How to Calculate Overtime Pay in India: Rules, Formulas, and Examples Under the New Labour Codes (2026)
“How much extra do I get if I work beyond 8 hours?” This is one of the most common payroll questions in India. The answer changed significantly when the Occupational Safety, Health and Working Conditions (OSH) Code, 2020 came into effect in November 2025, replacing 13 older labour laws including the Factories Act, 1948.
Under the new rules, overtime in India is paid at twice the ordinary rate of wages. Not 1.5 times. Twice. This applies uniformly across factories, commercial establishments, IT companies, construction sites, and plantations. There is no “time and a half” tier like some other countries use.
Yet most employers and employees still struggle with the actual calculation. Which salary components go into the formula? How do you compute the hourly rate? What is the quarterly cap? When is overtime exempt?
This guide answers every question about overtime calculation in India for FY 2026-27 with actual formulas, worked examples at different salary levels, and a clear breakdown of what the new labour codes changed.
What Counts as Overtime in India?
Overtime is any work performed beyond the standard working hours prescribed by law. Under the OSH Code, 2020, the standard limits are:
| Parameter | Limit Under OSH Code |
|---|---|
| Maximum working hours per day | 8 hours |
| Maximum working hours per week | 48 hours |
| Maximum spread over per day | 12 hours (including breaks and rest) |
| Mandatory rest interval | 30 minutes after every 5 continuous hours of work |
| Weekly rest day | 1 day per week (typically Sunday) |
| Overtime trigger | Any work beyond 8 hours/day or 48 hours/week |
Spread over is the total time between clock in and clock out, including lunch breaks, tea breaks, and rest intervals. Even if an employee works only 8 hours, if they clock in at 9 AM and clock out at 10 PM (13 hours), the spread over exceeds the 12 hour limit, which is a compliance violation.
Daily vs Weekly Overtime: Which Applies?
The OSH Code requires overtime to be calculated on a daily basis or weekly basis, whichever is more favourable to the worker. This is a crucial rule that many employers miss.
| Scenario | Daily Calculation | Weekly Calculation | Which Applies |
|---|---|---|---|
| Employee works 10 hours on Monday and 6 hours on Tuesday | 2 hours OT on Monday | 0 OT for the week (16 total, under 48) | Daily (more favourable) |
| Employee works 8 hours daily for 7 days | 0 OT daily | 8 hours OT for the week (56 total, 48 limit exceeded) | Weekly (more favourable) |
| Employee works 9 hours daily for 6 days | 1 hour OT per day (6 total) | 6 hours OT for the week (54 total) | Daily (more favourable) |
Practical example: An employee works the following hours in a week: Monday 10, Tuesday 10, Wednesday 8, Thursday 8, Friday 8, Saturday 6. Total = 50 hours.
Using daily calculation: 2 + 2 + 0 + 0 + 0 + 0 = 4 hours overtime. Using weekly calculation: 50 minus 48 = 2 hours overtime.
Since daily calculation gives 4 hours (more favourable to the worker), the employer must pay for 4 hours of overtime, not 2.
The Overtime Pay Formula: Step by Step
Here is the complete formula for calculating overtime pay in India under the new labour codes.
Step 1: Determine Ordinary Rate of Wages
The ordinary rate of wages for overtime calculation includes only specific salary components.
| Included in Ordinary Rate | NOT Included in Ordinary Rate |
|---|---|
| Basic Pay | House Rent Allowance (HRA) |
| Dearness Allowance (DA) | Bonus (statutory or performance) |
| Retaining Allowance (if any) | Overtime wages themselves |
| Compensatory Allowances (as per Supreme Court ruling) | Employer PF contribution |
| Gratuity | |
| Commission | |
| Leave travel allowance | |
| Special allowances (conveyance, medical, etc.) | |
| Reimbursements |
Important note on the 50% rule: Under the Code on Wages, 2019, Basic Pay plus Dearness Allowance must be at least 50% of total remuneration. If your salary structure has Basic plus DA below 50% of CTC, you need to restructure it. This directly affects your overtime rate because a lower basic means a lower overtime payment per hour.
Step 2: Calculate the Hourly Rate
| Formula Component | Calculation |
|---|---|
| Monthly Ordinary Wages | Basic Pay + DA + Retaining Allowance |
| Daily Wage | Monthly Ordinary Wages ÷ 26 (standard working days) |
| Hourly Rate | Daily Wage ÷ 8 (standard working hours per day) |
Why divide by 26? The standard calculation uses 26 working days per month (30 days minus 4 weekly rest days). Some establishments that follow a 5 day week with 22 working days may use 22 as the divisor. However, the legally safe approach is to use 26 unless your state rules specify otherwise.
