Overtime pay rules in India: rate, hour limits and calculation
Overtime pay in India is set by law, not only by company policy. For factory workers, extra hours are paid at twice the ordinary rate of wages, and states set further limits. This guide explains the rule, the hour thresholds, how to work out the ordinary hourly rate and how overtime interacts with PF and ESI, with worked examples.
Key points
- Under the Factories Act, work beyond 9 hours a day or 48 hours a week is paid at twice the ordinary rate of wages.
- The OSH Code, in force from 21 November 2025, keeps the twice-the-rate rule with an 8-hour daily norm; state rules are still being notified.
- The ordinary rate includes basic wages and allowances, but not bonus or overtime itself.
- States cap total overtime hours per quarter, and shops and establishments rules vary by state.
- Overtime is generally not part of PF wages. For ESI, it counts in contribution wages but not when deciding coverage.
Which law applies to your employees
There is no single overtime rule for every Indian worker. It depends on where the person works:
- Factories were governed by the Factories Act, 1948. Its hours and overtime provisions are now carried into the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code).
- Shops, offices, hotels, showrooms and similar establishments fall under their state's Shops and Establishments Act, which sets its own daily hours, overtime rate and limits.
- Supervisory and managerial staff, as defined in the applicable rules, are generally outside these hours limits.
- Employees under contract may have overtime terms in their appointment letter, but a contract cannot pay less than the law requires.
The four labour codes came into force from 21 November 2025, and central and state rules are still being notified. Where this guide describes the OSH Code, confirm the final rules for your state before changing your overtime policy.
The twice-the-ordinary-rate rule
Section 59 of the Factories Act says that where a worker works more than 9 hours in any day or more than 48 hours in any week, they are entitled to overtime wages at twice their ordinary rate of wages for the extra hours.
The OSH Code carries the same principle forward. It sets a daily working-hours norm of 8 hours and entitles a worker who works beyond the prescribed hours to wages at twice the rate. The weekly limit and the detail of how hours are counted are left to rules made by the Centre and states.
In practice, most employers treat anything beyond the worker's normal shift, or beyond 48 hours in a week, as overtime at double rate. That approach is usually safe under both the old and new law.
Daily, weekly and quarterly limits
| Limit | Factories Act, 1948 | OSH Code, 2020 |
|---|---|---|
| Normal daily hours | 9 hours | 8 hours (as notified) |
| Normal weekly hours | 48 hours | As prescribed by rules |
| Overtime rate | Twice the ordinary rate of wages | Twice the rate of wages |
| Maximum overtime per quarter | Set by state rules | Set by the appropriate government |
The quarterly overtime cap differs from state to state, and several states have revised theirs. Check your state's current notification rather than relying on a figure you have seen elsewhere.
A useful point about thresholds: if a worker's normal week is 6 days of 8 hours, that is already 48 hours. So under the Factories Act, even one extra hour in that week crosses the weekly limit and is overtime, even though no single day went past 9 hours.
Shops and establishments: state-by-state variation
Retail stores, offices, restaurants, clinics and most service businesses are covered by their state's shops and establishments law. These laws usually set:
- Normal daily and weekly working hours.
- The overtime rate, which in many states is also twice the ordinary rate.
- A limit on overtime hours in a day, week or quarter.
- Spread-over limits, rest intervals and weekly holidays.
Because the numbers differ, write your state's rule into your overtime policy and apply it consistently. If you have branches in more than one state, each branch follows its own state's law.
How to work out the ordinary rate of wages
Under the Factories Act, the ordinary rate of wages is basic wages plus allowances, including the cash value of any concessional food grains or articles, but excluding bonus and overtime wages. So HRA and other regular allowances are part of it.
The OSH Code links overtime to "wages" as defined in the labour codes, which starts from basic pay, dearness allowance and retaining allowance and has its own exclusions. Until your state's rules and guidance settle how this applies to overtime, using the broader Factories Act base is the more cautious choice.
For a monthly-paid worker, the law does not fix a single divisor. A common approach is to divide by the normal working days in the month and then by normal daily hours:
Whatever divisor you use, state it in your policy and apply it the same way every month. The free overtime calculator does this arithmetic for you.
