Can Companies Replace Overtime with Compensatory Time Off? Seeking Legal Guidance and Insights

Hi everyone, thank you for providing information in my last post. Please guide me on whether a company can eliminate its overtime culture completely. Instead of offering overtime, can they provide compensatory time off and rename the pay head to recognize good work or as another allowance? Is this practice acceptable? If so, please assist me by indicating the relevant sections and laws that allow us to implement this practice, or if it is not permitted, kindly advise on the appropriate way to adjust overtime while still complying with the government's regulations on overtime. I'm from Chandigarh. It would be appreciated if you could include the sections and laws along with the answers.

Dear Poonam, the 2nd, 3rd, and 4th sentences of your post are not just contradictory but confusing too. In the 2nd sentence, you write that you could do away with the OT culture completely. But then in the next sentence, you ask for the compensatory off (Comp off). However, comp off is always given for overwork. Why are employees overworking? If they are overworking, then how could you do away with the OT culture?

The 2nd and 4th sentences contradict each other. You wanted to insert a new head in the payslip for "good work allowance." This is notwithstanding doing away with the OT culture.

I recommend you write clearly about the correct position and your request as well. Substituting OT with some other code in the payslip does not serve any purpose. You need to do a Root Cause Analysis (RCA) of the problem of OT. To do so, you may click here to refer to the reply to my past post.

Subsequently, you have written, "kindly guide me the appropriate way to manipulate overtime." Well, madam, this forum is not for providing suggestions on manipulations. This forum is for professionals, and professionals do not suggest tricks or loopholes in the law. I request you to look for a different forum.

Thanks,

Dinesh Divekar

Dear Poonam, we are expected to do things only as the law says, and if we fail to do so, or do it in any other way that suits our convenience, it is not compliance but sheer contravention that would be visited with a penalty. Therefore, no intelligent manipulation can substitute effective compliance. If overtime work is a regular feature of an entity, it is indicative of managerial deficiencies such as inadequate manpower planning, loose work schedule, improper supervision, or control, and the like.

Understanding restrictions on overtime work

The restrictions on overtime work should be understood by every employer in the right perspective. Firstly, the restriction on its duration per day/week/quarter is only to avoid excessive physical strain on the workers and ensure them sufficient leisure after long working hours. Secondly, the enhanced rate of normal wages prescribed for overtime work is to discourage the practice of extracting more work from the same workers instead of engaging the services of additional workforce on normal wages, thereby creating more employment.

Provision for overtime work

The provision for overtime work is only a concession to meet emergencies and not a privilege to defeat the purpose behind the concession.

Dear Madam, It is presumed that your establishment is either a factory or a commercial establishment. In which case, you come within the purview of the Factories Act/State Rules or States Shops and Commercial Establishment Act/Rules.

Under the respective applicable law, you are governed by daily/weekly hours, spread over, and daily/weekly/quarterly limits of permitted overtime hours.

As regards overtime work done, the law only prescribes twice the rate of payment and no compensatory off in lieu of it. So legally, it is not permitted. It is better you give up thoughts of doing something against the law.

To stop or control the so-called "overtime culture," it is entirely in your hands through better planning and scheduling of workflow, supervision, and monitoring. Workers have no say in it. If you get your acts well together, the OT culture will fade.

As regards compensatory off, it is required to be given for working a full day on a weekly off day/paid holiday as a substitution. If you are thinking of combining overtime work done on different days and giving compensatory off in order to wriggle out of the double rate of payment, it would amount to a violation of the legal provisions, inviting prescribed punishment.

You also want to scuttle the law by renaming OT payment by disguising it with a different pay head.

Your intentions of doing what is stated in your post either are unclean or arising out of ignorance of the prevailing law.

It is better you act within the ambit of the law in the light of the views expressed on your post by the learned colleagues.

Regards, Vinayak Nagarkar

HR and Employee Relations Consultant

Thank you all for your valuable advice.

I am quite confused about what exactly my HR head is willing to do. However, I am responsible for keeping my management updated and informed about the compliances. I want to have a clear knowledge of what exactly we can or can't do. Our new payroll manager and HR head, in the name of cutting down the company's costs, have suggested a few changes in the compliances and policies.

Suggestion to Stop Paying Overtime

The foremost suggestion is to stop paying overtime to every employee. We will pay overtime only to two departments after the implementation of the revised overtime policy, and they want to pay normal wages for the extra hours worked, not as per the law, i.e., double the wages. Since we will not comply with the law, our manager has suggested changing the overtime pay head to productivity incentives or other allowances. For the rest of the employees, HR wants to give compensatory time off in lieu of the extra hours worked, instead of double wages.

I completely disagree with this approach because I know that by law, we have to pay double the wages for overtime and compensatory time off, in addition to normal wages for days off, and double wages on public holidays.

Overtime for Administration and HR Personnel

Do administration and HR personnel also receive overtime pay?

