Understanding Overtime Pay: Should It Be Based on Basic or Gross Wages?

As per Section 59 of the Factory Act, Section (1) - Where a worker works in a factory for more than nine hours in any day or for more than forty-eight hours in a week, he shall, in respect of overtime work, be entitled to wages at the rate of twice his ordinary rate of wages.

Query: Do ordinary wages refer only to basic wages or gross wages?

Thanks, sir, but we have a shortage of staff. Consequently, there is more overtime being generated, leading management to consider controlling leave to limit overtime.

Hi Anantha,

Definition of "ordinary rate of wages"

The definition of "ordinary rate of wages" in the context of labor laws, such as the Factory Act, can vary by jurisdiction. However, in many cases, it refers to the basic wages or the basic rate of pay. Basic wages typically exclude additional components like bonuses, allowances, overtime pay, or any other special remuneration.

It's crucial to consult the specific labor laws and regulations applicable in your region, as definitions and interpretations can differ. In some jurisdictions, the ordinary rate of wages might include a broader range of components, so it's important to refer to the labor laws to determine the exact meaning in your context.

Thanks,

Overtime Allowance Calculation

Overtime allowance should be calculated based on the salary paid when the employee works on a given day. It should correspond to the salary used as the base for deductions in case of absence or loss of pay. Allowances such as house rent or conveyance allowances, which serve specific purposes and are included in the salary, can be excluded from the calculation of overtime wages. This exclusion is justified by the fact that performing overtime work does not result in the employee incurring additional rent or travel expenses. Therefore, the standard practice is to compute overtime wages using the basic pay and dearness allowances exclusively.

Hi Madhu T K, Thank you for the details.

Query on 12-hour shifts and payment options

I have one query regarding the current trend where many factories are implementing 12-hour shifts as the standard shift. In this scenario, there are two payment options:

1. Payment should be based on ordinary wages without overtime for the 12-hour shift.
2. Payment could be structured as 9 hours of regular pay plus 3 hours of overtime.

Could you please provide guidance on which approach would be appropriate in this situation?

Thank you.

Overtime Wages and Legal Compliance

Overtime wages should be paid for the hours exceeding 8 hours and not 8 hours. What the law states is that overtime wages should be paid for working beyond 9 hours in a single day or 48 hours in a week. Every hour exceeding 48 hours should be paid at double the rate of wages. Therefore, if an employee who has done overtime on a day, say 10 hours, remains absent (not on leave with pay), then he may lose his overtime entitlement because he should have worked less than 48 hours in that week.

Non-Compliance with Extended Work Hours

Again, when you engage workmen for 12 hours every day, there is non-compliance since the total hours, including the overtime hours in a week, should not exceed 60 hours or 75 hours in a quarter. If you have a shift of 12 hours with 4 hours overtime at double the rate, then also the authorities can interfere. If you have work that requires 12 hours every day to accomplish, you should engage additional labor and cannot get it done with the existing workers even if they are ready to do overtime.