Here’s what most employees overlook: you need to get your night differential pay right because it’s not just overtime. For businesses that operate beyond standard working hours, night differential pay is an essential component of fair compensation. Yet, many employers miscalculate it or even disregard its impact on payroll costs, leading to underpaid employees or compliance issues.

Unlike regular overtime, night differential pay computation applies specifically to work performed between 10:00 PM and 6:00 AM, as mandated by the Philippine Labor Code. Employees who work during these night differential hours are entitled to an additional 10% to 20% of their hourly rate, depending on the nature of their employment.

But what happens when overtime overlaps with night differential hours? That’s where payroll computations get tricky.

How does night differential overtime computation work?

Overtime and night differential overtime computation are separate pay components but can overlap when an employee works beyond their regular shift into night differential hours. Here’s how it breaks down:

• Regular overtime pay applies to any work beyond 8 hours.
• Night differential pay applies when work is performed between 10 PM and 6 AM, regardless of shift schedule.
• If an employee works overtime during night differential hours, both overtime premium and night differential pay should be applied.

For example, if an employee earning ₱200 per hour works a shift that extends from 8 PM to 12 AM, the calculations would be:

• 8 PM - 10 PM: Regular pay
• 10 PM - 12 AM: Regular pay + night differential pay (at least 10%)
• Overtime (if beyond 8 hours worked): 125% of regular hourly rate + night differential pay

Employers who fail to factor in both components correctly risk payroll disputes and violating labor standards.

How employers can optimize payroll for night differential pay

For companies that operate 24/7, particularly BPOs, logistics firms, and healthcare institutions, ensuring accurate night differential pay computation is critical. Payroll teams must:

• Automate computations to avoid errors in tracking night differential hours.
• Ensure compliance with labor laws to prevent penalties or disputes.
• Adjust pay structures accordingly for employees on rotating shifts or hybrid schedules.

Accurate payroll processing isn’t just about compliance—it’s about ensuring fairness, boosting employee morale, and preventing costly payroll disputes.

Payday: Automating night differential pay computation for businesses

At Payday, we help businesses manage night differential pay computation, night differential overtime computation, and payroll automation with accurate, compliance-ready solutions.

Eliminate payroll errors and streamline compensation with Payday. Contact Payday today.