Overtime Pay Calculation: Everything You Need To Know

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Many times, your workers sacrifice the time that they were supposed to spend with their family to finish the organizational goals by spending extra time at the premises apart from the original working hours. They do not spend this time at the workplace for free. It costs the business literally double the regular rate that they spend for their employees during payroll management for standard shifts. Besides, it is too difficult to calculate the overtime wage rate. So what is the need for the organizations to pay overtime, and how exactly is it calculated? Read along to find out.

What Is Overtime?

The productive time spent on the job beyond the office hours is considered to be Overtime. The reason to highlight the word productive is that there are cases when the employees may stay back at the office for more time than the office hours, but this does not necessarily mean they were working. They may be packing their stuff, talking on the phone, catching up with their colleagues, or simply surfing the social networking sites (the reason for companies to imply social media restrictions). Therefore, the most important thing is that it is considered overtime only if the employees are being productive and completing their official projects.

In India, the office hours range between eight and nine hours, depending on the location they are established at. Being the competitive economy that it is, the employees working in the private sector in India often have to work extra time to complete the organizational goals and to increase their individual productivity.

The feeling of accomplishment and a good impression is not enough to keep the employee motivated to continue working hard for the organization. It is not going to light the stove in the employee’s kitchens. What is going to encourage them in giving so much to the organization is the monetary benefits. As a norm, the rate of such extra time is usually double their standard rate of earning. The reason being that the employee is sacrificing the time with his family to work with the organization.

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Laws Stating Overtime Provisions In India

There are labor laws that explain the rules for such extra service beyond the overtime policies of the company. In India, there are a few statutes that modulate additional time worked, payment for such extra time, and other legal provisions for such excess working hours spent by the employees in the workplace. Here are some of the requirements regarding overtime under Indian law.

Factories Act, 1948

This is one of the most referred sources by the organizations for overtime. Besides mentioning details about the maximum hours a person should work in a day or a week, Section 59 of this act explains that any worker who works for more than nine hours in a day is entitled to receive an additional payment, which is twice as much as their regular wages.

Minimum Wages Act 1948

Section 14 of this Act states that a worker whose lowest rate of wages are pre-arranged with the amount of time (for example, wages per hour, wages per day, wages for a week, etc.) and the said workers provide his labor for more than the designated hours, such excess hours will be considered as overtime. The employee is entitled to receive the hourly wage for such extra hours worked.

Furthermore, section 33 of this act mentions that overtime bonuses paid to the employees should be twice the regular rates that they receive. It further explains that the employer can utilize 9 hours of work from the employee in a twelve-hour shift, but the employee shall be paid double the rates for any hour worked more than the standard limit of nine hours a day or forty-eight hours a week.

Plantation Labour 1951

This act u/s 19 mentions that if any ‘major’ employee working in a plantation works for more than the designated working hours in a day or more than 48 hours in a week, he shall be paid additional wages, which are double his regular wages. The condition is that the person shall not be allowed to work more than 9 hours a day or 52 hours a week, including such overtime.

Mines Act 1952

Sections 28 to 30 of this act cover that the workers working in mine should spend no longer than ten hours a day at the workplace, including extra hours worked.

Working Journalists And Miscellaneous Provisions Act 1955

Any working journalist who has served the organization for more than six hours during his day shift and more than five and a half hours during his night shift shall be compensated rest hours that are equal to the overtime hours that he or she has worked. This is mentioned under section 10 of this act.

Bidi And Cigar Workers Act 1966

Section 17 and 18 of this Act restricts the employees from working more than ten-hours a day and 54 hours a week. This ten hour includes extra hours worked.

Contract Labour 1970

Rule 79 of this act demands every contractor to maintain a register under form XXIII that should contain all the details about the overtime hours, extra pay calculation along with the employee’s name.

Building And Other Construction Workers Act 1996

U/s 28 and 29 of this act, the government explains that the workers who have worked additional time shall be paid wages known as overtime wages, the rate of which shall be double the ordinary rate.

