the day worked
Using the same example above (AED 300 daily rate):
Public holiday pay = AED 300 + (AED 300 × 50%) = AED 450
If the employee also works beyond the standard 8 hours on that public holiday, each additional hour is calculated at the 1.50 rest day rate on top of the holiday pay.
The error most businesses make here: they treat public holidays as standard overtime days and pay 125% instead of 150%, or they pay the standard daily rate and skip the premium entirely.
Both are MOHRE violations, and both are common.
Ramadan overtime calculation in the UAE: the baseline shift most payroll systems miss
During Ramadan, the UAE Labour Law mandates a 2-hour reduction in the working day for all employees, not exclusively Muslim employees.
This means:
- The standard working day becomes 6 hours
- The overtime threshold drops from 8 hours to 6 hours
- Employees working a 7th or 8th hour during Ramadan are already in overtime
The hourly rate recalculates, too:
Ramadan hourly rate = Monthly basic salary ÷ 30 ÷ 6
Ramadan overtime worked example: Employee with AED 9,000 basic salary works 8 hours during Ramadan (2 hours of overtime).
Hourly rate = AED 9,000 ÷ 30 ÷ 6 = AED 50.00 Overtime = AED 50.00 × 1.25 × 2 hours = AED 125.00
Compare that to the non-Ramadan equivalent:
Hourly rate = AED 37.50 Overtime = AED 37.50 × 1.25 × 2 hours = AED 93.75
The difference is AED 31.25 per employee per overtime event. Across a team of 20 employees working 3 overtime sessions each during Ramadan, that is AED 1,875 in underpayment per Ramadan.
UAE overtime calculation in Excel: what the template gets right and what it quietly breaks
Excel-based overtime calculation works for businesses with simple structures and consistent schedules. It starts breaking down the moment any of these variables appear:
- Employees with different salary structures on the same payroll
- Mixed shift patterns with variable overtime start times
- Public holidays confirmed close to the date
- Ramadan falls mid-payroll cycle
A reliable Excel overtime model for the UAE needs at a minimum:
| Column | Input or formula |
|---|---|
| Basic salary | Manual. Must exclude all allowances |
| Standard hours | 8 (or 6 during the Ramadan period) |
| Hourly rate | =BasicSalary/30/StandardHours |
| Regular OT hours | Manual from attendance data |
| Regular OT pay | =HourlyRate*1.25*RegularOTHours |
| Rest day OT hours | Manual |
| Rest day OT pay | =HourlyRate*1.50*RestDayOTHours |
| Public holiday flag | Manual. Requires an updated calendar |
| Public holiday pay | =IF(PHFlag=1, DailyRate*1.5, 0) |
The structural problem with Excel is not the formula. It is the data feeding it. Manual attendance entry, outdated holiday calendars, and salary fields that pull from the wrong column are not formula errors. They are process errors and they are invisible until an audit surfaces them.
What MOHRE inspectors check for in overtime audits
MOHRE enforcement for overtime disputes has increased significantly since the 2022 Labour Law update. When an inspection is triggered, either by an employee complaint or a routine audit, inspectors look at 4 specific areas:
1. Contract alignment. Does the basic salary used in payroll match the basic salary stated in the employment contract? Any discrepancy is immediate grounds for further scrutiny.
2. Overtime documentation. Is there a written record that overtime was approved or requested? Verbal agreements are not accepted as evidence.
3. Rate accuracy. Were rest day rates, public holiday rates, and Ramadan rates applied correctly, or was a single flat rate used across all scenarios?
4. The 2-hour cap. If employees regularly worked more than 2 hours of overtime per day, does the employer have documentation of the exceptional circumstances that justified it?
Businesses that fail any of these checks are required to pay retrospective compensation to all affected employees, not just the individual who filed the complaint. That means one audit triggered by 1 employee can surface liability across your entire workforce.
The 4 errors that quietly compound in UAE overtime payroll
Most compliance problems in UAE overtime are not single incidents. They are repeated patterns across multiple pay cycles.
Error 1: Using total salary instead of basic salary. Inflates or deflates the overtime rate depending on the employee's allowance breakdown.
Error 2: Applying standard rates during Ramadan. Underpays overtime by the difference between the 6-hour and 8-hour baseline for every employee, every overtime event, every year.
Error 3: Treating public holidays as rest days. The 150% daily rate for public holidays is a different entitlement from the 150% hourly rate for rest day overtime. Confusing them produces the right multiplier applied to the wrong figure.
Error 4: No process for the 2-hour daily cap. Businesses that allow routine overtime beyond 2 hours without documentation are not just overpaying. They are creating audit exposure that has no easy resolution after the fact.
How to check if your current overtime process is MOHRE-ready
Run through these 5 checks before your next payroll cycle:
- Open a recent payslip. Can you identify the basic salary component separately from allowances?
- Check the formula your payroll system uses for the hourly rate. Is it dividing by 8 or by the employee's total contracted hours?
- Pull your public holiday calendar for 2026. Does it include all confirmed UAE public holidays, including any regionally adjusted dates?
- Check whether your payroll configuration changes the overtime baseline during Ramadan.
- Review your overtime approval records. Is there a written trail for the last 3 months?
If any of these 5 checks raises a question, the calculation is not audit-ready and the longer the current process runs, the larger the retrospective exposure becomes.
See how this applies to your current payroll setup
If your process did not pass all 5 checks cleanly, the most efficient next step is a structured review of how your overtime rules are currently configured, not a full payroll overhaul.
Evaluate your current overtime configuration with raidetime and identify exactly which rules need adjusting before it becomes a dispute.
Related reading:
Frequently asked questions
Can an employer in the UAE refuse to pay overtime if the employee agreed to work extra hours voluntarily?
No. Under UAE labour law, overtime entitlement cannot be waived by the employee, even in writing. If an employee works beyond the standard hours, they are entitled to overtime compensation regardless of whether the additional hours were their own initiative. The only exception is senior management roles specifically structured with an all-inclusive salary that accounts for additional hours, which must be clearly stated in the contract.
Is the overtime rate the same for employees on part-time contracts in the UAE?
No. The 2022 Labour Law introduced specific provisions for flexible and part-time work arrangements. Overtime for part-time employees is calculated relative to their contracted hours, not the standard 8-hour baseline. An employee contracted for 5 hours per day is in overtime from the 6th hour, and their hourly basic rate is derived from their contracted hours, not the full-time equivalent.
How far back can an employee claim unpaid overtime in the UAE?
Under UAE labour law, employment claims, including unpaid overtime must be filed within 1 year from the date of entitlement. However, if the underpayment was systematic and ongoing, each pay cycle creates a fresh entitlement date. In practice, businesses that operated with incorrect overtime formulas for several years face claims that cover the full period of employment up to the 1-year cutoff from the date the claim is filed.
Reflects Federal Decree Law No. 33 of 2021 and current MOHRE guidance as of 2026. Verify against official sources or seek qualified legal advice for specific employment situations.
