Overtime in India is paid at twice the rate. Almost every article on the subject says that and stops, which is why so many overtime calculations are wrong: the rate was never the hard part. The base was.
Since 21 November 2025 the wage figure that the doubling applies to has changed for a large share of Indian salary structures, and most payrolls did not change with it. A company still computing overtime on basic salary alone, on a structure with a low basic and a large allowance stack, is under-paying by a wide margin, per hour, per person, and has been since the codes came into force.
This piece works through the whole calculation: when overtime starts, what the base actually is now, how the hourly rate is derived and which divisor to use, the rounding rule that runs in the employee's favour, and where overtime does and does not enter your statutory computations. The worked example is arithmetic you can check.
Positions are current at August 2026 and reflect the Labour Codes as brought into force on 21 November 2025 and the Central Rules notified on 8 May 2026. State rules under the codes are still being notified and several positions below are state-specific, including the quarterly ceiling on overtime hours. Your state Shops and Establishments Act was not repealed and continues to apply. Confirm anything state-specific with your advisor before you act on it. Nothing here is legal advice.
The short version, before the detail.
Overtime pay in India is not less than twice the normal rate of wages, under Section 14 of the Code on Wages, 2019. It becomes payable after eight hours in a day or forty-eight hours in a week, whichever is crossed first, and both tests apply independently. The rate is the straightforward part. The base is where most payrolls go wrong: wages means all remuneration less a closed list of exclusions, which is normally more than basic salary and less than gross. On a ₹40,000 monthly structure with ₹8,000 of house rent allowance and ₹3,000 of conveyance, wages are ₹29,000, the hourly rate is ₹29,000 divided by 26 and then by 8, or ₹139.42, and overtime is ₹278.85 an hour. The same payroll computing on basic alone pays ₹153.85, and the gap accumulates every hour, for every person, since November 2025.
What the Law Actually Says
Section 14 of the Code on Wages is the provision. Where an employee's minimum rate of wages has been fixed by the hour, by the day, or by a longer prescribed wage period, and the employee works in excess of the normal working day, the employer shall pay for every hour or part of an hour so worked at an overtime rate not less than twice the normal rate of wages.
Three parts of that sentence do work, and it is worth being precise about them because the imprecise version is what produces wrong payments.
"Not less than twice." Twice is the floor, not the rate. A contract, a settlement or a company policy can provide more and then that is what is payable.
"Every hour or part of an hour." Part-hours are payable. How they are counted is prescribed, and section 7 covers it.
"Whose minimum rate of wages has been fixed." This is the qualification that careful readers notice and most coverage omits. Section 14 is drafted around the minimum rate. For an employee paid well above the minimum wage, the doubling under this section is not the whole story, and the entitlement is generally driven by the statute covering their establishment, which for most white-collar workplaces is the state Shops and Establishments Act, together with the contract. In practice almost every state Act also prescribes twice the ordinary rate, so the answer usually converges. It converges on the rate, not on the base, and the base is where the differences live.
The Factories Act, 1948 no longer supplies any of this. It was repealed by Section 143 of the Occupational Safety, Health and Working Conditions Code on 21 November 2025, along with twelve other statutes. An overtime policy still citing Section 59 of the Factories Act is citing a repealed provision, which is cosmetic until somebody relies on the section number to answer a question.
When Overtime Starts: Two Tests, Both Binding
Eight hours in a day, or forty-eight hours in a week, whichever is crossed first. Both limits bind independently, and this is where attendance systems configured before the codes get it wrong.
A system that computes overtime weekly will miss an employee who worked ten hours on Monday and took Friday off. Their week totals forty-two hours, under the weekly limit, and they are still owed two hours of overtime for Monday. The daily test does not switch off because the weekly one is satisfied.
Two related limits sit alongside it. Spread-over, the elapsed time from the start of work to the end including breaks, may not exceed twelve hours in a day. And one day of rest in every week is mandatory, with no worker going more than ten days without one where a rest day is substituted.
The state overlap that catches white-collar employers. Every state has its own Shops and Establishments Act and none of them was repealed by the codes. Most state Acts allow nine hours a day; the OSH Code sets eight. Where both apply, the limit more favourable to the employee governs the point at which overtime starts. A number of Indian employers are running nine-hour standard days and treating the ninth hour as ordinary time on the basis of a state Act, in circumstances where the code makes it overtime. That is the single most consequential unnoticed exposure in this article. The fuller treatment of the overlap is in attendance compliance after the Labour Codes.