Step 3: Calculate Overtime Pay
| Formula | |
|---|---|
| Overtime Pay | = Hourly Rate x 2 x Overtime Hours |
This is the core formula. The “x 2” is mandatory under Section 27 of the OSH Code. There is no discretion here. An employer cannot decide to pay 1.5x or offer compensatory off instead of the double rate payment.
Step 4: Round Overtime Hours
Before applying the formula, round the overtime hours using these rules:
| Extra Time Worked | Rounded To |
|---|---|
| Less than 15 minutes | Ignored (not counted as overtime) |
| 15 to 30 minutes | 30 minutes (0.5 hours) |
| More than 30 minutes | 1 full hour |
Example: An employee works 8 hours and 38 minutes. The extra time is 38 minutes, which exceeds 30 minutes, so it rounds up to 1 full hour of overtime.
Worked Examples at Different Salary Levels
Let us calculate overtime for employees at five different salary levels to show how the formula works in practice.
Example 1: Factory Worker (₹15,000 Basic + DA)
| Item | Value |
|---|---|
| Monthly Basic + DA | ₹15,000 |
| Working days per month | 26 |
| Hours per day | 8 |
| Overtime hours worked in the month | 20 hours |
Calculation:
| Step | Formula | Amount |
|---|---|---|
| Daily Wage | ₹15,000 ÷ 26 | ₹576.92 |
| Hourly Rate | ₹576.92 ÷ 8 | ₹72.12 |
| Overtime Rate (2x) | ₹72.12 x 2 | ₹144.23 |
| Total Overtime Pay | ₹144.23 x 20 | ₹2,884.62 |
This employee receives ₹2,884.62 as overtime pay in addition to their regular salary of ₹15,000.
Example 2: Office Staff (₹25,000 Basic + DA)
| Item | Value |
|---|---|
| Monthly Basic + DA | ₹25,000 |
| Working days per month | 26 |
| Hours per day | 8 |
| Overtime hours worked in the month | 12 hours |
Calculation:
| Step | Formula | Amount |
|---|---|---|
| Daily Wage | ₹25,000 ÷ 26 | ₹961.54 |
| Hourly Rate | ₹961.54 ÷ 8 | ₹120.19 |
| Overtime Rate (2x) | ₹120.19 x 2 | ₹240.38 |
| Total Overtime Pay | ₹240.38 x 12 | ₹2,884.62 |
Example 3: IT Employee (₹40,000 Basic + DA, 5 Day Week)
| Item | Value |
|---|---|
| Monthly Basic + DA | ₹40,000 |
| Working days per month | 22 (5 day week) |
| Hours per day | 8 |
| Overtime hours worked in the month | 8 hours |
Calculation:
| Step | Formula | Amount |
|---|---|---|
| Daily Wage | ₹40,000 ÷ 22 | ₹1,818.18 |
| Hourly Rate | ₹1,818.18 ÷ 8 | ₹227.27 |
| Overtime Rate (2x) | ₹227.27 x 2 | ₹454.55 |
| Total Overtime Pay | ₹454.55 x 8 | ₹3,636.36 |
Notice the difference: Using 22 working days instead of 26 increases the hourly rate significantly. An IT employee with ₹40,000 Basic + DA on a 5 day week has a higher hourly overtime rate than someone with the same Basic + DA on a 6 day week.
Example 4: Retail Worker with 9 Hour Shift (₹12,000 Basic + DA)
| Item | Value |
|---|---|
| Monthly Basic + DA | ₹12,000 |
| Working days per month | 24 |
| Hours per day | 9 (state allowed) |
| Overtime hours worked in the month | 15 hours |
Calculation:
| Step | Formula | Amount |
|---|---|---|
| Daily Wage | ₹12,000 ÷ 24 | ₹500.00 |
| Hourly Rate | ₹500.00 ÷ 9 | ₹55.56 |
| Overtime Rate (2x) | ₹55.56 x 2 | ₹111.11 |
| Total Overtime Pay | ₹111.11 x 15 | ₹1,666.67 |
Note: Some states allow 9 hour workdays under their Shops and Establishments Acts. In such cases, overtime triggers only after the 9th hour, and the hourly rate is calculated by dividing the daily wage by 9.
