Overtime calculation - formula mentioned in factory act or minimum wage act?

Dear Sir/Madam,

I observed that most organizations calculate overtime using the salary formula of 26/8 * ot hours * 2. I would like to know if this formula is mentioned in the Factory Act, Minimum Wage Act, or any other labor law. If so, could you please provide me with the relevant provision?

Thank you.

Dear Mitesh Makwana,

Please note that OT payment is paid at double the rate on gross salary. Kindly refer to the Minimum Wages Notification applicable to your establishment for clarity.

Yes, there is a specific provision in the Factories Act (refer to sections 52 to 58) that outlines how the computation is to be done.

Most employers consider 26 working days in a month, accounting for 4 Sundays. They typically divide the monthly salary by 26 to calculate the daily salary. This daily rate is then divided by 8 hours to determine the hourly rate. Overtime should be paid at twice this hourly rate.

Overtime is double the wages (basic + DA), not double the gross salary.

Sebastian,

Where did you get that information from? Please do not put anything that is not supported by the law of the land or specifically against what is actually in the law.

Dear Mitesh,

Juxtaposing the Minimum Wages Act, 1948, and the Factories Act, 1948 regarding the issue of overtime payment, you can find the saving clause under subsection (2) of section 14 of the Minimum Wages Act, 1948, prohibiting the prejudicial operation of the provisions of section 14 wherever section 59 of the Factories Act, 1948, is applicable.

Coming to the observation of Sebastian, it is not correct to take into account only the components of basic and D.A. in computing the overtime rate of wages in view of the meaning assigned to the term "ordinary rate of wages" under section 59(1) of the Factories Act, 1948.

Dear Sir/Madam,

Most organizations calculate overtime using the salary formula of 26/8 * ot hrs * 2. I want to know if this formula is mentioned as 26 or 30 in the Factory Act, Minimum Wage Act, or any other labor law. If yes, could someone clarify this provision, please?

Regards,
Shivakumar

If someone is a monthly rated employee, the daily rate of wages may be calculated by dividing the monthly rate by 30 or 28, 29, 30, or 31 depending on the number of days in a month. The monthly rate of wages can also be determined by multiplying the monthly rate wages by 12 and then dividing by 365 or 366, as the case may be when overtime (OT) will be paid. The hourly rate will be determined by dividing the daily rate by 8.

If the employee is a daily rated employee or an hourly rated employee, then there will not be any issue. In this case, to arrive at the monthly rate, the daily rate should be multiplied by 26.

Mr. Umakanthan has mentioned that OT amount should be paid on the "Ordinary rate of wages," not only on Basic and DA, which I also agree with.

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