Coverage is not a question of being salaried or hourly. It turns on whether the person is a worker or employee within the statute that applies to your establishment, and most state Shops and Establishments Acts cover a wider range of office staff than employers assume, commonly excluding only those in a genuinely managerial or confidential capacity. The test is the actual nature of the role rather than the designation on the offer letter, so labelling a team lead a manager does not by itself remove an overtime entitlement.
The Base: What Normal Rate of Wages Means Now
This is the section that matters.
The Code on Wages introduced a single definition of wages that runs across all four codes. Wages means all remuneration, and includes basic pay, dearness allowance and retaining allowance. It then excludes a closed list: statutory bonus, the value of house accommodation and amenities, employer contributions to provident fund or pension and interest on them, conveyance allowance or travelling concession, sums paid to defray special expenses, house rent allowance, remuneration under an award or settlement, overtime allowance, commission, gratuity on termination, and retrenchment compensation or other retirement benefit.
Two consequences follow, and both cut against how most Indian payrolls are configured.
Wages is not basic. It starts from all remuneration and subtracts a specific list. An allowance that is not on that list is wages. A special allowance, which is the component Indian salary structures use to hold everything that did not fit elsewhere, does not appear on the exclusion list and is therefore part of wages. Payrolls that compute overtime on basic alone are using a base that is often far below the statutory one.
The exclusions are capped at one half. Where the payments under the excluded clauses exceed one half of all remuneration, the excess is deemed to be remuneration and is added back into wages. So a structure that pushes more than half of pay into excluded components does not achieve what it was designed to achieve. It gets the add-back instead.
Note the last exclusion in the list, because it prevents a compounding error: overtime allowance is itself excluded from wages. Overtime does not raise the base on which the next month's overtime is computed, and it does not enter the wage figure for provident fund or gratuity. Section 8 deals with where it does count.
The Hourly Rate, and the Divisor
Once you have the wage figure, the hourly rate is that figure divided by the hours in the period. For a monthly-rated employee the convention that has carried over from the minimum wage rules is:
Hourly rate = monthly wages ÷ 26 ÷ 8, which is 208 hours a month.
The 26-day divisor exists because the monthly wage is treated as payment for 26 working days, with the weekly rest day paid but not counted as worked. Using 30 or 31 days instead produces a lower hourly rate and therefore a lower overtime payment, which is the direction a dispute will go against you. Using the actual working days in each month produces a rate that changes every month for no reason the employee can follow.
For a daily-rated employee the equivalent is the daily wage divided by the normal working hours in the day. For a piece-rated employee it is the average earnings, and that computation is prescribed rather than obvious, so check it rather than deriving one.
Whichever divisor you use, use one, write it into the policy, and use the same one for overtime, leave encashment and any other daily-rate computation. Two divisors in one payroll is a method error of the kind covered in common payroll errors and how to prevent them.
A Worked Calculation
An employee with a monthly gross of ₹40,000, structured as basic ₹16,000, house rent allowance ₹8,000, conveyance allowance ₹3,000 and special allowance ₹13,000. They work 18 hours of overtime in the month.
Start with the wage figure. All remuneration is ₹40,000. The excluded components are HRA ₹8,000 and conveyance ₹3,000, so ₹11,000. That is 27.5 per cent of total remuneration, comfortably under one half, so no add-back applies. The special allowance is not on the exclusion list and stays in.
| Step | Amount |
|---|---|
| All remuneration | ₹40,000 |
| Less HRA | ₹8,000 |
| Less conveyance allowance | ₹3,000 |
| Wages for the overtime computation | ₹29,000 |
Then the rate.
| Step | Working | Amount |
|---|---|---|
| Hourly rate | ₹29,000 ÷ 26 ÷ 8 | ₹139.42 |
| Overtime rate | ₹139.42 × 2 | ₹278.85 |
| 18 hours of overtime | ₹278.85 × 18 | ₹5,019 |
The same payroll computing on basic pays a good deal less. ₹16,000 ÷ 26 ÷ 8 is ₹76.92 an hour, an overtime rate of ₹153.85, and 18 hours comes to ₹2,769.
The difference is ₹2,250 for one employee in one month. Nothing on the payslip indicates which of the two numbers is the right one.
If the structure had pushed more into excluded components, say basic ₹15,000, HRA ₹16,000, conveyance ₹6,000 and special allowance ₹3,000, the excluded total would be ₹22,000, which is 55 per cent of ₹40,000. The excess over half, ₹2,000, is added back, and wages become ₹18,000 + ₹2,000, or ₹20,000. That is the add-back rule working exactly as intended: the structure does not get to define the base.