Example 5: Senior Employee with Rounding (₹52,000 Basic + DA)
| Item | Value |
|---|---|
| Monthly Basic + DA | ₹52,000 |
| Working days per month | 26 |
| Hours per day | 8 |
| Overtime worked | 3 hours 40 minutes |
Calculation with rounding:
| Step | Formula | Amount |
|---|---|---|
| Overtime rounding | 3 hours + 40 minutes (over 30 min, rounds to 1 hour) | 4 hours |
| Daily Wage | ₹52,000 ÷ 26 | ₹2,000 |
| Hourly Rate | ₹2,000 ÷ 8 | ₹250 |
| Overtime Rate (2x) | ₹250 x 2 | ₹500 |
| Total Overtime Pay | ₹500 x 4 | ₹2,000 |
Summary: Overtime Costs Across Salary Levels
| Employee | Basic + DA | OT Hours | OT Rate/Hour | Total OT Pay |
|---|---|---|---|---|
| Factory Worker | ₹15,000 | 20 | ₹144.23 | ₹2,884.62 |
| Office Staff | ₹25,000 | 12 | ₹240.38 | ₹2,884.62 |
| IT Employee (5 day) | ₹40,000 | 8 | ₹454.55 | ₹3,636.36 |
| Retail Worker (9 hr) | ₹12,000 | 15 | ₹111.11 | ₹1,666.67 |
| Senior Employee | ₹52,000 | 4 | ₹500.00 | ₹2,000.00 |
Quarterly Overtime Caps
One of the most important compliance limits is the quarterly cap on overtime hours. Exceeding this cap is a violation regardless of whether you pay the correct overtime rate.
| Jurisdiction | Quarterly Overtime Cap | Notes |
|---|---|---|
| Central Sphere (OSH Central Rules) | 144 hours per quarter | For establishments under central government jurisdiction |
| Maharashtra | 125 hours per quarter | State rules |
| Gujarat | 125 hours per quarter | State rules |
| Karnataka | 50 hours per quarter | More restrictive |
| Haryana | 50 hours per quarter | More restrictive |
| Tamil Nadu | 6 hours per week | Weekly cap instead of quarterly |
| Delhi | 150 hours per year | Annual cap, plus 6 hours per week limit |
What this means practically: In Karnataka, an employee cannot work more than 50 hours of overtime in a quarter, which averages to about 4.2 hours per week or less than 1 hour per day. Even if the employee is willing and the employer pays double rate, exceeding 50 hours is a legal violation.
Monthly Overtime Tracking Template
| Week | Employee Name | Mon | Tue | Wed | Thu | Fri | Sat | Total Hours | Regular Hours | OT Hours | Running Quarter Total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Week 1 | Rajesh K | 9 | 10 | 8 | 9 | 8 | 4 | 48 | 44 | 4 | 4 |
| Week 2 | Rajesh K | 8 | 8 | 10 | 8 | 9 | 4 | 47 | 46 | 1 | 5 |
| Week 3 | Rajesh K | 10 | 10 | 10 | 8 | 8 | 4 | 50 | 44 | 6 | 11 |
| Week 4 | Rajesh K | 8 | 8 | 8 | 9 | 8 | 4 | 45 | 44 | 1 | 12 |
| Month Total | 190 | 178 | 12 | 12 |
This kind of tracking is essential for staying within quarterly caps. A payroll management system that tracks overtime hours in real time helps prevent cap violations before they happen.
What Changed Under the New Labour Codes?
The OSH Code, 2020 (effective November 2025) brought several changes compared to the old Factories Act, 1948 and various Shops and Establishments Acts.
| Parameter | Old Law (Factories Act / S&E Acts) | New Law (OSH Code, 2020) |
|---|---|---|
| Overtime Rate | 2x under Factories Act; varied under S&E Acts (some states had 1.5x) | Uniform 2x across all establishments |
| Quarterly Cap | 50 hours (Factories Act) | 125 to 144 hours (central rules) |
| Worker Consent | Not explicitly required | Explicitly required under Section 27 |
| Scope | Different laws for factories, shops, mines, plantations | Single law covers all establishments |
| Spread Over | 10.5 hours (Factories Act) | 12 hours (OSH Code) |
| Electronic Records | Not specifically allowed | Explicitly allowed (Section 33) |
| Penalty for Violations | Varied, generally lower | Up to ₹2,00,000 (first offence), ₹5,00,000 (repeat) |
| Applicability | Factory = 10+ workers with power, 20+ without | Broader definition covering more establishments |
| Number of Laws | 13 separate laws | 1 consolidated code |
Key Improvements for Workers
- Uniform 2x rate: Previously, some state Shops and Establishments Acts allowed a lower overtime rate. Now, 2x is mandatory everywhere.