Experiences in Tackling Overtime and Compensatory Off

Speaking with a fair amount of success in tackling overtime (OT) and dealing with Compensatory Off (C. Off), I want to share some of my experiences:

1. OT is a disease, and soon it becomes a matter of right for employees. Many unhealthy practices develop.

2. Instead of OT, we developed a practice of giving C. Off, which also degenerated over time.

3. We are an engineering industry, and there are certain standard hours fixed for each manufacturing activity (like machining, welding, fitting, etc.). Every workman has to give output worth 208 hours every month. Due to increased efficiency and slackness in the standard hours fixed, many employees started producing output in excess by 20-30% every month, leading to demands for compensation. Mind you, the entire work was normally finished within the normal working hours. So, we introduced an incentive scheme and gave attractive amounts for working at more than 100% efficiency. There was no formal record of the C. Off earned, and it was managed informally by marking them as present while they availed C. Off.

4. However, during month-end, quarter-end, and year-end, employees used to work on weekly off days and were compensated with C. Offs. Although initially, the rule was to avail the C. Off immediately thereafter, over time, the workmen accumulated them and availed it at their convenience. This often created problems, and employees sometimes demanded C. Off as a matter of right for every small piece of extra work. So, you have to be very cautious in implementing it.

5. Although Section 59 of the Factories Act 1948 makes it mandatory that OT wages are payable for working in excess of 9 hours per day or more than 48 hours per week, there is a judgment of the AP High Court stating that there cannot be both OT and a compensatory holiday. (I will have to search for it, probably from the mid-80s.) So, applying that logic, it has been possible to argue that where a compensatory holiday is given for working on a weekly off day, there is no need for payment of OT. Fortunately for us, this matter never got challenged seriously in a legal manner as the employees, in general, were happy, and everybody treated OT as anathema.

The Misuse of Compensatory Off Practices

KK-HR's post is an eye-opener regarding the legally departed practice of treating overtime (OT) as Compensatory Off (C-Off) and how it has degenerated into abuse and misuse beyond repair. It is a great learning experience from live cases, worth not repeating by any organization.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

Hi all,

The act was established in 1948, and at that time, workers were mostly unaware of the law. Nowadays, everyone is knowledgeable about the law, and workers are intentionally manipulating their overtime, which is beyond the supervisor's control. Let me provide a scenario:

For a shift requiring three persons and one reliever, once the shift is set, workers now plan to earn more wages as follows: Worker 2 will be absent, and Worker 1 will continue, receiving normal pay for one shift and extra shift overtime as per the rules. Then, Worker 2 will repeat the same on another day with Worker 3, and this cycle continues. The reliever will cover the general shift due to unplanned absences or when someone is on their day off.

This results in additional overtime payments to employees, which the supervisor cannot control, as workers deliberately do this two or three times a month.

Shifts planned and executed are as follows:

Su Mo Tu We Th Fr Sa

Worker 1 A A B B C C WO

Worker 2 B B C C WO A A

Worker 3 C C WO A A B B

Worker 4 WO G A G B G C

Su Mo Tu We Th Fr Sa

Worker 1 A+B A Abs B C C WO

Worker 2 Abs B C C WO A A+B

Worker 3 C C WO A A+B B Abs

Worker 4 WO G A+B G Abs G C

According to the plan, 28 mandays should be paid in a week, but in this scenario, 24 mandays and 32 OT hours at double wages are required, resulting in an extra 32 hours of wages. This cost increases significantly when extended to a month or other shifts.

While the HR team must control this, the blame falls on HR for the rise in payroll costs, even though supervisors plan the shifts and HR is the final checkpoint.

To prevent this without using compensatory off:

After incurring significant costs, we implemented compensatory off to gain control by providing compensatory off and introducing a general shift for the CO person as shown below.

Su Mo Tu We Th Fr Sa

Worker 1 A+B CO Abs B C C WO

Worker 2 Abs B C C WO A A+B

Worker 3 C C WO A A+B CO Abs

Worker 4 WO A A+B CO Abs B C

We still need to provide 8 hours of OT at double wages and 27 mandays.

Please advise if we should proceed with Comp Off. If challenged, how should we address this unethical worker practice in a labor market with a shortage of workers?

Venkat.

The imprudence of renaming overtime in payslips

The plan to change the name of overtime on payslips to something else is imprudent and counterproductive. There are obviously records of in and out times and the fact that the employee worked overtime. They have to be paid overtime in accordance with the law.

It only takes one complaint by an employee for the house of cards to fall apart.

Incidentally, if you pay extra under 'Good work allowance' for the additional hours, when an inspection occurs and there is proof that overtime was worked, the company will be obligated to pay it again, regardless of what was previously paid. In addition, there may be penalties and prosecution for payroll fraud.

Overtime applicability in the factory

As for the other question, overtime applies to every person in the factory except the factory manager or occupier, as everyone else is a worker and, therefore, overtime regulations apply. It is irrelevant whether the individual is a staff member, manager, officer, associate, or any other title. Every person in the factory is considered a worker.