The Need To Provide Overtime

The benefits of allowing employees to work more than their regular time can be observed from two points of view: from the point of view of the employer and from the employees’ perspective.

From The Employer’s Stand

As an employer, when you allow your employees to work for longer hours, you can get the following benefits:

• Increased productivity
• No need to hire extra staff
• Faster and better problem-solving
• Avoid job discrepancy
• Avoid training costs

From The Employees’ Stand

It is not just the employer that receives the benefits. The employee can avail following advantages by working extra

• More money
• No need to take up a second job
• Opportunities for promotions
• Career advancement
• Increased productivity
• Improved relations with colleagues

Basics For Overtime Pay Calculation

In order to understand overtime, we need to understand the difference between exempt employees and non-exempt employees. Exempt employees are employees who are not protected under any labor laws. Despite being able to receive promotional benefits, these employees are not entitled to payment for such extra hours. Non-exempt employees, however, are protected under the Indian Labor laws and are allowed to work and claim their additional pay.

The laws include that the maximum working hours mentioned in those acts include the breaks taken by the employees. Factories Act, 1948, specifically mentions that any worker must be given a half an hour break in such a way that he should not be working for more than five and a half hours at a stretch.

Methods Of Overtime Pay Calculation

As we have read above, many laws advocate double payment to the employees for the extra time worked. Keeping that in the psyche, there are two ways of overtime pay calculation mentioned under Indian Law. Although the organizations have a guide and have installed automated payroll software, it doesn’t hurt to know the methods to calculate wages for the additional time served by the employees at the workplace.

Departmental Rules (DOT)

Overtime Calculation For Day Workers:

Additional wages = Basic Pay of the employee + CCA + Personal Pay + Special Pay + Pension / 200

Where CCA stands for City Compensatory Allowance, the pension is added to the extent it is applicable.

This is to be calculated for each hour of extra time served by the worker.

Overtime Calculation For Piece Workers:

Additional wages = Basic Pay of the employee / 200

This is to be calculated per hour for the day shift. While calculating the additional pay for the night shift, a night shift bonus is added to the basic pay. The remaining formula stays the same:

Basic Pay of the employee + Night Shift Bonus / 200

Besides this, the following wage is calculated for half an hour for each extra pay hour worked:

Basic Pay of the employee + Dearness Allowances + CCA / 200

Where CCA stands for City Compensatory Allowances

The Factories Act, 1948

This act specifies the overtime pay calculation for any hours worked beyond 9 hours a day, or 48 hours a week.

Overtime Calculation for Day Workers:

Additional wages = Twice the normal pay and allowances / 200

This method applies to the calculation of hourly rates for both – day shifts and night shifts.

Overtime Calculation for Piece Workers:

Additional wages = Twice the pay and allowances / 200

This, however, is the calculation for such extra time done during the day shift. For the night shift, the additional wages is calculated as under:

Twice the pay + Pay/4 / 200

The Big Question: Can An Employee Refuse Overtime?

The answer to this whole question depends on just one phrase – Does the contract mention it?

Is there a ceiling to the amount of hours the employer can make his employee work? The answer is until it specifies in the contract, no, there is not.

Is the employee entitled to say ‘no’ to the overtime? The same answer, if the contract DOES NOT mention mandatory extra working hours, yes, the employee can refuse it. But if the contract does mention that the employee may need to serve extra hours of work beyond the normal working hours, and you refuse to accept it, the employer holds the right to fire the employee for such refusal.

Summing It Up

Some employees qualify for overtime pay; some do not. It really depends on the company’s policies to include the exempt employee in their policies for such additional time worked. Although it seems a complicated process, it really is not. Moreover, the modern payroll programs are designed to calculate the overtime automatically by syncing it with the attendance management program.

Moreover, working overtime means being productive, not being busy. After all, it is not just the employer that is benefited from employees’ overtime.

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