An extra evening at work is not automatically an overtime payroll line, and a Saturday shift is not automatically overtime either. The answer depends on the employee's agreed workload, working-time arrangement and, for shift workers, the calculation period. Payroll errors arise when a manager approves extra hours without stating whether they will be offset by paid time off or settled in money.
In my 15+ years in Estonian accounting, the cleanest process has been to decide three things before payroll closes: how many hours exceeded the norm, how the employee agreed to those hours and which compensation method applies. The Employment Contracts Act and Tööelu working-time guidance provide the legal framework; this guide turns it into a calculation a manager can review.
Identify overtime from the agreed hours, not the weekday
For an employee with ordinary working time, overtime begins when work exceeds the hours agreed in the employment contract. If a part-time employee is contracted for four hours a day, the fifth hour can already be overtime. Working on Saturday is not, by itself, decisive: a Saturday shift may be ordinary scheduled work if the employee still works within the agreed hours.
With summarised working time, compare actual hours with the adjusted working-time norm at the end of the calculation period. A long month can be balanced by a shorter month, so apparent extra hours in the first month may disappear by period end. Holiday, sick leave and other absences can reduce the norm; payroll should use the approved schedule and absence data rather than a generic monthly-hours table.
| Situation | When overtime becomes clear | Payroll evidence |
|---|---|---|
| Ordinary full-time or part-time work | When work exceeds the agreed daily or weekly hours | Contract, time record and approval |
| Summarised working time | At the end of the agreed calculation period | Schedules, absences and period norm |
| Work on a scheduled day off | Only if total agreed hours are exceeded | Schedule change and employee agreement |
Record the agreement before choosing the payroll treatment
Overtime is normally agreed between employer and employee for the particular need. A blanket contract clause saying that the employee works overtime whenever required does not replace that case-specific agreement. Email, a scheduling system or another format that can later be reproduced should show the date, expected hours and compensation route.
An employer may require overtime without prior consent only in an unforeseen and exceptional situation, especially to prevent damage, and the good-faith test still applies. Routine understaffing or a predictable reporting deadline should not be presented as an emergency. Restrictions also apply to minors and certain protected employees.
Give payroll one approved record containing the employee, date, hours, calculation period, reason and chosen compensation. That record should reconcile to the timekeeping system and the payslip or paid-time-off balance.
Choose paid time off first, or agree the 1.5 cash rate
Tööelu explains that the legal default is equal paid time off. The employee receives ordinary wages for the overtime worked and later takes the same number of hours off during agreed working time without losing pay. The compensating hours cannot simply be absorbed into the employee's normal weekend or other rest time.
If both sides agree on money instead, the overtime hours are compensated at 1.5 times the wage. Assume a monthly salary of EUR 2,240, a 160-hour norm and six confirmed overtime hours. The hourly equivalent is EUR 14; cash compensation is 6 × EUR 14 × 1.5 = EUR 126, so gross pay for the month is EUR 2,366 before other payroll items.
| Calculation line | Formula | Amount |
|---|---|---|
| Monthly salary | Agreed salary for norm hours | EUR 2,240 |
| Hourly equivalent | EUR 2,240 ÷ 160 | EUR 14 |
| Six overtime hours | 6 × EUR 14 × 1.5 | EUR 126 |
| Gross pay before other items | EUR 2,240 + EUR 126 | EUR 2,366 |
Separate overtime from night work, holidays and rest limits
Night work and work on a public holiday have their own rules. Night work from 22:00 to 06:00 is generally paid at 1.25 times the wage unless a valid agreement already includes that component. Hours falling on a public holiday are generally paid at twice the wage. If the same hours are also overtime, both entitlements matter, but the basic wage is not counted twice; Tööelu describes the combined holiday-and-overtime result as roughly 2.5 times, not 3.5 times.
Compensation does not remove working-time limits. Ordinary and overtime work together must normally stay within an average of 48 hours per seven days over a calculation period of up to four months, and daily and weekly rest must still be protected. A correct rate cannot cure an unlawful schedule.
I do not let payroll infer the compensation method from a timesheet comment. The manager approves the hours, the employee's agreement and either paid time off or cash in one record. That prevents the same hours from being paid twice or left unresolved.
Overtime payroll starts with working-time evidence, not a multiplier. Confirm the contractual hours and calculation period, document the employee's agreement, then apply paid time off or the agreed 1.5 cash rate.
If Accounting Resources handles your payroll, send approved overtime data before the payroll cut-off. For help reviewing a calculation or setting up a reliable approval flow, use our contact form.