Overtime in India: Rules, Rates and Record-Keeping

Overtime is one of the more frequently mishandled areas of Indian payroll, usually in one of three ways: paying the wrong rate, exceeding the statutory hour limits, or assuming salaried staff are automatically exempt.

The statutory rate

Under the Factories Act and most state shops and establishments legislation, overtime is payable at twice the ordinary rate of wages.

The hourly ordinary rate is derived as:

Hourly rate = Monthly wages ÷ 26 days ÷ daily working hours

Using 26 rather than 30 reflects the statutory treatment of a wage month as 26 working days. Using 30 understates the rate and therefore underpays.

Worked example

Employee with monthly wages of ₹26,000 for overtime purposes, working an 8-hour day, who does 10 hours of overtime in a month:

• Hourly ordinary rate: ₹26,000 ÷ 26 ÷ 8 = ₹125
• Overtime rate: ₹125 × 2 = ₹250 per hour
• Overtime payable: ₹250 × 10 = ₹2,500

Hour limits

Overtime is capped, and the caps are enforced:

• Daily — total hours including overtime generally must not exceed 10 to 12 hours depending on the applicable law and state
• Weekly — ordinary hours are typically capped at 48, with total including overtime commonly capped at 60
• Quarterly — overtime hours are often capped in the range of 50 to 125 hours per quarter, varying by state
• Rest — a weekly rest day is mandatory, and intervals during the working day are prescribed

Exceeding these limits is a compliance breach even if you pay the overtime correctly. The cap is on hours worked, not on hours paid.

Who is eligible

This is widely misunderstood. There is no blanket exemption for salaried employees in India comparable to the US exempt/non-exempt distinction.

• Workers covered by the Factories Act are entitled to overtime
• Employees covered by state shops and establishments legislation are generally entitled, subject to that state's definitions
• Persons in genuinely managerial or supervisory positions above prescribed wage thresholds are typically excluded, but the test is the actual nature of duties, not the job title

Compensatory off instead of payment

Many organisations offer time off in lieu. Be careful: where the statute requires payment at twice ordinary wages, substituting compensatory off does not automatically discharge that obligation. Compensatory off is generally safe for work on a weekly rest day where the law specifically contemplates a substituted rest day, and is on weaker ground as a substitute for overtime wages. Take advice on your specific state and establishment type.

Records to maintain

• Attendance register showing actual in and out times
• Overtime register with hours and amounts paid per employee
• Wage register showing overtime as a separate component on the payslip
• Written overtime authorisation, which also protects you against unauthorised claims
• Retention for the statutory period, generally three years

Practical controls

• Require pre-approval so overtime is a decision, not an outcome of staying late
• Alert managers as employees approach weekly and quarterly caps
• Report overtime by team monthly — persistent overtime in one team is usually a staffing problem being paid for at double rate
• Show overtime separately on the payslip so employees can verify it