What This Costs at Scale
Take the first example and put a hundred employees on it, averaging 20 hours of overtime a month, which is unremarkable in manufacturing, logistics, retail and hospitality.
| Computed on basic | Computed on wages | |
|---|---|---|
| Overtime rate per hour | ₹153.85 | ₹278.85 |
| Per employee, 20 hours | ₹3,077 | ₹5,577 |
| 100 employees, per month | ₹3,07,700 | ₹5,57,700 |
The shortfall is ₹2,50,000 a month, or ₹30,00,000 a year.
That is the arithmetic, and it is why this article spends more space on the base than on the rate. The exposure is not theoretical either. Under the Code on Wages a claim can be brought within three years of the date it arises, extendable for sufficient cause, a single application may cover any number of employees, and the authority hearing it may award compensation in addition to the claim of up to ten times the amount determined.
The check to run is one month of raw punch data, overtime hours computed independently, against what payroll actually paid. In the migrations we run this is the check that finds money, and it finds it in both directions: hours worked and not paid, and overtime paid on shifts the muster roll cannot evidence. The first is a liability; the second is an audit finding.
Rounding, Timing and the Quarterly Ceiling
Rounding is prescribed and it runs towards the employee. Under the Central Rules a period of overtime between fifteen and thirty minutes counts as thirty minutes, and anything beyond thirty minutes counts as a full hour. A system that pays actual minutes worked is not being neutral, it is under-paying against a prescribed rule, and it is doing so in a way that is trivially demonstrable from your own punch data.
On timing, overtime is payable at the end of the wage period in which it was worked, not in an arrears run two months later. Deferring it is a payment-timing default in its own right, independent of whether the amount eventually paid is correct. Wage periods may not exceed a month, and for a monthly wage period payment is due before the expiry of the seventh day of the following month.
The quarterly ceiling is the one question you cannot answer from the central position alone. There is a limit on total overtime hours in a quarter, the codes leave it to be prescribed by rules, and most state rules are still in draft. The repealed Factories Act capped it at fifty hours a quarter, with several states having notified higher figures, and draft state rules have carried figures well above the old cap. Until your state notifies, treat your old state limit as the working assumption and confirm it before you plan a season around overtime.
Consent matters too, because overtime is not something an employer can simply require without limit. Night shifts, women's employment at night and the conditions attached to both moved under the codes in a more permissive direction than the Factories Act allowed, subject to consent and to safety and transport conditions prescribed by state rules. If you run night shifts, that is a state-rules question worth asking specifically rather than assuming either the old prohibition or a blanket permission.
Where Overtime Counts, and Where It Does Not
| Computation | Does overtime enter it? |
|---|---|
| Provident fund wages | No. Overtime allowance is excluded from the definition of wages |
| Gratuity | No, for the same reason |
| Leave encashment | No, on the same wage definition |
| The base for next month's overtime | No. Overtime does not compound |
| ESI contribution | Yes, where the employee is covered |
| Income tax and TDS | Yes. It is salary and belongs in the annual estimate |
| The wage register and the muster roll | Yes. Hours per person per day, the rate applied and the amount paid, all reconcilable |
Two notes on that table. On ESI, contribution is payable on overtime for a covered employee; whether overtime is counted when testing the coverage threshold itself has long been treated differently from whether it is counted for contribution, so confirm that against the current position for your state rather than assuming they are the same test. Our ESI calculation guide and the ESI compliance page carry the current rates and thresholds.
On tax, overtime is fully taxable salary with no exemption attached to it. Because TDS is deducted against an estimate of the year rather than against the month, a heavy overtime month raises the projected annual income and therefore the deduction for every remaining month. Employees generally read this as being taxed twice on the same overtime and it is worth explaining once rather than answering repeatedly. The mechanism is set out in TDS on salary, old versus new regime.
Questions People Ask
How is overtime pay calculated in India?
Take the employee's wages as defined by the Code on Wages, which is all remuneration less a closed list of exclusions including house rent allowance, conveyance and the value of accommodation, with an add-back where those exclusions exceed one half of total remuneration. Divide the monthly figure by 26 and then by 8 to get an hourly rate, and pay at least twice that for every hour worked beyond eight in a day or forty-eight in a week. On a ₹40,000 gross with ₹11,000 of excluded components, wages are ₹29,000, the hourly rate is ₹139.42 and overtime is ₹278.85 an hour. Eighteen hours of overtime in that month comes to ₹5,019. The same payroll computing on basic salary alone would pay ₹2,769 for the identical work. Part-hours are payable, and the prescribed rounding runs towards the employee: fifteen to thirty minutes counts as thirty minutes, and anything beyond thirty minutes counts as a full hour.
Is overtime calculated on basic salary or gross salary?
