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

Can you please help me with the calculation of overtime? Do we pay overtime on the gross payable salary or only on the earned basic + DA amount for the month?

For example: Gross/26/8*OT hours*2 OR Basic + DA/26/8*OT hours*2

Thank you.

Ideally, overtime should be paid on gross wages only.

Understanding the Ordinary Rate of Wages

The ordinary rate of wages, as per Section 59(2), shall be deemed to include the Basic Wage plus Dearness Allowance plus all such allowances that are fixed and part of monthly salary components. It shall also include House Rent Allowance. If food grains or edible oil are provided at a concessional rate, then the cash equivalent of such concessions may be considered. Any other allowance, such as travelling, education allowance, sickness allowance, etc., that is paid as part of the monthly salary component should be included. However, the ordinary rate of wages does not include Bonus or wages for overtime work.

Source: Google.

Overtime Payment According to the Factories Act

Overtime is paid on the normal monthly Basic + DA at double the rate. On allowances, it is not paid (in my opinion). However, I am providing below the relevant section of the Factories Act:

Section 59. Extra Wages for Overtime

(1) Where a worker works in a factory for more than nine hours in any day or for more than forty-eight 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.

(2) For the purposes of sub-section (1), "ordinary rate of wages" means the 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.

Warm Regards,

Bharat Gera
HR Consultant
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Dear Members,

I agree with VS Anju. The "ordinary rate of wages" is the basic wages plus the allowances to which a worker is entitled for the time being. It includes all allowances to which an employee is entitled on a monthly basis.

In a salary structure comprising Basic+ DA+ HRA+Conveyance+Special allowance, all being paid as a monthly salary, overtime should be paid on all.

Regards, Puran