Overtime Calculation in India 2026: Factories Act Formula & HR Compliance Guide

It’s Friday evening and one of your factory workers walks into your HR cabin with a pay slip and a look you’ve seen before — something’s off. He worked 22 extra hours last month but the amount he received doesn’t feel right. You pull up the spreadsheet. Turns out someone divided his CTC by 26 and multiplied by 1.5 instead of using his basic+DA and the correct 2x Factories Act rate. Small mistake, big compliance risk.

Overtime calculation is one of those payroll tasks that looks simple until it isn’t. The formula is straightforward — but which rate applies? Which salary component forms the base? What’s the quarterly cap? These details trip up even experienced HR teams, especially when you’re managing a mixed workforce of factory workers, office staff, and field employees under different Acts.

This guide walks you through everything you need to know about overtime rules in India in 2026 — the law, the formula, the limits, and the mistakes to avoid.

What Is Overtime Pay Under Indian Law?

Overtime pay in India is the additional wages an employer must pay when an employee works beyond the legally defined standard working hours. It is not a discretionary bonus — it is a statutory right under multiple central and state labour laws.

The primary law governing overtime for manufacturing establishments is the Factories Act, 1948. For commercial offices, shops, IT companies, restaurants, and similar establishments, the relevant law is the Shops and Commercial Establishments Act of the respective state.

The two laws differ most importantly on the overtime rate:

• Factories Act, 1948 (Section 59): Double wages — 2× the ordinary rate of wages
• Shops & Establishments Acts (most states): One and a half times — 1.5× the ordinary rate

“Ordinary rate of wages” means basic wages plus dearness allowance (DA). It does not include HRA, conveyance, medical reimbursement, special allowances, or bonus. This distinction is critical for calculating the correct base.

The Overtime Calculation Formula Explained

Use EZHRM’s free Overtime Calculator India to skip the manual math, but every HR manager should understand what’s happening under the hood.

Step-by-Step Formula

Step 1 — Find the hourly rate:

Hourly Rate = Monthly Basic + DA ÷ (Working Days per Month × Working Hours per Day)

Most factories and offices use 26 working days and 8 working hours per day as the standard. That gives a divisor of 208.

Step 2 — Apply the overtime multiplier:

Overtime Pay per Hour = Hourly Rate × Multiplier (2x or 1.5x)

Step 3 — Multiply by overtime hours:

Total Overtime Pay = Overtime Pay per Hour × Number of Overtime Hours

Worked Examples

Employee Type	Monthly Basic+DA	OT Hours	Rate	Total OT Pay
Factory machine operator	₹18,000	20 hrs	2× (Factories Act)	₹3,462
Office assistant (Shops Act)	₹28,000	12 hrs	1.5× (Shops Act)	₹2,423
Warehouse/logistics staff	₹22,000	30 hrs	2× (Factories Act)	₹6,346
Retail store executive	₹20,000	10 hrs	1.5× (Shops Act)	₹1,442

Calculated using 26 working days × 8 hours/day standard. Use the EZHRM Overtime Calculator for your exact figures.

A Note on the Salary Base

One of the most common calculation errors: using gross salary or CTC instead of basic + DA. If an employee’s CTC is ₹6 lakh annually but basic + DA is only ₹2.4 lakh, your hourly rate base should be ₹20,000/month — not ₹50,000. Using the wrong base means you’re either overpaying or, more likely in practice, underpaying and exposing yourself to a labour claim.

Who Is Eligible for Overtime Pay in India?

Not every employee is automatically entitled to overtime — but more are covered than most employers assume.

Covered under the Factories Act:

• All adult workers employed in a factory as defined under Section 2(m) of the Act
• Contract workers engaged in factory premises
• Workers on fixed-term employment in factories

Covered under Shops & Establishments Acts:

• Employees working in commercial establishments, shops, offices, and service sector entities
• Delivery and field staff rostered under the establishment’s licence

Generally not covered / excluded:

• Managerial and supervisory staff whose monthly wages exceed a notified threshold (varies by state)
• Certain senior executives covered under individuated employment contracts rather than the specific Acts

A practical tip: if your employee is covered under the Minimum Wages Act for their specific scheduled employment, they’re almost certainly eligible for statutory overtime. When in doubt, pay it — the risk of under-payment far exceeds the cost of compliance.