Worked examples
Worked example 1: monthly-paid worker
Suresh works in a factory. His monthly wages are basic ₹12,000 + DA ₹3,600 = ₹15,600, with no other allowances and no bonus in the month. His normal schedule is 26 working days of 8 hours. In the month he works 12 overtime hours.
- Daily ordinary rate: ₹15,600 ÷ 26 = ₹600.
- Hourly ordinary rate: ₹600 ÷ 8 = ₹75.
- Overtime rate: ₹75 × 2 = ₹150 an hour.
- Overtime pay: ₹150 × 12 = ₹1,800.
If the employer's policy used a 30-day divisor instead, the hourly rate would be ₹15,600 ÷ 30 ÷ 8 = ₹65, and overtime pay ₹130 × 12 = ₹1,560. The divisor matters, which is why it belongs in writing.
Worked example 2: counting overtime hours in a week
A worker's hours from Monday to Saturday are 8, 10, 8, 9, 8 and 8, a total of 51 hours.
- Factories Act, daily test: only Tuesday goes past 9 hours, by 1 hour.
- Factories Act, weekly test: 51 − 48 = 3 hours.
- On an 8-hour daily norm: Tuesday 2 hours + Thursday 1 hour = 3 hours; weekly excess is also 3 hours.
The usual approach is to pay the higher of the daily and weekly excess, not both, so the same hour is not counted twice. Here that is 3 overtime hours. At Suresh's ₹150 overtime rate, that is ₹450 for the week.
Overtime in PF and ESI wages
Provident Fund
Under the EPF Act, "basic wages" exclude overtime allowance, so PF is generally not deducted on overtime pay. Suresh's PF in example 1 stays at 12% of ₹15,600 = ₹1,872, with or without overtime.
Under the Code on Wages, overtime is also among the payments excluded from "wages", but excluded payments above 50% of total remuneration are added back. If overtime is a large part of someone's pay, check how the notified rules and EPFO guidance treat it.
ESI
ESIC treats overtime differently for two purposes:
- Coverage: overtime is ignored when checking whether the employee's wages are within the ₹21,000 limit.
- Contribution: overtime paid is included in the wages on which ESI contributions are calculated.
Worked example 3: ESI with overtime
An employee's gross wages are ₹19,600 a month, and this month they earn ₹2,400 in overtime, so total pay is ₹22,000.
- Coverage check uses ₹19,600, which is within ₹21,000, so the employee remains covered.
- Employee ESI: 0.75% × ₹22,000 = ₹165.
- Employer ESI: 3.25% × ₹22,000 = ₹715.
For more on ESIC coverage and rates, see ESI calculation and eligibility.
Overtime records to keep
Overtime disputes are usually about hours, not rates. Keep a record for each worker showing:
- Date, shift, actual in and out times, and overtime hours worked.
- The ordinary rate used and the overtime rate applied.
- Overtime amount earned and the date it was paid.
- Approval by a supervisor, where your policy requires it.
Keep running totals by quarter so you can see when a worker is close to your state's limit. Pay overtime with the same month's wages rather than carrying it over.
Accurate hours start with accurate attendance. Swastik Payroll's attendance management syncs biometric punches, assigns shifts with effective dates and measures overtime beyond each employee's shift end time. Overtime hours and the overtime amount then appear on the monthly salary record and payslip in the payroll run.
Frequently asked questions
Is overtime always paid at double rate in India?
For factory workers, the law requires twice the ordinary rate of wages. For shops and establishments, the rate is set by state law and is often also double, but check your state. Supervisory and managerial staff are generally outside these rules.
Can an employer pay overtime as a fixed monthly allowance?
A fixed allowance is risky if it pays less than twice the ordinary rate for the hours actually worked. Workers covered by overtime laws are entitled to the statutory amount for the hours recorded.
Is HRA included when calculating the overtime rate?
Under the Factories Act, the ordinary rate includes basic wages and allowances, so regular allowances like HRA are included; only bonus and overtime are excluded. The labour codes use a narrower definition of wages, so confirm your state's rules.
Is PF deducted on overtime pay?
Generally no. Overtime allowance is excluded from basic wages under the EPF Act. ESI, on the other hand, is calculated on overtime pay as part of wages.
This guide is general information for employers and employees in India, not legal or tax advice. Statutory rates, limits and forms change; confirm the current position with EPFO, ESIC, the Income Tax Department or your CA before acting on it.