Overtime Pay Confusion: Should It Be Based on Basic + DA or Gross Salary?

Overtime Calculation

To calculate overtime (OT), it can be based on the basic salary plus Dearness Allowance (DA) or on the gross salary.

First, determine the applicability of the Act under which you are liable to pay overtime to your employees/workers, and then review the provisions relating to OT payment.

Regards,
R.N. Khola

Overtime Calculation Formula

It's simple.

• 1 hr OT = (((Basic + DA) / 26) / 8) * 2

26 indicates the number of days in a month.
8 indicates the number of hours per day.

This formula is used in my company.

If your wage structure includes components other than Basic & DA, please let us know under which Act you are utilizing this formula for the proper enforcement of OT payment.

Regards,
R.N.KHOLA

Dear Member,

Sub-Sec (1) Sec. 59 of the Factories Act 1948 provides that where a worker works in a factory for more than 9 hours in any day or for more than 48 hours in any week, he shall, in respect of overtime work, be entitled to wages at the rate of twice his ordinary rate of wages.

Sub-sec. (2) of Sec. 59 provides that "ordinary rate of wages" means the basic wages plus such allowances, including the cash equivalent of the advantages 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.

To calculate overtime: Basic + DA / 30 = one day wages divided by 8 = 1 hour wages multiplied by 2, you get twice the rate of overtime.

R.L. Dhingra, Advocate & Labour Law Consultant, 09818309937

Your statement is absolutely correct and provides ideas to those who are calculating overtime based on Basic + DA.

Dear Mr. Dingra,

Under the Minimum Wages Act, wages are considered for 26 days, and this is also followed under the Gratuity Act. In payroll computations, we divide the wages by 26 to arrive at the loss of pay.

On the same basis, I was under the impression that for overtime (OT), the Basic + DA should be divided by 26 instead of 30. Kindly correct me if I am wrong.

Regards,
M.V. Kannan

Dear MV Kannan,

We divide the wages by 26 because it includes the weekly off days. When calculating overtime (OT), divide the monthly wages by 30, then by 8 to get the hourly wages, and multiply by 2 as the workman has to be paid at twice the rate. In the case of employment in agriculture, it should be multiplied by 1.5 times.

RL Dhingra, Advocate and Labour Law Consultant, 09818309937

Our company is already paying basic wages lower than the minimum wage as decided in our zone. However, when looking at the gross pay, it appears to be higher than the minimum wage. Due to the basic wages being below the minimum wage, we have been calculating overtime based on the gross pay only, and that too at a single rate, not double. Is this arrangement acceptable?

I look forward to your reply.

Thanks & Regards,

Sandeep Patel
(M): [Phone Number Removed For Privacy Reasons]

Kindly note that the term "Ordinary Rate" refers to gross salary, but the labor officers allow calculation based on Basic + DA.

Kindly note that the term "Ordinary Rate" refers to gross salary, but the labor officers allow calculation based on Basic + DA.

Dear All,

Overtime (OT) will be calculated on Basic + DA + any other fixed allowances like House Rent Allowance (which is paid monthly and on a regular basis). Any fixed allowance paid on a monthly basis, please check with the law of the land before OT exemption.

Thank you.

In my point of view, overtime is calculated based on the gross salary, i.e., gross salary/26/8 * working hours * 2. Here, 26 represents the number of working days, 8 stands for the number of working hours, and 2 indicates twice the rate of wages.

Thanks & Regards,

Sumit Kumar Saxena

Do we need to add HRA into ordinary wages when calculating OT wage?

Thank you.

Overtime Calculation as per Factory Act 1948

As per the Factory Act 1948, overtime (OT) should be calculated on the ordinary monthly wage (Basic + DA + HRA + other allowances) using the formula: Gross/26 days/8 daily working hours * OT hours done * 2 (twice).

Payment for Overtime

In the Factory Act, 1948, Section 59 states that where a worker works in a factory for more than nine hours in any day or for more than 48 hours in any week, he shall, in respect of overtime work, be entitled to wages at the rate of twice his ordinary rate of wages.