Overtime Hour Limits: What’s Legally Permitted?

Overtime pay isn’t the only obligation. There are hard caps on how much overtime an employer can legally ask employees to work.

Under the Factories Act, 1948

Provision	Standard Limit	With Exemption
Daily work limit	9 hours	—
Weekly work limit	48 hours	—
Max weekly total (incl. OT)	60 hours	60 hours
Quarterly OT cap	50 hours	75 hours (Section 64 exemption)

Note: Some states — notably Telangana and Maharashtra — have amended their Factory Rules to allow up to 144 hours of overtime per quarter for specific industries, subject to the worker’s written consent. Check your state’s amendment notifications before relying on the central Act limits alone.

The OSH Code 2020 — What Changes When Notified

The Occupational Safety, Health and Working Conditions Code 2020 was passed by Parliament but has not yet come into force nationally as of May 2026. When notified, it will standardise the quarterly OT cap to 125 hours across all covered establishments, require the worker’s written consent before assigning overtime, and introduce rounding rules for partial hours. The Code would apply to virtually all establishments — not just factories — significantly broadening overtime compliance obligations for offices, IT companies, and service businesses.

Factories Act vs Shops & Establishments Act: Key Differences

HR managers running mixed-workforce companies — say, a manufacturing SME with a factory floor and an admin office — often need to apply both regimes simultaneously. Here’s the practical difference at a glance:

Parameter	Factories Act 1948	Shops & Est. Act (typical)
Applicability	Manufacturing premises employing 10+ workers (power) or 20+ (no power)	Shops, offices, commercial establishments
Standard daily hours	9 hours	8–9 hours (varies by state)
Overtime rate	2× ordinary wages	1.5× ordinary wages (most states)
Quarterly OT cap	50 hrs (75 with exemption)	Varies by state
Penalty for non-compliance	Imprisonment up to 2 years + fine up to ₹1 lakh, or both	Fine varies by state (₹10,000–₹50,000)

Your factory floor workers get 2x. Your accounts team in the adjacent office may be under the Haryana Shops and Commercial Establishments Act, which prescribes 1.5x. Two departments, two rates — and that’s perfectly legal, as long as you’re applying the right one to the right group. Managing both sets of rules manually is exactly the kind of compliance headache that EZHRM’s compliance management module is built to handle.

What HR Managers Get Wrong About Overtime

After talking to HR teams across Indian SMEs — manufacturing, retail, logistics, IT — these are the overtime mistakes that show up again and again.

Mistake 1: Using Gross Salary as the Calculation Base

Overtime is calculated on basic + DA only. Using gross salary inflates the base and creates an unsustainable precedent. Use the correct base — and use the overtime calculator to be consistent month after month.

Mistake 2: Paying 1.5x to Factory Workers

This is surprisingly common in smaller manufacturing companies. If your employees are covered under the Factories Act, they are legally entitled to 2x. Paying 1.5x isn’t “being conservative” — it’s underpayment. Any worker can raise a complaint with the Factory Inspector, and back-wages plus interest can run into significant amounts.

Mistake 3: Confusing Comp-Off with Overtime

For office staff on a Shops Act, offering compensatory leave in lieu of overtime pay is widely accepted in practice. For factory workers under the Factories Act, this is not a legitimate substitute — they are entitled to cash wages at the statutory rate. You can offer comp-off as an additional gesture, but you cannot replace the statutory cash overtime with it.

Mistake 4: Not Tracking Overtime Against the Quarterly Cap

The Factories Act limits overtime to 50 hours per quarter. Many HR teams track monthly overtime but lose sight of the running quarterly total. An employee working 15 OT hours in October, 18 in November, and 22 in December is at 55 hours — already past the cap. You need real-time tracking or a quarterly audit. EZHRM’s attendance management flags this automatically.

