Cost Accounting · Employee Costs

Accounting Treatment of Idle Time and Overtime

Updated 10 October 2026 · Fact-checked

Idle time is paid time when workers produce nothing. Normal idle time is charged to production cost through the labour rate or overheads. Abnormal idle time is charged to the Costing Profit and Loss Account. Overtime premium is normally charged to factory overheads, unless caused by a specific job or customer request, or by abnormal reasons.

Understand Idle Time and Overtime

Idle time is the time for which wages are paid but no output results. The worker is present and paid, but cannot work. Causes include power failure, machine breakdown, waiting for material, waiting for instructions and strikes.

Idle time is split into two types. Normal idle time is unavoidable in the ordinary course of work. Examples are time lost in tool setting, routine waiting between jobs, rest breaks and fatigue allowances. Its cost is a part of the real cost of production, so it is absorbed by production. Abnormal idle time arises from avoidable or unusual causes such as breakdown, power failure, strikes, lockouts, fire or poor planning. Its cost is not a cost of production, so it is written off to the Costing Profit and Loss Account. If an abnormal cause is insured or recoverable, the amount is shown as a claim.

Overtime is work beyond normal working hours. It is usually paid at a higher rate, such as double the normal rate. The extra amount over the normal rate is the overtime premium. The wage at the normal rate for those hours is still direct wages. Only the premium needs special treatment.

The premium is treated by cause. If overtime is a regular feature or due to general pressure of work, it goes to factory overheads and is spread over all jobs. If it is due to a customer's request for urgent delivery, it is charged to that specific job. If it is due to abnormal reasons such as a strike or an accident, it goes to the Costing Profit and Loss Account. Inefficient planning that causes overtime also makes it avoidable and not a job cost.

The reason for this logic is fairness. A job should bear only the cost it caused. Normal losses are part of doing business. Avoidable waste should not inflate product cost and hide inefficiency.

Key rules to remember

Idle time cost: Idle time cost = Idle hours × Wage rate per hour; Use the rate paid to the workers who were idle. Under piece rate or guaranteed wages, the idle payment is the guaranteed amount minus what was earned.
Normal idle time: Normal idle time cost → added to cost of production (factory overheads or loaded in the effective labour rate); If it is loaded in the labour rate, the effective rate = Total wages ÷ Productive hours.
Abnormal idle time: Abnormal idle time cost → Costing Profit and Loss Account; Never charged to jobs or products.
Overtime wages with premium: Overtime pay = Overtime hours × Normal rate × (1 + premium %); At double time, the premium is 100%. At time and a half, it is 50%.
Overtime premium: Overtime premium = Overtime hours × Normal rate × Premium %; Only this part gets special treatment. The normal-rate part is direct wages.
Treatment of overtime premium: General or regular overtime → factory overheads; specific job or customer request → that job; abnormal or avoidable → Costing P&L A/c; Decide by cause. Read the question wording.

How to solve Idle Time and Overtime questions

Use this method for any question on idle time or overtime. First separate the hours, then separate normal from abnormal, then decide where each amount goes.

1List total hours paid, productive hours, idle hours and overtime hours. Check that they reconcile.
2Compute gross wages at the normal rate, including all paid hours.
3Classify idle hours as normal or abnormal using the cause given in the question.
4Compute idle time cost for each class by multiplying hours by the rate.
5Compute overtime premium separately: overtime hours × normal rate × premium %.
6Decide the overtime premium treatment by cause: general, specific job or abnormal.
7Apply the treatment: normal idle time to production cost or overheads, abnormal idle time and abnormal overtime to Costing P&L A/c, job-specific premium to that job.
8Compute the final job or product cost or pass the journal entries, and write one line stating the treatment.

Quickest way: Three-bucket sort

When to use it: Use in MCQs and short numericals when you only need to say where an amount goes or compute the labour cost of a job.

Put every amount into one of three buckets: Job or product cost, Factory overheads, Costing P&L A/c.
Normal idle time goes to overheads or the production cost. Abnormal idle time goes to Costing P&L A/c.
Overtime at the normal rate goes to direct wages. The premium goes to overheads, a specific job, or Costing P&L A/c by cause.
Check the total of the three buckets equals total wages paid.

