Overtime Wage Confusion: Should Allowances Be Included in the Ordinary Rate?

Hi, does the ordinary rate of wages (for overtime calculation in an industry) include allowances like canteen allowance, conveyance allowance, mining allowance, washing allowance, etc.? What I really want to know is, among the following, which one is correct?

1. Overtime wage = 2 (Basic + DA + all other allowances)
OR
2. Overtime wage = 2 (Basic + DA)

Help me clear my confusion.

I have not received a reply yet. I have gone through various posts on this site regarding overtime calculation, but I am still confused. I think the first option is the correct one. Please correct me if I am wrong.

Understanding Overtime Wage Calculation

In general, the first option is correct. If your establishment is covered under The Factories Act, 1948, then refer to section 59(2) for the "ordinary rate of wages." First, examine the applicability of the act under which you are liable to pay overtime, and then refer to that Act for the calculation of the amount of overtime.

Regards,
R.N.Khola

Dear all, Thanks for the response. Sorry that I haven't mentioned that my industry comes under the purview of the Mines Act 1952 (never thought that it is so complicated, though I have mentioned the mining allowance).

Section 33 of the Mines Act

1. Section 33 of the Mines Act says that OT wages = 2 (ordinary rate of wages).

Section 9A of the Mines Act

2. Section 9A of the Mines Act provides an explanation for the ordinary rate of wages as follows:

Explanation: For the purpose of this sub-section, "ordinary rate of wages" means the basic wages plus any dearness allowance and underground allowance and compensation in cash, including such compensation, if any, accruing through the free issue of food grains and edible oils as persons employed in a mine may, for the time being, be entitled to. However, it does not include a bonus (other than a bonus given as an incentive for production) or any compensation accruing through the provision of amenities such as free housing, free supply of coal, medical and educational facilities, sickness allowance, supply of kerosene oil baskets, tools, and uniforms.

Don't you think that all the allowances are included? I think it even includes the production incentives. Can anybody interpret the above Section 9A for me?

Regards, Vipin

Dear Vipin,

Understanding Overtime Wages Payable

Overtime wages payable are calculated as basic + DA + all allowances, and it should be double. However, most organizations pay only basic + DA and interpret wages according to their requirements and understanding.

Definition According to the Factories Act, 1948

Sec. 59(2)(1) of the Factories Act, 1948, defines "Ordinary rate of wages" as basic wages plus such allowances, including the cash equivalent of the advantage accruing through the concessional sale to workers of food grains and other articles, as the worker is, for the time being, entitled to, but does not include a bonus and wages for overtime work.

In the above definition, the term "such allowances" is interpreted by organizations as an allowance similar to basic (which attracts PF, etc.), and hence they pay only basic + DA and do not include other allowances. So, based on this and keeping sufficient background to convince the Government authorities in case of inspection, a suitable discretionary decision may be taken to pay OT either by including all allowances or paying only basic + DA.

Regards,
K. Ramachandra
Bangalore

Dear all, Thanks for the replies and help. Through this forum, I would like to be absolutely clear. I am sorry if anybody feels as if I am repeating the question or the explanation provided.

Understanding Section 9A of the Mines Act, 1952

Section 9A of the Mines Act, 1952, explains that the "ordinary rate of wages" means the basic wages plus any dearness allowance, underground allowance, and compensation in cash. This includes any compensation accruing through the free issue of food grains and edible oils that persons employed in a mine may be entitled to at that time. However, it does not include a bonus (other than a production incentive bonus) or any compensation accruing through the provision of amenities such as free housing, free supply of coal, medical and educational facilities, sickness allowance, supply of kerosene oil baskets, tools, and uniforms.

Doesn't this mean the ordinary rate of wage is calculated as Basic + DA + underground allowances + cash compensation or allowances + cash equivalent of the free issue of food grains and edible oil (though free) + production incentives?

Regards, Vipin

As per logic, allowances that are fixed in nature and are not linked to the basic pay for their calculations may not be considered for overtime, since these are fixed and are already paid with the ordinary rate of wages.

All other allowances which depend upon the basic pay for calculation may be taken into consideration, as these vary with the basic pay and should also be part of overtime calculations.

Am I right?

Vipin and Surendera,

With the above explanations and clarifications provided by me earlier, and no more confusion, in the interest of both the company and workers, the following discretionary decisions may be taken:

1. Ordinary wages - basic + DA + other allowances that are fixed and are part of the monthly salary components should be considered for overtime pay.

2. Incentive - if it is variable and related or linked to attendance, it need not be considered.

3. If food grains or edible oil are provided at a concessional rate, the cost of which may be considered for inclusion in the overtime pay; if they are provided for free, as no cost is involved, this does not need to be considered.

4. If any other allowances like education allowance, sickness allowance, etc., are being paid as part of the monthly salary component, they should be taken into account. If they are paid quarterly or annually as a welfare measure, they need not be considered.

Mr. Vipin may make a decision based on the above without any further confusion. If government authorities question any issues at a later date, they can be appropriately addressed by either convincing them or paying the dues to the concerned.

Hope this is clear.

Regards,
K. Ramachandra - Bangalore