Short answer: under the Factories Act, 1948 (Section 59), any work beyond 9 hours a day or 48 hours a week must be paid at twice the ordinary rate of wages. Shops & Establishments Acts extend similar rules to offices and stores, with state-specific thresholds – some states pay 2× beyond daily limits, a few allow 1.5× in certain categories. The compliance fight is almost never about the multiplier; it’s about what “ordinary wages” includes and which divisor converts a monthly salary to an hourly rate. Here’s the math done properly.
Who is actually entitled to overtime?
- Factory workers (premises with 10+ workers using power, 20+ without): covered by the Factories Act – 2× beyond 9 hours/day or 48 hours/week.
- Shop/office employees: covered by the state’s Shops & Establishments Act. Thresholds are commonly 9 hours/day and 48/week (a few states use 8/day), with 2× as the dominant OT rate.
- Not covered in practice: employees in genuinely managerial or supervisory roles (most states exempt them explicitly, often with a wage threshold). This is the honest answer to “why doesn’t my IT job pay overtime” – most white-collar employees above the supervisory line and salary thresholds fall outside statutory OT, and employer policy governs instead.
If you’re paid hourly or daily, OT math is easy. The mess begins with monthly salaries.
Step 1: What are “ordinary wages”?
For Factories Act OT, ordinary wages = Basic + DA + cash equivalents of certain benefits – but excluding bonus and, importantly, excluding overtime itself. HRA inclusion has been litigated; the conservative payroll convention is Basic + DA (+ food/other cash allowances where the state so provides). A structure with a deliberately low Basic (see the CTC-structuring trade-offs) also deflates the OT base – one more reason the Code on Wages pushes “wages” toward 50% of remuneration.
Step 2: Monthly → hourly (the divisor problem)
The standard factory convention:
Hourly ordinary rate = Monthly wages ÷ 26 ÷ 8
26 = paid working days in a month (weekly rest day is paid but not divided into), 8 = standard daily hours. Some establishments use ÷30, some use ÷(actual monthly hours ≈ 208). ÷26 gives the worker the highest rate and is the widely accepted factory convention; whichever your establishment uses, apply it consistently and write it into the wage policy – inconsistent divisors are the most common OT audit finding.
Worked example: ₹18,000/month factory worker
Ramesh earns ₹15,000 Basic + ₹3,000 DA = ₹18,000/month ordinary wages at a Pune factory. In March he works 22 hours of overtime.
| Step | Computation | Result |
|---|---|---|
| Hourly ordinary rate | 18,000 ÷ 26 ÷ 8 | ₹86.54 |
| OT rate (2×) | 86.54 × 2 | ₹173.08 |
| OT pay for March | 173.08 × 22 | ₹3,808 |
Compare the divisors to see why the choice matters: ÷30÷8 gives an OT rate of ₹150 (total ₹3,300) – the worker loses ₹508 on the month, ~13% less, from the divisor alone.
Two more March lines to watch: if any OT fell on his weekly rest day or a national holiday, most states require the 2× rate plus a substitute rest day (holiday work is a separate head from daily-limit OT – our Overtime Calculator handles day-type multipliers, batch entries, and both divisors). And the extra ₹3,808 is fully taxable salary – note it also counts toward ESI contributions but not the ESI eligibility ceiling (details).
The ceilings: OT is capped, not open-ended
The Factories Act caps total hours including OT – the classic limits are 60 hours in any week and a quarterly OT cap (historically 50 hours/quarter, relaxed by many states to 75-145 hours via notifications, with COVID-era relaxations making the state notification the only reliable source). Spread-over (start to finish including breaks) is capped at 10.5-12 hours/day depending on state.
For employers the practical checklist:
- Maintain an OT register (Form-based, per state rules) – hours, rate, amount, per worker per day.
- Get written consent where the state requires it for OT beyond limits.
- Pay OT with the wage cycle, not quarterly “adjustments” – deferred OT is unpaid wages.
- Never net OT against late-coming deductions – they’re separate heads and netting fails audits.
- Watch the quarterly cap – hitting it means hiring or rostering, not more OT; if OT is structural, the cheaper fix is usually headcount (Headcount Planning Calculator).
What changes under the OSH Code, 2020 (when it commences)
The Occupational Safety, Health and Working Conditions Code consolidates the Factories Act and S&E framework: it keeps 2× wages for OT, standardises the 48-hour week, extends OT eligibility more clearly to all covered workers, and raises the quarterly OT ceiling (125 hours in the draft rules). The Code has been enacted but its commencement has been pending for years – until your state notifies it, the Factories Act and your state S&E Act remain the operative law. Write policies against current law with a review trigger for the Codes.
FAQ
Is overtime taxable? Fully – it’s salary income, taxed at your slab in the month received. There is no OT exemption.
Can an employer give compensatory time off instead of 2× pay? For working on a rest day/holiday, a substitute holiday is typically required in addition to proper wages for the day worked. Comp-off in lieu of the statutory 2× premium for daily-limit OT is generally not a lawful substitute for factory workers – policy comp-off regimes are a white-collar practice, valid where statutory OT doesn’t apply.
Do salaried office employees get statutory OT? If covered by the state S&E Act and not in an exempt managerial/supervisory category, yes. In practice most mid/senior office roles are exempt and OT is a matter of company policy.
Convert salary to an hourly rate for contracts? That’s a different calculation from statutory OT (typically annual salary ÷ annual working hours) – use the Salary to Hourly Calculator for that, and the Overtime Calculator for statutory OT.
Calculators referenced: Overtime · Salary to Hourly · Headcount Planning · CTC Breakup. Based on the Factories Act, 1948 and state S&E Acts as in force at the time of writing; state notifications vary hour ceilings and divisor conventions – verify your state’s current rules. Not legal advice.