- Explicit consent requirement: Employers cannot force overtime without the worker’s consent. This is now written into Section 27 of the OSH Code.
- Higher quarterly cap: The old Factories Act capped overtime at 50 hours per quarter, which often forced employers to underreport. The new 125 to 144 hour cap is more realistic while still protecting workers.
- Broader coverage: The old Factories Act covered only factories. The OSH Code covers factories, commercial establishments, IT/ITES companies, construction sites, plantations, and more.
Key Implications for Employers
- Higher overtime costs: Employers who were paying 1.5x under state S&E Acts now must pay 2x.
- Better record keeping: Electronic records are now accepted, but the record keeping requirements are more detailed (consent records, overtime register, quarterly summaries).
- Stricter penalties: First offence penalties jumped from a few thousand rupees to up to ₹2,00,000.
Who Is Eligible for Overtime Pay?
Not every employee who works late is eligible for overtime under Indian law. Here is the complete breakdown:
Eligible for Overtime
| Category | Condition |
|---|---|
| Factory workers | All workers covered under OSH Code |
| Commercial establishment employees | Including shops, restaurants, hotels |
| IT and ITES employees | When covered under state notifications |
| Construction workers | All workers on construction sites |
| Plantation workers | All workers on plantations |
| Contract and fixed term workers | Same overtime rate as permanent employees |
| Daily wage workers | Overtime calculated on actual daily wage |
| Piece rate workers | Overtime based on equivalent daily rate |
Potentially Exempt from Overtime
| Category | Basis for Exemption | Notes |
|---|---|---|
| Managerial employees | State S&E Acts (some states) | Exemption depends on actual duties, not just job title |
| Supervisory employees | Salary threshold in some states | Typically above ₹15,000 to ₹21,000 monthly (varies by state) |
| Employees in confidential positions | Some state S&E Acts | Very narrow definition |
| Travelling sales staff | Some state S&E Acts | Only for genuinely field based roles |
Critical warning on misclassification: Calling someone a “manager” in their job title does not automatically exempt them from overtime. The exemption applies only to employees who genuinely perform managerial or supervisory functions as their primary duty. A “Team Lead” who spends 90% of their time doing the same work as team members is not managerial. Misclassification can result in back pay claims and penalties.
Overtime and Other Payroll Components
Overtime pay interacts with several other payroll components. Understanding these interactions prevents costly errors.
Does Overtime Affect PF Contribution?
| Component | Does Overtime Count? | Reason |
|---|---|---|
| PF (Provident Fund) | No | Overtime wages are explicitly excluded from “basic wages” for PF purposes |
| ESI (Employee State Insurance) | Yes | Overtime is part of gross wages for ESI calculation |
| Professional Tax | Depends | Some states include overtime in gross salary for PT slab determination |
| Income Tax / TDS | Yes | Overtime is fully taxable as salary income |
| Gratuity | No | Gratuity is calculated on last drawn basic + DA only |
| Bonus (statutory) | No | Bonus is calculated on basic + DA, excluding overtime |
This is a common area of confusion. If your payroll software is including overtime in PF calculation, you are overpaying PF. If it is excluding overtime from ESI calculation, you are violating ESI rules. Get the configuration right.
For a deeper understanding of PF and ESI obligations, read our PF and ESI compliance guide.
How Overtime Appears on the Salary Slip
Overtime must appear as a separate line item on the salary slip. Here is what a proper salary slip looks like with overtime:
| Earnings | Amount | Deductions | Amount |
|---|---|---|---|
| Basic Pay | ₹15,000 | PF (Employee 12%) | ₹1,800 |
| Dearness Allowance | ₹5,000 | ESI (Employee 0.75%) | ₹188 |
| HRA | ₹6,000 | Professional Tax | ₹200 |
| Conveyance Allowance | ₹1,600 | TDS | ₹500 |
| Overtime Pay (12 hrs x ₹153.85 x 2) | ₹3,692 | ||
| Gross Earnings | ₹31,292 | Total Deductions | ₹2,688 |
| Net Pay | ₹28,604 |
Note: In the salary slip above, ESI is calculated on ₹31,292 (including overtime), but PF is calculated only on ₹15,000 (Basic Pay, excluding overtime). This distinction matters.
