diff --git a/erpnext/hr/doctype/hr_settings/hr_settings.js b/erpnext/hr/doctype/hr_settings/hr_settings.js
index fd082fda09b..e9df7c32b3b 100644
--- a/erpnext/hr/doctype/hr_settings/hr_settings.js
+++ b/erpnext/hr/doctype/hr_settings/hr_settings.js
@@ -2,6 +2,16 @@
 // For license information, please see license.txt
 
 frappe.ui.form.on('HR Settings', {
+
+	refresh: function(frm) {
+		frm.set_query('overtime_salary_component', function() {
+			return {
+				filters: {
+					type: "Earning"
+				}
+			};
+		});
+	},
 	restrict_backdated_leave_application: function(frm) {
 		frm.toggle_reqd("role_allowed_to_create_backdated_leave_application", frm.doc.restrict_backdated_leave_application);
 	}
diff --git a/erpnext/payroll/doctype/payroll_settings/payroll_settings.json b/erpnext/payroll/doctype/payroll_settings/payroll_settings.json
index 54377e94b30..8863a0415eb 100644
--- a/erpnext/payroll/doctype/payroll_settings/payroll_settings.json
+++ b/erpnext/payroll/doctype/payroll_settings/payroll_settings.json
@@ -16,7 +16,12 @@
   "email_salary_slip_to_employee",
   "encrypt_salary_slips_in_emails",
   "show_leave_balances_in_salary_slip",
-  "password_policy"
+  "password_policy",
+  "section_break_12",
+  "overtime_based_on",
+  "overtime_salary_component",
+  "column_break_14",
+  "fetch_standard_working_hours_from_shift_type"
  ],
  "fields": [
   {
@@ -91,13 +96,41 @@
    "fieldname": "show_leave_balances_in_salary_slip",
    "fieldtype": "Check",
    "label": "Show Leave Balances in Salary Slip"
+  },
+  {
+   "fieldname": "overtime_salary_component",
+   "fieldtype": "Link",
+   "label": "Overtime Salary Component",
+   "options": "Salary Component"
+  },
+  {
+   "fieldname": "section_break_12",
+   "fieldtype": "Section Break"
+  },
+  {
+   "default": "0",
+   "description": "If unchecked, Standard Working Hours as defined in HR Settings will be taken into consideration.",
+   "fieldname": "fetch_standard_working_hours_from_shift_type",
+   "fieldtype": "Check",
+   "label": "Fetch Standard Working Hours from Shift Type"
+  },
+  {
+   "fieldname": "column_break_14",
+   "fieldtype": "Column Break"
+  },
+  {
+   "default": "Attendance",
+   "fieldname": "overtime_based_on",
+   "fieldtype": "Select",
+   "label": "Calculate Overtime Hours  Based On",
+   "options": "Attendance\nTimesheet"
   }
  ],
  "icon": "fa fa-cog",
  "index_web_pages_for_search": 1,
  "issingle": 1,
  "links": [],
- "modified": "2021-03-03 17:49:59.579723",
+ "modified": "2021-05-10 12:56:08.161319",
  "modified_by": "Administrator",
  "module": "Payroll",
  "name": "Payroll Settings",
diff --git a/erpnext/setup/setup_wizard/operations/defaults_setup.py b/erpnext/setup/setup_wizard/operations/defaults_setup.py
index 6dd0fb1403f..76484753c3a 100644
--- a/erpnext/setup/setup_wizard/operations/defaults_setup.py
+++ b/erpnext/setup/setup_wizard/operations/defaults_setup.py
@@ -64,6 +64,12 @@ def set_default_settings(args):
 	hr_settings.leave_status_notification_template = _("Leave Status Notification")
 	hr_settings.save()
 
+
+	payroll_settings = frappe.get_doc("Payroll Settings")
+	payroll_settings.overtime_based_on = "Attendance"
+	Payroll_settings.overtime_salary_component = _("Overtime Allowance")
+	payroll_settings.save()
+
 def set_no_copy_fields_in_variant_settings():
 	# set no copy fields of an item doctype to item variant settings
 	doc = frappe.get_doc('Item Variant Settings')
diff --git a/erpnext/setup/setup_wizard/operations/install_fixtures.py b/erpnext/setup/setup_wizard/operations/install_fixtures.py
index 3dcb63867c1..5789081b91f 100644
--- a/erpnext/setup/setup_wizard/operations/install_fixtures.py
+++ b/erpnext/setup/setup_wizard/operations/install_fixtures.py
@@ -54,6 +54,7 @@ def install(country=None):
 		{'doctype': 'Salary Component', 'salary_component': _('Income Tax'), 'description': _('Income Tax'), 'type': 'Deduction', 'is_income_tax_component': 1},
 		{'doctype': 'Salary Component', 'salary_component': _('Basic'), 'description': _('Basic'), 'type': 'Earning'},
 		{'doctype': 'Salary Component', 'salary_component': _('Arrear'), 'description': _('Arrear'), 'type': 'Earning'},
+		{'doctype': 'Salary Component', 'salary_component': _('Overtime Allowance'), 'description': _('Overtime Allowance'), 'type': 'Earning'},
 		{'doctype': 'Salary Component', 'salary_component': _('Leave Encashment'), 'description': _('Leave Encashment'), 'type': 'Earning'},
 
 
@@ -286,6 +287,7 @@ def set_more_defaults():
 	update_selling_defaults()
 	update_buying_defaults()
 	update_hr_defaults()
+	update_payroll_defaults()
 	add_uom_data()
 	update_item_variant_settings()
 
@@ -315,6 +317,13 @@ def update_hr_defaults():
 	hr_settings.leave_status_notification_template = _("Leave Status Notification")
 	hr_settings.save()
 
+def update_payroll_defaults():
+	payroll_settings = frappe.get_doc("Payroll Settings")
+	payroll_settings.overtime_based_on = "Attendance"
+	Payroll_settings.overtime_salary_component = _("Overtime Allowance")
+	payroll_settings.save()
+
+
 def update_item_variant_settings():
 	# set no copy fields of an item doctype to item variant settings
 	doc = frappe.get_doc('Item Variant Settings')