Overtime Payment Dilemma: How Should HR Handle Single Rate vs. Double Rate Dispute?

We are from a power plant in Gujarat. We have one contractor who supplies manpower to the Maintenance department. While processing their legal compliance documents, it has been observed that they have paid only a single rate for overtime and not a double rate. Their claim is that while issuing a PO to them by the procurement department, a double rate for OT was not given in their PO, and hence, they cannot extend that to the contract worker.

Steps to Address Overtime Payment Issue

As an HR head, can I take the following steps: We shall clear the invoice of the said contractor to avoid any CW issue for wage payment. At the same time, we can ask the user department to proceed with a Purchase Requisition - Purchase Order for Overtime, which will be compiled against the double payment through PR-PO with retrospective effect. Seeking your suggestions.

Dear Colleague,

This is a common compliance gap found in many factories by the contractors and, in some cases, even by the principal employers themselves. This is a serious violation, and if action is initiated by the government, it attracts penalties. Normally, the authorities take a lenient view, allowing the defaulters to escape from the provisions of penal actions.

As far as the given scenario is concerned, the user departments will not take this seriously and will not give it much importance, leaving HR to struggle as a lone warrior. We have faced such complex situations, and what we did was create a separate PO for OT Payment at the double rate. Bill processing and payment are separated out. If wages are paid on the 7th of every month, the OT is paid on the 10th. Once they comply with double wages, etc., only the Contractor Margin will be released on the 15th after checking PF/ESI and other compliance requirements. Hence, what we need to improve are the checks and controls that will help.

Issuing Purchase Orders and Statutory Payments

While issuing a Purchase Order (PO) by the Principal Employer (PE) to a Contractor, is it mentioned to pay Provident Fund (PF), Employee State Insurance (ESI), Bonus, Gratuity, etc., to the employee? Probably the answer is "No."

Then why is it necessary to mention that overtime (OT) should be paid at a double rate, like PF, ESI, etc.? OT payment is also a statutory requirement, not at the discretion of the PE or Contractor. The Factories Act is very specific, and the Power Plant is also considered a Factory.

This is gross negligence and exploitation of the weaker partners of society (contract labor).

S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
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USD HR Solutions – To strive towards excellence with effort and integrity

Dear friends and senior members,

Though the exact solution to the problem depends on how the contract was negotiated and the management strategy, I would like to mention some points based on my practical experiences. Nowadays, working conditions and norms are dynamic, which sometimes leads to contradictory situations.

Manpower handling concerns

The manpower handling job has been a point of concern for a long time due to the involvement of various factors like negotiations, compliance, site/job requirements, personal perceptions, etc.

1. The negotiation is part of PSCM, focusing mainly on the L1 (Lowest One) offer to optimize costs, often paying little attention to compliance. Previously, such jobs were negotiated on a lump sum basis (fixed value contract), where the contractor was supposed to independently handle all compliance, and the PE was least involved. In this pattern, labor exploitation was high. However, now proper compliance is done based on Service Charges (% on CTC as per actual deployment).

2. Due to the increasing scope of labor laws, in recent years, the HR Department is also involved in activities such as employment details, labor compliance, recruitment, and compensation & benefits.

3. The project people (Operation Team) are likely to depute personnel and vendors as per their requirements to ensure smooth operations without any hassle. Moreover, sometimes they have personal favors as well (in connection with vendor engagement and personnel deployment).

Considerations for costing approval

If the "Double OT" is not considered in the CTC/Price of work, how can we expect the contractor to pay the same? Moreover, in project costing, management approval is taken for site-specific POs. If these points are not considered in the "Costing approval," then there is no value in the PO, and HR can’t process the bills.

Therefore, while taking costing approval, it is recommended to consider all components properly (number of projected personnel, expected OT, statutory compliance, expected rate revisions under MW Act, etc.). It is better to take some higher amount approval and process the bills as per the actual and certified CTC.

I do agree with Pan Singh that the issue depends on how the contract was negotiated. USD HR Solutions outsourced about 200 employees of MNCs and Indian organizations through their payroll, and the payment terms are negotiated and finalized as follows:

Payment Terms

Monthly Gross + Employer portion of PF (as per PF and Misc. Act) + Employer portion of ESI (as per ESIC rules and regulations) + OT if any (as per Factories Act or S & E Act) + Statutory Bonus as and when payable (as per Payment of Bonus Act) + Gratuity as and when payable (as per Payment of Gratuity Act) + Leave encashment as and when payable (as per Factories Act/S & E Act) + Any other payment if specially directed by PE + Retrenchment benefit payable to contractual employees + Service charge fixed per employee per month or % basis + GST on the whole amount including Service Charge - monthly invoice. Payment is made by PE after deduction of TDS.

In the above process, there will be no need for a PO for each item. Moreover, if there are any changes in PF, ESIC, Gratuity, Bonus, Leave encashment, Retrenchment benefit, etc., during the operating period of the agreement, it will not be an issue. There will be a renewal procedure at the end of the year or as agreed upon by the parties - PE and Service Provider.

Regards, S K Bandyopadhyay

Dear Salil,

Get one point clear, and take this up to the top management.

Contractor's Liability for Overtime Payment

The contractor is liable to pay double-rate OT regardless of whether it was included in the PO and whether he is being reimbursed for it. The law does not consider how he priced his contract or negotiated it.

Potential Consequences of Non-Compliance

Furthermore, in the event of a complaint by even one worker to the Labour Commissioner, the department will conduct an investigation and ensure the payment of the differential for the past three years. They will likely scrutinize your entire payroll, identify any issues, and issue a show-cause notice and a demand.

If the contractor fails to make the payment, the principal employer (your company) will be responsible for it, and no excuses will be accepted.

Recommended Actions

Therefore, you need to take the following steps:

- Bring the matter to the attention of the HR Head, Contract Cell Head, Legal Head, and other relevant managers.
- Request the contractor to pay double-rate OT. Whether you choose to withhold his payment is your decision. Consider the HR Head's input as non-payment of wages would have a significant negative impact.
- Inform the contract cell or the person issuing the PO to ensure this issue does not recur.