Real Scenarios: Overtime in Practice
Scenario 1: The Month End Rush (Accounting Firm)
An accounting firm in Mumbai has its staff working extra during the March tax filing rush.
| Detail | Value |
|---|---|
| Employee | Accountant with ₹30,000 Basic + DA |
| Regular hours | 8 hours/day, 6 days/week |
| March overtime hours | Week 1: 4, Week 2: 6, Week 3: 8, Week 4: 10 |
| Total overtime in March | 28 hours |
Calculation:
| Step | Amount |
|---|---|
| Daily Wage: ₹30,000 ÷ 26 | ₹1,153.85 |
| Hourly Rate: ₹1,153.85 ÷ 8 | ₹144.23 |
| Overtime Rate: ₹144.23 x 2 | ₹288.46 |
| Total OT Pay: ₹288.46 x 28 | ₹8,076.92 |
Quarter check: If this employee worked 15 hours OT in January and 20 hours in February, the quarterly total would be 15 + 20 + 28 = 63 hours. Well within the 125 hour limit for Maharashtra.
Scenario 2: The Festival Season (Retail Store)
A retail store in Bangalore extends operating hours during the Diwali season.
| Detail | Value |
|---|---|
| Employee | Sales associate with ₹18,000 Basic + DA |
| Regular shift | 9 hours/day (Karnataka allows this) |
| October overtime | 3 extra hours on 10 festival days |
| Total overtime in October | 30 hours |
Calculation:
| Step | Amount |
|---|---|
| Daily Wage: ₹18,000 ÷ 26 | ₹692.31 |
| Hourly Rate: ₹692.31 ÷ 9 | ₹76.92 |
| Overtime Rate: ₹76.92 x 2 | ₹153.85 |
| Total OT Pay: ₹153.85 x 30 | ₹4,615.38 |
Quarter check for Karnataka: Karnataka has a 50 hour quarterly cap. If this employee worked 10 hours OT in July, 12 in August, and 5 in September, the Q2 total is 27. But October starts Q3 (Oct-Dec), so the 30 hours in October is the start of a new quarter. The employer must watch November and December to stay within 50 hours for Q3.
Scenario 3: The Startup with No OT Policy
A tech startup in Pune has developers regularly working until 10 PM without any overtime tracking.
| Detail | Value |
|---|---|
| Developer’s CTC | ₹12,00,000 per year |
| Monthly CTC | ₹1,00,000 |
| Basic + DA (50% of CTC) | ₹50,000 |
| Average daily extra hours | 2 hours |
| Working days per month | 22 (5 day week) |
| Monthly untracked overtime | 44 hours |
What this startup owes per developer per month:
| Step | Amount |
|---|---|
| Daily Wage: ₹50,000 ÷ 22 | ₹2,272.73 |
| Hourly Rate: ₹2,272.73 ÷ 8 | ₹284.09 |
| Overtime Rate: ₹284.09 x 2 | ₹568.18 |
| Monthly OT liability per developer: ₹568.18 x 44 | ₹24,999.94 |
If the startup has 20 developers all doing this, the monthly liability is nearly ₹5,00,000 in unpaid overtime. This is a compliance time bomb.
The lesson: “We are a startup, overtime rules don’t apply to us” is a myth. The OSH Code applies to all establishments, not just factories. And the Code on Wages allows workers to claim compensation up to 10 times the underpaid amount.
Scenario 4: The Employee Who Works on a Rest Day
| Detail | Value |
|---|---|
| Employee | Warehouse staff with ₹20,000 Basic + DA |
| Regular schedule | Monday to Saturday, 8 hours/day |
| Works on Sunday (rest day) | 8 hours |
How is this calculated?
Working on a rest day means all 8 hours on Sunday are overtime (since the weekly limit of 48 is already met by Monday to Saturday). Plus the employee is entitled to a compensatory off on another day.
| Step | Amount |
|---|---|
| Daily Wage: ₹20,000 ÷ 26 | ₹769.23 |
| Hourly Rate: ₹769.23 ÷ 8 | ₹96.15 |
| Overtime Rate: ₹96.15 x 2 | ₹192.31 |
| Sunday OT Pay: ₹192.31 x 8 | ₹1,538.46 |
The employee receives ₹1,538.46 for Sunday work plus a compensatory day off. The employer cannot say “we will give you a day off instead of paying overtime.” Both the double rate payment and the compensatory off are required.