Common mistakes in Idle Time and Overtime

Charging the whole overtime pay to overheads
Students remember that overtime premium goes to overheads and apply it to the full payment.
Fix: Split the pay. Hours at the normal rate stay in direct wages. Only the extra premium is treated as overheads.
Charging abnormal idle time to the job
The idle hours were paid during the job, so they look like part of job cost.
Fix: If the cause is breakdown, strike, power failure or similar, write it off to Costing P&L A/c.
Using the wrong rate for idle time
Students use the overtime or average rate instead of the normal hourly rate.
Fix: Idle time is paid at the normal rate unless the question says otherwise. Use that rate.
Treating all overtime as job-specific
The overtime was worked during a job, so students assign the premium to it.
Fix: Charge the premium to the job only if the customer requested urgency. Otherwise it goes to overheads.
Dividing wages by paid hours to get the effective rate
Students forget normal idle time is loaded on productive hours.
Fix: When normal idle time is absorbed in the rate, use Total wages ÷ Productive hours.
Ignoring the cause given in the question
Students rush to the numbers and miss the phrases like 'due to power failure'.
Fix: Underline the cause before calculating. The cause decides the treatment.

Worked examples

Example 1

In a week, a factory worker is paid ₹80 per hour for 48 hours. Of these, 4 hours were lost due to a power failure, and 2 hours were normal time lost in setting up machines. The remaining hours were productive. Compute the amounts to be charged to production and to the Costing Profit and Loss Account.

Show the solution

Total wages = 48 × ₹80 = ₹3,840.
Abnormal idle time (power failure) = 4 hours × ₹80 = ₹320.
Normal idle time (set-up) = 2 hours × ₹80 = ₹160.
Productive hours = 48 − 4 − 2 = 42 hours, with wages of 42 × ₹80 = ₹3,360.
Cost chargeable to production = ₹3,360 + ₹160 normal idle time = ₹3,520.
Check: ₹3,520 + ₹320 = ₹3,840.

Answer: ₹3,520 is charged to production (including ₹160 normal idle time) and ₹320 abnormal idle time is charged to the Costing Profit and Loss Account.

Example 2

A worker's normal rate is ₹60 per hour and normal working time is 8 hours a day. On one day he works 11 hours, and overtime is paid at double the normal rate. Show the treatment of overtime in each case: (a) the overtime is due to general pressure of work, and (b) the overtime was worked at the request of a customer for Job J-12.

Show the solution

Normal wages = 8 × ₹60 = ₹480.
Overtime hours = 11 − 8 = 3 hours.
Overtime pay = 3 × ₹60 × 2 = ₹360.
Overtime at normal rate = 3 × ₹60 = ₹180, which is direct wages.
Overtime premium = 3 × ₹60 × 100% = ₹180.
Total wages = ₹480 + ₹360 = ₹840.
Case (a): Direct wages = ₹480 normal + ₹180 overtime at normal rate = ₹660; premium of ₹180 goes to factory overheads. Check: ₹660 + ₹180 = ₹840.
Case (b): premium of ₹180 is charged directly to Job J-12. Direct wages plus premium on the job = ₹660 + ₹180 = ₹840.

Answer: Total wages are ₹840. In (a), ₹660 is direct wages (₹480 normal + ₹180 overtime at normal rate) and the ₹180 premium goes to factory overheads. In (b), the full ₹840 is charged to Job J-12.

Exam tips

Always separate overtime into the normal-rate part and the premium part. Examiners give separate marks for each.
Write the cause of idle time or overtime in your answer. A treatment without the reason can lose marks.
For MCQs, look for the words 'abnormal', 'strike', 'breakdown' and 'customer request'. They usually decide the answer.
In written answers, show a final reconciliation: job cost plus overheads plus Costing P&L A/c equals total wages paid.
Where normal idle time is loaded in the labour rate, state this and show the effective hourly rate.

Practice questions from Employee Costs

Idle Time and Overtime in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Idle Time and Overtime: frequently asked questions

What is the difference between normal and abnormal idle time?

Normal idle time is unavoidable in regular operations, such as set-up time or rest breaks. Abnormal idle time arises from avoidable or unusual causes, such as breakdown or strike. Normal idle time is absorbed in production cost, while abnormal idle time is written off to the Costing Profit and Loss Account.

How is overtime premium treated in cost accounting?

Overtime premium is usually charged to factory overheads when overtime is general or regular. If a customer requested urgent work, it is charged to that job. If it arises from abnormal causes, it is written off to the Costing Profit and Loss Account.

Is the whole overtime wage treated as overtime premium?

No. The hours worked at the normal rate are direct wages. Only the extra amount above the normal rate is the premium. This split is a common numerical step in exams.

Is idle time included in the cost of a product?

Only normal idle time is included, because it is unavoidable. Abnormal idle time is excluded from product cost and charged to the Costing Profit and Loss Account.