Is overtime paid or compensated with time off?

The collective agreement has the answer; if it is silent, the employment contract; and if neither says anything, the Workers’ Statute (Estatuto de los Trabajadores) requires overtime to be compensated with time off within the following four months. The question comes up every time a payroll has to be closed with extra hours in it, and how it is settled determines the cost, the Social Security contributions and how much room is left before the 80-hour annual cap.

Quick answer

What the collective agreement or contract says	What applies
It sets payment	Overtime is paid in money (never below the value of an ordinary hour)
It sets time off	Overtime is compensated with an equivalent amount of paid time off
It says nothing (no agreement)	Overtime is compensated with time off within the following 4 months

What Article 35.1 of the Workers’ Statute says

The text is short and sets the order of priority:

“By collective agreement or, failing that, individual contract, a choice shall be made between paying overtime in the amount set, which may in no case be lower than the value of the ordinary hour, or compensating it with equivalent periods of paid rest. In the absence of an agreement on the matter, it shall be understood that overtime worked must be compensated with rest within the four months following its performance.”

The company applies what has been agreed and cannot switch options from one month to the next to suit itself. If the collective agreement provides for payment at a premium, that amount is paid even if the employee would rather take time off, unless the agreement itself leaves the choice open. Where it allows a choice case by case, the arrangement with each employee must be put in writing, stating the ratio of time off and the deadline.

To know how many hours have to be settled, the same article defines overtime as the hours worked beyond the maximum length of the ordinary working day set under Article 34, which allows working time to be distributed irregularly over the year. With an hour bank or an agreed irregular schedule, a ten-hour day offset by a six-hour day generates no overtime at all. Adding up every daily excess as if it were overtime inflates the figure, and with it the amount paid or owed in time off.

How much an overtime hour is paid

When the option is to pay, the collective agreement or the contract sets the amount, with a minimum that cannot be lowered, namely the value of an ordinary hour. Many sector agreements pay overtime at a premium on top of that value, and some single out hours worked at night or on public holidays to pay them more.

Paying an overtime hour at the ordinary rate when the applicable agreement sets a premium means underpaying. That rate is only the legal floor if the agreement says nothing else, so the first document to open before closing payroll is the collective agreement.

If overtime is compensated, time off must be given within four months

The Workers’ Statute speaks of “equivalent periods of paid rest”, and the Supreme Court has clarified that this means one hour of time off for each overtime hour worked. In judgment 1099/2024 of 12 September, concerning the savings banks’ collective agreement as applied at Ibercaja, the unions asked for the 75% premium set for paid overtime to be carried over to time off, at a rate of 1.75 hours per overtime hour. The court rejected this. A collective agreement can improve the ratio, but it has to say so expressly, and a premium designed for payment does not automatically extend to time off. Some agreements do say so and grant those 1.75 hours.

Unless otherwise agreed, that time off must be taken within the four months after each hour is worked. If the deadline passes without it, the employee can claim it, and if it can no longer be taken (for example, because the contract has ended) the debt is paid in money in the final settlement. Once the deadline has passed, those hours also count towards the 80-hour annual cap.

Time off given on time does not use up the 80-hour allowance

The legal limit of 80 overtime hours a year has an exception, as Article 35.2 does not count overtime compensated with time off within the four months after it is worked. Compensating on time leaves room to absorb peaks in workload without getting close to the cap.

What takes an hour out of the count is time off actually taken within those four months, and adding a few days to the employee’s balance does not meet that condition. If those days are taken in the fifth month, the hours count towards the 80 again.

Exceeding the cap is a serious infringement under Article 7.5 of the LISOS (Law on Social Order Infringements and Penalties), with a fine of €751 to €7,500. For employees whose annual working hours are lower than the company’s standard, the limit is reduced in the same proportion, and on part-time contracts overtime is prohibited except to prevent or repair damage from accidents and other extraordinary and urgent harm. Working overtime is voluntary unless it has been agreed in the collective agreement or the contract, as we explain in whether an employee can refuse to work overtime.

Paid overtime carries its own contribution

Pay for overtime is subject to an additional contribution from both employer and employee, at the rates set each year by the State Budget Act (Article 149 of the General Social Security Act, Ley General de la Seguridad Social). Hours fully compensated with time off are not paid as overtime and do not trigger that additional contribution, because the day off is paid at the ordinary salary, which is already subject to contributions. Either way, the hours must appear in the working-time record.

Why the record decides who is right

Whether overtime is paid or compensated, each employee’s working time is recorded day by day and totalled for each pay period, with a copy of the summary attached to the payslip (Article 35.5 of the Workers’ Statute). The workers’ legal representatives are entitled to receive information every month on the overtime worked, however it is compensated (third additional provision of Royal Decree 1561/1995).

In an overtime claim, without a reliable record the burden of proof works against the company. If it cannot show how many hours were worked, when, and whether they have already been compensated with time off, the court will usually end up accepting the employee’s version. With the new Royal Decree on working-time records still going through the approval process, and set to require a digital record, settling overtime without that evidence will be even harder to defend.

How Cleverfy handles it

With Cleverfy your team’s overtime is recorded, calculated and ready to be paid or compensated, with no spreadsheets.

• Automatic overtime calculation over the month or the hour bank period, with the same figure in the report, the employee dashboard and the export for your payroll advisor.
• Alerts on the 80-hour annual legal limit.
• Time off in lieu from the employee profile, using the ratio in your collective agreement, including half days.
• Payroll export that separates paid hours from hours compensated with rest (CSV, Excel, A3 and Sage).
• Time records with a history of every correction, your evidence if anyone claims unpaid overtime.

If you want to see how your team’s overtime works out with their real schedules, you can try Cleverfy free for 14 days or check the plans, from €1.20 per user.

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Legal notice: this article is for information only and does not constitute legal advice. Collective agreements may set their own amounts, premiums, time-off ratios and deadlines; check yours before settling overtime.

Sources:

• Workers’ Statute, Art. 35 (overtime)
• Workers’ Statute, Art. 34 (working hours and irregular distribution)
• Supreme Court judgment STS 1099/2024 of 12 September (ROJ STS 4559/2024), CENDOJ
• Royal Decree 1561/1995, third additional provision
• General Social Security Act, Art. 149
• LISOS, Arts. 7.5 and 40