Wages for Overtime Calculation
Wages for the purpose of overtime calculation shall include all allowances as per the contract of employment. Therefore, if the employee is given HRA separately as a compensatory allowance to meet the cost of staying in leased accommodation, then only the same can be excluded from the scope of wages. Similarly, a conveyance allowance paid to reimburse or compensate the cost of travel to and from the factory can be excluded.
Special Allowance Consideration
Special allowance is an allowance paid only to some categories of employees who possess special skills. If the employee to whom a special allowance is paid works overtime, naturally, his overtime allowance should be calculated on the wages including the special allowance. It is also an accepted rule that an allowance paid to all employees universally should be part of basic wages.
Simply put, if the HRA, conveyance, and special allowance are subjected to proportionate deduction in the case of absence without leave/without pay, they are part of the salary only, and in such a scenario, the gross salary inclusive of allowances should be considered for overtime calculation. On the other hand, if HRA is paid to a particular employee as per a separate arrangement, then that amount is practically an amount payable even if the employee is absent without leave for a few days. Obviously, if he works overtime, the landlord will not ask for enhanced rent. Similarly, if an employee is paid a traveling allowance for the days physically present at a prescribed rate, the same is not required to be paid for overtime working because, in order to do the overtime work, he is not going back and coming again so that he will incur additional expenditure.