How Should We Transition from Extra Pay to Compensatory Time Off for Managers?

Dear Sir/Madam,

I work as an HR professional in an IT firm with fewer than 30 employees. We used to pay employees an extra salary based on their hours of work when they stayed in the office to fix code issues, calculated from their gross salary. This included employees in the managerial cadre as well. Recently, management informed us that instead of paying an extra amount, we could offer compensatory time off (compoff). In India, it is not common to pay extra to managers. How should we handle this situation? I feel guilty for not researching this earlier and reporting it to them. Kindly guide me as I am now supposed to create a policy.

Thanks and Regards,

Overtime Payment for Extra Hours Worked

Overtime payment for extra hours worked is a mandatory provision under labor law in India. However, this does not apply to managers who have managerial powers. Although overtime at double the rate is applicable for extra hours beyond 48 hours a week, in establishments that work for less than 48 hours a week, it should be paid beyond the scheduled working hours. If you have 9-hour days and 45-hour weeks, then overtime should be paid for each hour exceeding 45 hours per week.

Compensatory Off for Working on Holidays

Compensatory off is available for working on holidays, along with overtime payment. There is no provision under the labor law stating that each extra hour worked shall be accumulated, and a compensatory holiday equal to those extra hours worked shall be given to the employees. Therefore, if the employees agree that instead of getting paid for the extra hours they work, they receive a compensatory off, then you can proceed with it. It should be introduced after taking the employees into confidence. It may be acceptable to those who would like to have long weekends, but not fair for those who need more take-home money.

Dear Madhu sir,

Thank you for your guidance. I understand from the message that, as per labor law, overtime payment is mandatory in India. However, I received a message stating, "According to the Kerala Shops and Establishment Act, IT companies are exempt from overtime and spread-over regulations as per the state government's notification under the IT Rules, 2002. Therefore, employers are not required to pay extra for overtime work in IT companies. However, compensatory offs are applicable to all companies, and there are no restrictions for employees to avail themselves of comp-off." Is this statement true?

Though the concept of 'compensatory off' in lieu of OT payment is not recognized under Indian labor legislations, some sort of 'French leave' kind of adjustments are in vogue in many establishments, at least at the 'shop floor levels' or 'HOD' levels if not at the company level as a policy. I remember in our company, we adopted this method at HOD levels, which is not accounted for in the legitimate leave accounts such as PL/EL. However, I know in some establishments, it's accommodated by converting those OT hours into special CL. This is being operated as some sort of working arrangements among the HODs and the colleagues downstream. It is common among supervisors upwards, if not at workmen levels, where either OT or certain incentive schemes (in lieu of OT wages), wherever possible on a 'piece rate' basis, are being followed with the tacit working arrangement with workmen or unions.

However, I believe no legal authorities are going to interfere if any establishment initiates formulating a leave category for managerial personnel as a compensation tool for extra hours of work. But the fact remains the first choice for employees is going to be monetary compensation or in-kind benefits like picnics, foreign tours, etc.

Understanding IT Industry Regulations

Your understanding that IT companies are exempt from overtime and spread-over regulations is incorrect. The IT policy allows for flexible timing, including permitting women to work at night, but there is no relaxation concerning working hours. It is a common misconception that the IT industry is beyond the scope of labor laws, leading to the false belief that employers can have employees work 10 to 12 hours a day without paying overtime wages. Employees are often unaware that they are considered workmen under the Industrial Disputes Act. This misinterpretation of the law results in them not demanding overtime wages.

Perception of IT/ITES Employees as Non-Workmen

Realistically, the majority of employees in the IT/ITES sector perceive themselves as not falling under the category of 'workmen' since they primarily perform their tasks using computers or laptops. Additionally, there is limited union representation, with only a few groups and top-tier organizations involved, rather than widespread coverage extending to lower-level employees.

Factors Contributing to the Absence of an Overtime Regime

Furthermore, flexible timings and work-from-home arrangements are prevalent. These factors likely contribute to the absence of an overtime (OT) regime in this industry.