Fixed Monthly Payroll vs. Daily Hours: Which Overtime Calculation Applies to You?

If you are an hourly worker (e.g., paid $20/hour), calculating overtime is a breeze: you just multiply your hourly rate by 1.5. However, if you are a salaried employee earning a fixed monthly or annual wage, calculating overtime introduces a tricky mathematical hurdle: How do you determine your base hourly rate?

Because the number of working days in a month fluctuates (between 20 and 23 days depending on weekends and the month's length), dividing your monthly salary by the exact hours worked that specific month can result in a different hourly rate every pay period. To standardize payroll, HR departments globally use two primary calculation methods: the Fixed Monthly Payroll Approach and the Daily Hours Calculation.

Understanding which method your employer uses is critical for predicting your paycheck. In this guide, we will break down both methods, provide global examples, and show you how to toggle between them using our Overtime Pay Calculator.

Method 1: The Fixed Monthly Payroll Approach

The Fixed Monthly approach is the corporate standard across much of Europe, the UK, and multinational corporations operating globally. Instead of tracking the exact number of days in a specific calendar month, this method assumes every month is identical.

How It Works

The formula creates a standardized "divisor." For example, in many jurisdictions where the legal workweek is 45 hours, HR assumes a month consists of exactly 30 days.

• 45 hours per week / 6 working days = 7.5 hours per day.
• 30 days × 7.5 hours = 225 hours per month.

Under this system, a salaried employee is considered to be paid for 225 hours every single month, regardless of whether it is February (28 days) or August (31 days). In countries with a 40-hour workweek, the standard divisor is often 173.33 hours (40 hours × 52 weeks ÷ 12 months).

The Formula

Hourly Rate = Monthly Gross Salary / Standard Divisor (e.g., 225 or 173.33)

Example Scenario (USD)

John earns a fixed salary of $6,750 per month. His company uses the 225-hour fixed approach. He works 10 hours of overtime.

1. Find Hourly Rate: $6,750 / 225 = $30.00/hour
2. Find Overtime Rate (1.5x): $30.00 × 1.5 = $45.00/hour
3. Total Overtime Pay: $45.00 × 10 hours = $450.00

Pros: Extremely predictable. The employee's hourly rate never changes from month to month, making payroll software integration seamless and predictable for accounting departments.
Cons: If you work a schedule that inherently involves fewer hours, the large divisor (like 225) artificially shrinks your calculated hourly rate, leading to slightly lower overtime payouts.

Method 2: The Daily Hours Calculation

The Daily Hours Calculation (or "Actual Hours" method) is more specific and reflects the exact reality of an employee's schedule. This method abandons the "fixed month" fiction and instead calculates the hourly rate based on the actual agreed-upon days and daily hours stipulated in the employment contract.

How It Works

First, the monthly salary is divided by the agreed-upon working days in the month to find the Daily Wage. Then, the Daily Wage is divided by the employee's standard daily working hours to find the exact Hourly Rate.

The Formula

Hourly Rate = (Monthly Gross Salary / Monthly Working Days) / Daily Working Hours

Example Scenario (EUR)

Maria works in a specialized clinic in France. She earns a monthly salary of €4,000. Her specific contract states she works exactly 20 days a month, and exactly 8 hours a day. She works 5 hours of overtime.

1. Find Daily Wage: €4,000 / 20 days = €200.00/day
2. Find Hourly Rate: €200.00 / 8 hours = €25.00/hour
3. Find Overtime Rate (1.5x): €25.00 × 1.5 = €37.50/hour
4. Total Overtime Pay: €37.50 × 5 hours = €187.50

Pros: It is highly accurate and tailored to part-time workers or those with non-standard shifts (e.g., working 4 days a week for 10 hours).
Cons: It can be administratively heavy for HR to track, and if the "Monthly Working Days" fluctuate based on the calendar, the employee's overtime rate changes every month.

Comparing the Two Methods

Let's look at a worker earning $5,000 a month to see how the method changes the payout:

Fixed 225 Approach:

• $5,000 / 225 = $22.22 / hour.
• Overtime Rate: $33.33 / hour.

Daily Hours Approach (Assuming a 22-day working month, 8 hours a day):

• $5,000 / 22 days = $227.27 / day.
• $227.27 / 8 hours = $28.40 / hour.
• Overtime Rate: $42.60 / hour.

As you can see, the method chosen by your employer significantly impacts the value of your overtime hours. The Daily Hours approach (when days are fewer) yields a higher hourly rate.

Using the Overtime Calculator to Switch Methods

To ensure our Overtime Pay Calculator works for workers globally regardless of their company's payroll system, we included a Calculation Method toggle.

• Fixed 225 hours payroll (Monthly/225): Select this if you work for a standard corporation that uses fixed monthly divisors. When selected, the calculator ignores the "Monthly Working Days" and "Daily Working Hours" inputs and divides your salary directly by 225.
• Based on daily hours (Monthly/Days/Hours): Select this if you have a non-standard contract, are a part-time worker, or know your HR department calculates based on actual days. You must then accurately input your "Monthly Working Days" (e.g., 20) and "Daily Working Hours" (e.g., 8).

Conclusion

Knowing your gross salary is only half the battle when determining your overtime compensation; you must also know how your employer breaks that salary down into an hourly rate. Review your employment contract, check a recent pay stub, or ask your HR representative which method they use. Once you have that information, plug your numbers into the Overtime Pay Calculator using the correct method to ensure you are being paid exactly what you are owed.