State Wise Variations in Overtime Rules
While the OSH Code sets a uniform framework, many states continue to follow their own Shops and Establishments Acts alongside the code. Here are the key variations:
| State | Daily Hours Limit | Weekly Limit | OT Rate | Quarterly OT Cap | Special Notes |
|---|---|---|---|---|---|
| Maharashtra | 9 hours | 48 hours | 2x | 125 hours | S&E Act coexists with OSH Code |
| Karnataka | 9 hours | 48 hours | 2x | 50 hours | Most restrictive quarterly cap |
| Gujarat | 9 hours | 48 hours | 2x | 125 hours | IT sector exemptions available |
| Tamil Nadu | 8 hours | 48 hours | 2x | 6 hours/week | Weekly cap instead of quarterly |
| Haryana | 9 hours | 48 hours | 2x | 50 hours | Equal to Karnataka in restriction |
| Delhi | 9 hours | 48 hours | 2x | 150 hours/year | Annual cap, plus 6 hours/week |
| Telangana | 10 hours | 48 hours | 2x | 144 hours | Extended hours for IT/ITES sector |
| Andhra Pradesh | 9 hours | 48 hours | 2x | 125 hours | Sector specific exemptions |
| Central Sphere | 8 hours | 48 hours | 2x | 144 hours | For establishments under central government |
Key takeaway: If your business operates in Karnataka or Haryana, the 50 hour quarterly cap is extremely tight. That is roughly 4 hours per week or about 50 minutes per day. In contrast, the central sphere allows 144 hours per quarter, nearly three times as much.
Cost of Overtime for Employers: A Planning Guide
Understanding overtime costs helps employers make informed decisions about hiring versus overtime.
Overtime Cost vs Hiring a New Employee
| Factor | Paying Overtime (existing staff) | Hiring New Employee |
|---|---|---|
| Hourly cost | 2x regular rate | 1x regular rate |
| PF contribution | No additional PF | 12% employer PF contribution |
| ESI contribution | 3.25% on OT wages | 3.25% on full wages |
| Gratuity liability | None on OT | Accrues after 5 years |
| Bonus liability | None on OT | Statutory bonus applies |
| Training cost | None | Onboarding and training needed |
| Equipment cost | None | May need additional workspace |
| Flexibility | Can increase/decrease | Fixed commitment |
Break Even Analysis: When Hiring Is Cheaper
| Monthly OT Hours (per person) | OT Cost (₹25,000 Basic + DA) | Equivalent New Hire Cost | Better Option |
|---|---|---|---|
| Up to 20 hours | ₹4,808 | ₹25,000+ (salary + PF + ESI) | Overtime |
| 30 hours | ₹7,212 | ₹25,000+ | Overtime |
| 40 hours | ₹9,615 | ₹25,000+ | Overtime |
| 50 hours | ₹12,019 | ₹25,000+ | Overtime |
| 80+ hours consistently | ₹19,231+ | ₹25,000+ | Hire new employee |
Rule of thumb: If you regularly need 80+ hours of monthly overtime from a single role, it is cheaper and legally safer to hire a new employee. You also avoid hitting the quarterly cap.
For a full breakdown of the cost of hiring an employee in India, check our detailed guide.
Overtime Register: Legal Requirements
Employers must maintain an overtime register under the OSH Code. Here is what it must contain:
| Column | Required Information |
|---|---|
| 1 | Date of overtime work |
| 2 | Employee name and ID |
| 3 | Department/Section |
| 4 | Normal working hours (start and end time) |
| 5 | Overtime hours (start and end time) |
| 6 | Total overtime after rounding |
| 7 | Ordinary rate of wages (hourly) |
| 8 | Overtime rate (2x) |
| 9 | Total overtime amount |
| 10 | Worker’s signature/consent |
| 11 | Supervisor’s authorization |
Record Retention
| Record | Retention Period |
|---|---|
| Overtime Register | 5 years from last entry (central sphere) |
| Daily attendance with hours | 5 years |
| Overtime consent records | 5 years |
| Payslips showing OT | 5 years |
| Quarterly overtime summary | 5 years |
Electronic records are fully acceptable under Section 33 of the OSH Code. A payroll system that automatically generates overtime registers and maintains digital records makes compliance straightforward.
