How to calculate overtime pay in India

Step one: the ordinary hourly rate

Start from the monthly wages your policy uses for overtime and convert them to an hourly rate. A common convention divides by 26 working days and then by 8 hours. Sunil, a CNC operator in Pune, has monthly wages of ₹20,800 for overtime purposes. Daily rate = ₹20,800 / 26 = ₹800. Hourly rate = ₹800 / 8 = ₹100. Which pay components count as the ordinary wage depends on the definition of wages under the Code on Wages and your state's rules, so fix the components in writing with your compliance adviser and use the same basis every month.

Step two: count the eligible hours

Overtime is time worked beyond the prescribed daily or weekly hours for your establishment, as set out in the working hours rules. Count it from actual punches, after breaks, and only where it was approved or your policy treats it as approved. In October, Sunil's punches show 1 hour 30 minutes beyond his shift on 6 days and 45 minutes on 3 days. Eligible hours = 6 x 1.5 + 3 x 0.75 = 9 + 2.25 = 11.25 hours. If your policy sets a minimum or counts time in 15-minute blocks, write it down, apply it to everyone, and make sure it never removes time that must be paid as overtime.

Step three: apply the rate

Overtime pay = Hourly rate x 2 x Eligible hours. For Sunil: ₹100 x 2 x 11.25 = ₹2,250 for October. If he also worked 8 hours on a weekly off that your rules treat entirely as overtime, add ₹100 x 2 x 8 = ₹1,600, for a total of ₹3,850. Show overtime as a separate earning on the payslip with the hours, so he can check it against his own record, and pay it with the month's wages by the 7th of the following month.

Mistakes that cause underpayment

Most overtime disputes come from the rate, not the hours. Check your process for these errors before the first payroll of the year, and again whenever the salary structure changes, because a change to basic pay changes the hourly rate for everyone.

• Paying overtime at the single rate, or at a flat hourly amount below twice the ordinary rate.
• Using gross salary for some workers and basic for others without a written rule.
• Dividing by 30 in some months and 26 in others, so the hourly rate keeps moving.
• Counting only the overtime a supervisor remembered, instead of punches.
• Asking for overtime without the worker's consent, or with consent only on paper.
• Pushing overtime into next month's payroll without telling the worker.

Step by step

1. Fix the wage components for overtime. Write down which salary components make up the ordinary wage for overtime, and the divisor you use, such as 26 days of 8 hours.
2. Calculate the hourly rate. Divide the monthly wages by the days in your divisor, then by 8 hours. Monthly wages of ₹20,800 give ₹20,800 / 26 / 8 = ₹100 an hour.
3. Take overtime hours from punches. Use effective hours from the attendance record, compared with the prescribed daily and weekly hours, instead of supervisors' notes.
4. Apply your rounding rule. If your policy sets a minimum or counts in 15-minute blocks, apply it the same way to everyone and state it in the overtime policy.
5. Multiply by twice the rate. Overtime pay = hourly rate x 2 x eligible hours. In ZeniaHR, approved overtime becomes a payroll earning at gross day rate / 8 x hours x multiplier, with multipliers the company sets for working days, weekly offs and holidays, so keep each at 2 or more.
6. Keep approval and consent on record. Store each worker's consent and the manager's approval for the hours paid with the attendance or overtime record.
7. Show it clearly on the payslip. List overtime hours and amount as a separate earning, and pay it with the month's wages by the 7th of the following month.

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