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All-in-one HR platform · v2.0
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An overtime policy has two jobs. It sets out the legal minimum the employer must meet, and it controls cost by deciding who can authorise extra hours. Policies that do only the first tend to produce overtime nobody approved; policies that do only the second tend to fall short of the law.
The overtime management topic page explains the concept. This guide is about drafting the policy, decision by decision.
01
For factories, the Factories Act 1948, s.59, requires overtime at twice the ordinary rate of wages for work beyond the daily or weekly limits, and the Act limits total hours and overtime. For shops and commercial establishments, the state's Shops and Establishments Act sets the hours, overtime rate and limits, and these vary by state.
Identify which law covers each of your locations before writing anything. A company with a factory in one state and offices in two others may need the policy to state different rules for each.
Watch for itThe labour codes, in force since 21 November 2025, restate overtime rules: the Code on Wages (s.14) sets overtime at not less than twice the normal rate. Check the hours limits in your state's rules rather than assuming the older Acts still govern.
02
Statutory overtime applies to workers covered by the relevant law, which usually excludes those in supervisory or managerial roles as the law defines them. Above that, eligibility is a policy decision.
Write eligibility by role or grade, not by name. State clearly whether staff outside the statutory scope receive overtime pay, compensatory off, or neither.
03
The most useful clause in the policy is that overtime must be approved before it is worked, by a named role. Retrospective approval should be allowed only in stated circumstances, such as a breakdown, and recorded.
04
State the rate and the wage it is applied to. Under the Factories Act, the ordinary rate of wages is defined in s.59 and includes basic and allowances as that section provides; under state laws the definition varies. Say how the hourly rate is derived and how part-hours are rounded.
Say which month overtime is paid in, usually the month after it is worked if attendance closes at a cut-off. Note that overtime pay enters the ESI contribution base, though it is excluded when testing whether an employee is covered.
05
If you offer compensatory off instead of pay for some staff, state who it applies to, how many hours earn a day, and when it lapses. Comp-off cannot replace statutory overtime pay for workers the law covers.
State the limits on hours, which the law sets, and keep the registers the applicable law requires. Records of approved and worked overtime are what you will produce in an inspection.
Every guide ends here rather than in a summary. If a line below is not true yet, that is the next thing to do.
The law that applies to each location, eligibility, pre-approval rules, the rate and wage base, rounding, payment month, any compensatory off rules, limits on hours, and the records kept.
For factories, twice the ordinary rate of wages under the Factories Act 1948, s.59. For shops and establishments it is set by the state law and varies.
Not for workers whose overtime pay is required by law. It can be offered to staff outside the statutory scope, as a policy choice.
Overtime is excluded when testing whether an employee falls within the ESI wage ceiling, but contributions are payable on wages including overtime.
The checklist above is generic by necessity. Bring your own structures, states and rota and we will tell you which lines are already true and which are not.
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