Mistake 5: Forgetting TDS on Overtime

Overtime pay is fully taxable as salary income under the Income Tax Act. It needs to be included in the payslip, reflected in Form 16, and TDS deducted accordingly. If your payroll process adds overtime as a separate out-of-system payment — common in SMEs — you may be creating a TDS gap that surfaces at year-end.

Mistake 6: Applying the Same Rate Across All Employees

Mixed workforces need differentiated rules. Factory workers: 2x. Office staff under Shops Act: 1.5x. Supervisory managers (potentially excluded): check the wage threshold. Applying one flat rate to everyone is a shortcut that eventually creates compliance problems.

Overtime Pay and the Full & Final Settlement

One area where overtime compliance bites companies late is during full and final settlement. Any outstanding overtime for the month of resignation or notice period must be calculated and paid in the F&F. Similarly, if you’re calculating leave encashment for a factory worker, getting the base salary consistent across all calculations is important.

Browse all of EZHRM’s free HR calculators to handle each piece of the payroll puzzle correctly. More compliance guides are on the EZHRM blog.

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Frequently Asked Questions — Overtime in India

What is the overtime rate under the Factories Act in India?

Under Section 59 of the Factories Act, 1948, overtime is paid at twice the ordinary rate of wages (2×). The “ordinary rate of wages” means basic wages plus dearness allowance — it does not include HRA, conveyance, special allowances, or bonus. This 2x rate applies to all adult workers employed in a covered factory who work beyond 9 hours/day or 48 hours/week.

How do I calculate overtime per hour in India?

Divide the employee’s monthly Basic + DA by the total working hours in the month. For a standard 26-day, 8-hour month: Hourly Rate = (Basic + DA) ÷ 208. Then multiply by 2 (Factories Act) or 1.5 (Shops Act) and by the number of overtime hours. You can verify any calculation instantly using the EZHRM Overtime Calculator.

Is overtime pay mandatory even if the employee agrees to waive it?

Yes. Overtime pay under the Factories Act and applicable Shops Acts is a statutory right — an employee cannot legally waive it, and the employer cannot contract out of the obligation. Even a written agreement to forfeit overtime would not be enforceable in a labour court. The only valid route is to ensure workers don’t exceed the overtime hour limits in the first place.

What is the maximum overtime an employee can work in a quarter?

Under the Factories Act 1948, the quarterly overtime cap is 50 hours. Under Section 64, state governments can grant exemptions allowing up to 75 hours. Some states like Telangana and Maharashtra have made amendments allowing up to 144 hours per quarter. When the OSH Code 2020 is notified nationally, the cap will be 125 hours/quarter across all covered establishments.

Is overtime pay taxable in India?

Yes, overtime pay is fully taxable as salary income under the Income Tax Act, 1961. It must be included in the employee’s gross salary, reflected in Form 16, and TDS deducted at the applicable slab rate. There is no exemption available specifically for overtime income, unlike components such as HRA or gratuity.

Can a company give comp-off instead of overtime pay?

For employees under the Shops & Establishments Act, many companies grant compensatory leave (comp-off) in lieu of overtime, and this is widely accepted in practice for white-collar staff. However, for workers covered under the Factories Act, the law mandates cash overtime at 2×; comp-off alone is not a legal substitute. Companies may offer both, but the cash component cannot be waived for factory workers.

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If you’re running payroll for even 10 people across factory and office roles, overtime can quickly become a compliance minefield. EZHRM’s free Overtime Calculator handles both the 2x Factories Act rate and the 1.5x Shops Act rate in seconds — just enter the Basic+DA, OT hours, and the applicable multiplier. For teams managing recurring monthly overtime, EZHRM’s payroll software calculates it automatically from attendance data, flags employees approaching the quarterly cap, and includes it correctly in every payslip.