Penalties for Overtime Violations
| Violation | Penalty |
|---|---|
| Not paying overtime at 2x rate | Up to ₹50,000 (first offence under Code on Wages) |
| Repeat wage offence within 5 years | Up to ₹1,00,000 and/or 3 months imprisonment |
| Exceeding quarterly overtime cap | Up to ₹2,00,000 (first offence under OSH Code) |
| Repeat OSH Code violation | Up to ₹5,00,000 and/or 6 months imprisonment |
| Not maintaining overtime register | ₹50,000 to ₹1,00,000 |
| Falsifying overtime records | Separate penalty under Section 98 of OSH Code |
| Forcing overtime without consent | Penalty under OSH Code + potential criminal liability |
| Underpaying overtime | Compensation up to 10x the underpaid amount (Section 45, Code on Wages) |
Real Penalty Example
| Scenario | Amount |
|---|---|
| 100 workers underpaid OT by ₹150/hour for 10 hours each per month | |
| Monthly underpayment per worker | ₹150 x 2 x 10 = ₹3,000 |
| Monthly underpayment for 100 workers | ₹3,00,000 |
| Annual underpayment | ₹36,00,000 |
| Potential 10x compensation liability | ₹3,60,00,000 |
| Plus first offence fine | ₹50,000 |
| Total potential exposure | ₹3,60,50,000 |
This is why overtime compliance is not optional. The penalties under the new codes are severe enough to threaten the financial viability of a small or mid sized business.
For more on payroll penalties, see our guide on payroll mistakes that can haunt your business.
Common Mistakes in Overtime Calculation
| Mistake | Why It Is Wrong | Correct Approach |
|---|---|---|
| Using gross salary instead of Basic + DA for the formula | Overestimates the hourly rate and overpays OT (but underpaying is worse) | Use only Basic + DA + Retaining Allowance |
| Paying 1.5x instead of 2x | Violates the Code on Wages and OSH Code | Always pay 2x. There is no 1.5x tier in India |
| Including overtime in PF calculation | Overpays PF. OT wages are excluded from basic wages for PF | Exclude OT from PF calculation |
| Not rounding overtime hours | Over or under calculates OT pay | Follow the 15/30/60 minute rounding rules |
| “Comp off instead of OT pay” | Compensatory off does not replace overtime pay. Both are required for rest day work | Pay 2x OT plus give compensatory off |
| Not tracking hours for salaried employees | “Salaried” does not mean “exempt from OT.” Exemption depends on role, not pay structure | Track hours for all non exempt employees |
| Ignoring quarterly cap | Exceeding the cap is a violation even with correct payment | Track cumulative quarterly hours |
| Not getting worker consent | Forced overtime violates Section 27 of OSH Code | Document consent for each OT instance |
How to Set Up Overtime in Your Payroll System
| Step | Action | Configuration |
|---|---|---|
| 1 | Define standard working hours | 8 hours/day or 9 hours/day based on state rules |
| 2 | Set the overtime multiplier | 2x (mandatory) |
| 3 | Configure wage base for OT | Basic + DA only (exclude HRA, bonus, allowances) |
| 4 | Set rounding rules | Less than 15 min = 0; 15 to 30 min = 0.5 hr; over 30 min = 1 hr |
| 5 | Set quarterly cap alerts | 50, 125, or 144 hours based on state |
| 6 | Configure PF exclusion | Overtime wages excluded from PF calculation |
| 7 | Configure ESI inclusion | Overtime wages included in ESI calculation |
| 8 | Set up overtime register | Auto generate with all required columns |
| 9 | Enable consent tracking | Digital consent before overtime assignment |
| 10 | Set payment timeline | OT pay processed with monthly salary, by 7th of following month |
SalaryBox handles all of these configurations automatically. Once you set the state and working hours, the system calculates overtime, applies the correct 2x rate, excludes OT from PF, includes it in ESI, and generates the overtime register for compliance.
Frequently Asked Questions (FAQs)
1. How is overtime calculated in India under the new labour codes?
Overtime in India is calculated using the formula: Overtime Pay = Hourly Rate x 2 x Overtime Hours. The hourly rate is derived by dividing the monthly ordinary wages (Basic Pay plus Dearness Allowance) by 26 working days and then by 8 hours. For example, if an employee’s Basic plus DA is ₹30,000 per month, the daily wage is ₹1,153.85, the hourly rate is ₹144.23, and for 10 hours of overtime, the pay would be ₹144.23 x 2 x 10 = ₹2,884.62. The 2x rate is mandatory under Section 27 of the OSH Code, 2020.
