Overtime Calculation Rules Under Indian Labour Laws 2026
Overtime calculation in India is governed by multiple labour laws, and getting it wrong can result in penalties, employee disputes, and compliance violations. With the new Labour Codes gradually being implemented, employers need to understand both current rules and upcoming changes to ensure their payroll processes remain compliant.
Overtime Under the Factories Act, 1948
For factory workers, the Factories Act mandates that working hours shall not exceed 48 hours per week and 9 hours per day. Any work beyond these limits constitutes overtime. Overtime wages must be paid at twice the ordinary rate of wages.
The “ordinary rate of wages” includes basic wages and dearness allowance but typically excludes HRA, bonus, and other allowances. However, specific state rules may define the calculation base differently. Employers must maintain overtime registers and ensure total working hours including overtime don’t exceed 60 hours per week.
Overtime Under the Shops and Establishment Act
Each Indian state has its own Shops and Establishment Act governing overtime for commercial establishments. While provisions vary by state, most mandate maximum working hours of 48 per week with overtime payment at double the ordinary rate. Some states like Maharashtra and Karnataka have specific provisions for IT and ITES sector employees.
Track overtime accurately using attendance management systems that automatically flag when employees exceed standard working hours. Manual tracking is error-prone and creates compliance risk.
Overtime Under the New Labour Codes
The Code on Wages 2019 and the Occupational Safety, Health and Working Conditions Code 2020 are expected to consolidate overtime provisions. Key proposed changes include extending overtime provisions to all establishments (not just factories), capping maximum overtime at 125 hours per quarter, maintaining the double-rate overtime payment requirement, and introducing clearer definitions of “wages” for overtime calculation.
Calculating Overtime Pay: Practical Examples
For a factory worker earning ₹15,000 basic + ₹5,000 DA per month (₹20,000 total): Daily rate = ₹20,000 / 26 working days = ₹769.23. Hourly rate = ₹769.23 / 8 hours = ₹96.15. Overtime rate = ₹96.15 × 2 = ₹192.31 per hour.
If this worker works 4 hours of overtime on a weekday, overtime pay = 4 × ₹192.31 = ₹769.23. This must be paid in addition to the regular day’s wages. Use payroll management software to automate these calculations and ensure accuracy.
Common Overtime Compliance Pitfalls
Many Indian employers make errors that create legal liability. Compensatory off instead of overtime pay is a common practice but not legally compliant — overtime wages must be paid in cash, and comp-off cannot substitute for monetary payment unless specifically permitted by the applicable act.
Misclassifying employees as “managers” to avoid overtime obligations is another risk. Just because an employee has a managerial title doesn’t mean they’re exempt from overtime provisions. The legal test focuses on actual job duties and authority, not designation.
Failing to maintain proper overtime records is a violation in itself. Attendance tracking systems with automatic overtime calculation help maintain compliant records while reducing manual errors.
Frequently Asked Questions
Are salaried employees in India entitled to overtime pay?
It depends on the applicable legislation and the employee’s role. Factory workers are entitled to overtime under the Factories Act regardless of salary level. For commercial establishments, the applicable Shops and Establishment Act determines eligibility. Many states exempt managerial and supervisory employees from overtime provisions.
Can employees refuse to work overtime in India?
Employees cannot be forced to work overtime beyond the legal maximum (currently 50-60 hours per week including overtime, varying by state). However, reasonable overtime requests within legal limits can be part of employment terms. Consistent refusal might be addressed through performance management.
How is overtime calculated for employees on a monthly salary?
Divide the monthly wages (as defined by the applicable act) by the number of working days to get the daily rate, then divide by standard daily hours to get the hourly rate. Overtime is typically twice this hourly rate.
Do the overtime rules apply to the IT sector?
Most IT employees in India fall under the Shops and Establishment Act of their state. Several states provide overtime exemptions for IT/ITES employees but not all. Karnataka and Andhra Pradesh, for example, have specific provisions. Check your state’s specific rules.
What records must employers maintain for overtime compliance?
Maintain an overtime register showing each employee’s normal working hours, overtime hours worked (daily), overtime wages calculated and paid, and employee acknowledgment. These records must be preserved for at least 3 years and produced during labour inspections.