ACCOUNTING AND RECORDING OF OVERTIME PAYMENTS & ANALYSIS

Overtime occurs when a worker works beyond his normal working hours. Generally, over time is paid at a higher rate than the normal time rate. The additional amount paid on overtime work is known as “overtime premium.”
Causes of overtime work :
Generally overtime work is required for the following reasons.
a) To complete a work within a specific period as requested by the customer.
b) To make up the time Lost due to breakdown of machinery, power failure or any other unaviodable reasons.
c) To work as a matter of policy e.g due to general rush of work, labour shortage etc.
d) For completing the work delayed due to departmental inefficiency.
Treatment of overtime :
The treatment of overtime depends on the reason for which overtime premium has been paid. However the following treatments are recommended by cost accountants:
It should be directly charged to the job concerned and treated as direct wages. But in case reason of overtime is not known, then the premium paid should be treated as excess cost . It should be treated as overhead which would be allocated and recovered from the jobs completed during the period. If the overtime premium has been paid due to causes known, then the premium should be treated as a part of labour cost. In case of known causes, the excess cost is charged directly to the concerned department.
When overtime is worked on account of abnormal conditions like strikes, flood etc. the premium payable should be charged to costing profit and loss account.
Control of Overtime :-
Overtime work should be avoided because job done in overtime cost more as compared to the jobs done during normal hours. Moreover, the overtime work is done at late hours when the efficiency of the worker is generally falling after working normal hours. The workers may also develop the tendency of postponing the normal work to be done in overtime. So, overtime work should be strictly controlled and practice of working overtime should be discouraged. Overtime should be permitted only in emrgency situation. Overtime work if necessary, must have a prior permission and sanction of the competent authority.