Neither, and this is the most common error. It is calculated on wages as defined by the Code on Wages: all remuneration less the specific exclusions. That is normally more than basic, because a special allowance is not on the exclusion list, and less than gross, because house rent allowance and conveyance are. A payroll computing overtime on basic alone is under-paying, and the shortfall accumulates per hour, per person, from November 2025.
What is the overtime rate in India?
Not less than twice the normal rate of wages. Twice is a statutory floor rather than a fixed rate, so a contract, settlement or policy providing more is enforceable at the higher figure. Part-hours are payable, and under the Central Rules a period between fifteen and thirty minutes counts as thirty minutes while anything beyond thirty minutes counts as a full hour.
After how many hours does overtime start?
After eight hours in a day or forty-eight hours in a week, whichever is crossed first. Both tests apply independently, so an employee who works ten hours on Monday is owed two hours of overtime even if their week totals only forty-two hours. Where your state Shops and Establishments Act allows nine hours a day and the OSH Code sets eight, the limit more favourable to the employee governs when overtime starts.
Are salaried employees entitled to overtime in India?
Often, yes. Entitlement does not turn on being salaried or hourly. It turns on whether the person is a worker or employee within the statute covering the establishment, and most state Shops and Establishments Acts cover a broad range of office staff, commonly excluding only those in a genuinely managerial or confidential capacity. The test is what the role actually involves, not the designation on the offer letter.
Is overtime included in PF and gratuity calculations?
No. Overtime allowance is one of the items expressly excluded from the definition of wages under the Code on Wages, so it does not enter the wage figure for provident fund, gratuity or leave encashment, and it does not raise the base for the next month's overtime. It is included for ESI contribution where the employee is covered, and it is fully taxable salary for TDS.
What is the maximum overtime allowed in a quarter?
This is genuinely state-specific and currently unsettled. The codes leave the ceiling to be prescribed by rules, most state rules are still in draft, and the repealed Factories Act figure was fifty hours a quarter with several states having notified higher limits. Draft state rules have carried figures well above the old cap. Until your state notifies, treat your previous state limit as the working assumption rather than the draft figure.
Do employees get double pay for working on a weekly off or a holiday?
It depends on your state Act and on whether a substituted rest day is given, and it is one of the areas where the states genuinely differ. The general position is that a rest day may be substituted rather than simply worked, subject to no worker going more than ten days without one, and several state Shops and Establishments Acts require premium pay, compensatory off, or both. Check your specific state Act rather than applying a general rule.
Where This Leaves You
Three things, in order of what they are worth.
Check the base. Take one employee, list every component, strike out only the items actually on the exclusion list, and compare the result with the figure your payroll is currently using for overtime. If your payroll is using basic, you have a shortfall and you can size it in ten minutes using section 6's arithmetic.
Check the trigger. Confirm your attendance system applies both the daily and the weekly test independently, and confirm which daily limit governs your establishment once your state Shops and Establishments Act is read alongside the OSH Code. Nine-hour standard days deserve a specific look.
Check the rounding. A system that pays actual minutes rather than the prescribed rounding is under-paying against your own punch data, which is the easiest kind of finding for anyone to demonstrate.
All three are the same underlying problem: the hours live in one system, the wage definition lives in another, and the payment is assembled from both by hand. Our attendance management software holds the hours and our payroll management system computes the payment off the same record, so the overtime register and the payslip cannot disagree. Run your salary figures through the salary calculator to see the structure, and book a free demo with one month of raw punch data, because the reconciliation in section 6 is the fastest way to find out where you stand.
Related reading: attendance compliance after the Labour Codes, common payroll errors and how to prevent them, CTC breakup, component by component, and minimum wages by state.
Sources
- Code on Wages, 2019, enacted text on India Code. Section 14 on overtime at not less than twice the normal rate, section 2(y) on the definition of wages and the one-half proportion rule, section 16 on wage periods and section 17 on payment timelines.
- Occupational Safety, Health and Working Conditions Code, 2020, enacted text on India Code. Section 33 on the register of working hours and overtime, and section 143, which repealed the Factories Act, 1948.
- Ministry of Labour and Employment, labour.gov.in. Commencement of the four Labour Codes on 21 November 2025 and the Central Rules notified on 8 May 2026, including the prescribed rounding of overtime.
- India Code, the central and state legislation repository. State Shops and Establishments Acts, which were not repealed by the codes and continue to set daily hours for most non-factory workplaces.
The quarterly ceiling on overtime hours is prescribed by state rules, most of which remain in draft as at August 2026. The position on whether overtime counts toward the ESI coverage threshold, as distinct from ESI contribution, should be confirmed for your state. Verify the current position on the relevant portal before configuring a payroll run.
