Is It Legal to Calculate Overtime Pay Based on "Basic Position Salary"? — Court Ruling

Is It Legal to Calculate Overtime Pay Based on "Basic Position Salary"? The Second Instance Court Rules!

Case Background Zhou joined a Beijing-based labor dispatch company (hereinafter referred to as the "Company") on July 15, 2022, and was dispatched to a limited liability company on the same day, formally establishing a labor dispatch employment relationship. Zhou was employed as a technician under a standard working hour system. Zhou's average monthly salary over the 12 months prior to resignation was 8,067.2 RMB. Regarding overtime, the Company claimed that the specific overtime hours worked on holidays and rest days were recorded in the monthly attendance sheets. The Company argued that if Zhou worked overtime, the corresponding overtime pay had already been compensated according to the user company's internal regulations. The calculation formula used was: 4,598 RMB / 21.75 days * Number of Days * Multiplier (meaning the baseline used was the basic position salary of 4,598 RMB). On April 9, 2025, Zhou mailed a resignation notice to both the Company and the limited liability company, terminating the employment relationship on the grounds of underpaid labor remuneration. Subsequently, Zhou filed for arbitration with the Labor and Personnel Dispute Arbitration Committee, requesting the Company to pay the shortfall in various overtime wages as well as economic compensation for the termination of the employment relationship. The arbitral award supported Zhou's claims. Dissatisfied with the ruling, the Company filed a lawsuit in the court of first instance.

Focus of the Dispute Is it legal and valid for an employer to designate the "basic position salary" as the base for calculating overtime pay through internal rules and regulations? First Instance Judgment: Calculating Overtime Pay Based on Basic Position Salary Contradicts the Law; Actual Average Salary Should Apply The court of first instance held that the arbitral award correctly used Zhou's 12-month average salary of 8,067.2 RMB prior to resignation as the baseline to calculate the overtime pay. The court also confirmed that the calculated shortfall in overtime pay was accurate. The claim made by the Company and the limited liability company to use the basic position salary of 4,598 RMB as the calculation base contradicts Article 44, Item 3 of the Beijing Wage Payment Regulations; therefore, the court rejected this argument. Because the Company indeed failed to pay Zhou's overtime pay in full, it must pay Zhou economic compensation for the termination of the labor contract. In conclusion, the first instance judgment ordered the Company to pay Zhou the shortfall in overtime pay for rest days and statutory holidays, extended overtime pay, and economic compensation for terminating the labor contract.

The Appeal: Internal Regulations Specified the Overtime Pay Calculation Base, Asserting Overtime Was Fully Compensated The Company's grounds for appeal: The limited liability company's internal regulations clearly stipulated the method for calculating project overtime pay: Position Salary ÷ 21.75 × Overtime Days × Approved Multiplier. The Company argued it had paid overtime in full according to these regulations. Furthermore, it asserted that if the employer and employee have agreed upon an overtime calculation base in the labor contract, that agreement should prevail. The Company claimed this system falls under the employer's lawful autonomy regarding wage distribution, does not violate mandatory legal provisions, and is thus legal and valid. Zhou's defense: The Company explicitly used the "basic position salary" rather than the "wages the employee should receive for normal working hours and normal labor" as the base for overtime pay. This regulation violates Article 44 of the Labor Law of the People's Republic of China and Article 44, Item 3 of the Beijing Wage Payment Regulations, rendering it invalid and non-binding on the employee. Second Instance Judgment: Internal Remuneration Measures Excluded the Employee's Primary Rights and Unfairly Lowered Overtime Standards; Actual Average Salary Must Be Used The court of second instance reasoned that, according to Article 44 of the Beijing Wage Payment Regulations, the baseline for calculating overtime pay should be determined by the following principles: (1) Determined according to the employee's wage standard agreed upon in the labor contract; (2) If not stipulated in the labor contract, determined according to the overtime pay base and holiday wage standard agreed upon in a collective contract; (3) If neither the labor contract nor the collective contract specifies this, determined according to the wages the employee should receive for normal labor. In this case, the two parties did not explicitly agree on an overtime pay calculation baseline within the labor contract. The Company's internal remuneration management measures, which utilized the basic position salary as the base for overtime pay, effectively excluded the employee's primary rights. This rule unfairly reduced the overtime pay standard the employer was obligated to pay, and it was never mutually agreed upon with Zhou through consultation. Therefore, the Company's claim to calculate overtime pay based on Zhou's basic position salary lacked sufficient legal basis and was rejected by the court. The first instance court properly assessed Zhou's overtime situation based on the provided evidence, used Zhou's average salary over the 12 months prior to resignation as the calculation base, and correctly ordered the Company to pay the shortfalls in extended overtime, rest day overtime, and statutory holiday overtime wages. The appellate court found no error in this processing and upheld the decision. In summary, the second instance judgment ruled: Appeal dismissed; original judgment affirmed. Case Details Judgment Date: May 8, 2026 Case Number: (2026) Jing 02 Min Zhong No. 4958 Gentle Reminder: Judicial adjudication of labor disputes varies by region, and the rules for determining the calculation base for overtime pay are not uniform everywhere. This case is provided for reference only!