2. What is the maximum overtime an employee can work in India?
Under the central rules of the OSH Code, the quarterly overtime cap is 144 hours. However, state caps vary significantly. Maharashtra and Gujarat allow 125 hours per quarter, while Karnataka and Haryana cap it at 50 hours per quarter. Tamil Nadu uses a weekly cap of 6 hours. Delhi has an annual cap of 150 hours combined with a weekly limit of 6 hours. Employers must follow the cap applicable to their state, and exceeding it is a violation regardless of whether overtime is paid correctly.
3. Can an employer give compensatory off instead of paying overtime?
No. Under Indian law, compensatory off does not replace overtime payment. If an employee works on a rest day, they are entitled to both the overtime payment at 2x rate for all hours worked and a compensatory day off on another day within the same week or the following week. Offering a day off “in lieu” of overtime pay is a violation. This is a common misconception, especially in IT and service sector companies.
4. Is overtime pay applicable to salaried employees in IT companies?
Yes. The OSH Code, 2020 covers IT and ITES establishments. Being “salaried” does not automatically make an employee exempt from overtime. The exemption depends on whether the employee genuinely performs managerial or supervisory duties as their primary function. A software developer, quality analyst, or support engineer working beyond 8 hours a day is entitled to overtime pay at 2x rate. Some states like Telangana have extended daily hour limits to 10 hours for IT sector employees, but the 2x payment rate still applies for hours beyond that limit.
5. Which salary components are included in overtime calculation?
Only Basic Pay, Dearness Allowance (DA), and Retaining Allowance (if applicable) are included in the overtime calculation. HRA, bonus, commission, conveyance allowance, medical allowance, LTA, employer PF contribution, and other special allowances are excluded. Under the Code on Wages, Basic plus DA must be at least 50% of total remuneration. If your salary structure does not meet this threshold, it needs restructuring, which will also affect your overtime rate.
6. Does overtime pay attract PF and ESI contributions?
Overtime pay is excluded from PF calculation but included in ESI calculation. Under PF regulations, overtime wages are not part of “basic wages” and therefore do not attract the 12% employer or employee PF contribution. However, for ESI purposes, overtime is included in the gross wages calculation (employer contributes 3.25% and employee contributes 0.75%). This distinction is important for accurate payroll processing and compliance.
7. What are the penalties for not paying overtime in India?
Under the Code on Wages, the first offence penalty for not paying overtime is up to ₹50,000. A repeat offence within five years can attract up to ₹1,00,000 in fines and up to 3 months imprisonment. Under the OSH Code, violations attract up to ₹2,00,000 for first offence and ₹5,00,000 plus 6 months imprisonment for repeat offences. Additionally, Section 45 of the Code on Wages allows compensation of up to 10 times the underpaid amount. This means an employer who systematically underpays overtime for 100 workers could face claims running into crores.
8. How do I calculate overtime for an employee who works on a public holiday?
Work on a public or national holiday is treated similarly to rest day work. All hours worked on the holiday are counted as overtime since the employee was entitled to the day off. The calculation is the same: Hourly Rate x 2 x Hours Worked. Additionally, the employee is entitled to a compensatory day off. For example, if an employee with ₹24,000 Basic plus DA works 8 hours on Republic Day, the overtime pay is: (₹24,000 ÷ 26 ÷ 8) x 2 x 8 = ₹1,846.15. The employee gets this amount plus a compensatory off.
Quick Reference Card
| Item | Key Information |
|---|---|
| Overtime Rate | 2x ordinary rate of wages (mandatory) |
| Ordinary Rate Includes | Basic Pay + DA + Retaining Allowance |
| Standard Hours | 8 hours/day, 48 hours/week |
| Spread Over Limit | 12 hours per day (including breaks) |
| Rest Interval | 30 minutes after 5 continuous hours |
| Worker Consent | Mandatory under Section 27, OSH Code |
| Rounding | Under 15 min = 0; 15 to 30 min = 0.5 hr; over 30 min = 1 hr |
| Quarterly Cap (Central) | 144 hours |
| PF on Overtime | Excluded |
| ESI on Overtime | Included |
| Income Tax on Overtime | Fully taxable |
| First Offence Penalty | Up to ₹50,000 (Code on Wages) / ₹2,00,000 (OSH Code) |
| Compensation for Underpayment | Up to 10x the underpaid amount |
| Record Retention | 5 years |
| Electronic Records | Allowed under Section 33, OSH Code |
This guide reflects overtime rules under the Occupational Safety, Health and Working Conditions Code, 2020 and the Code on Wages, 2019 as applicable in FY 2026-27. State specific rules may vary. Always verify with your state labour department or a payroll compliance expert for your specific situation.
