Overtime Rules Under New Labour Code: 48-Hour Week Cap and Employer Penalties

India's new labour codes are set to fundamentally change how employers manage working hours, overtime pay, and employee rest periods across every industry. The Occupational Safety, Health and Working Conditions (OSH) Code, 2020, together with the Code on Wages, 2019, replaces 13 existing labour statutes with a unified framework that caps weekly working hours at 48, mandates overtime pay at twice the ordinary wage rate, introduces a quarterly overtime ceiling of 125 hours, and imposes penalties of up to ₹5 lakh on employers who violate these provisions. Whether you run a factory with 500 workers or a startup with 15 employees, these overtime rules will directly impact your payroll costs, workforce scheduling, and compliance obligations. This guide covers every aspect of the new overtime framework: the legal provisions, calculation formulas, employer penalties, comparison with old laws, state implementation status, and actionable steps for compliance.

Understanding India's New Labour Code Framework

India's labour law reform consolidates 29 central labour laws into 4 comprehensive codes, passed by Parliament between 2019 and 2020. The four codes are:

• Code on Wages, 2019 - Defines wages, overtime calculation methodology, payment timelines, and minimum wage floors
• Industrial Relations Code, 2020 - Governs trade unions, standing orders, dispute resolution, and retrenchment procedures
• Code on Social Security, 2020 - Consolidates PF, ESI, gratuity, maternity benefits, and gig worker social security
• Occupational Safety, Health and Working Conditions (OSH) Code, 2020 - Governs working hours, overtime, rest periods, night shifts, safety standards, and employment conditions

For overtime and working hours, the two directly relevant codes are the OSH Code, 2020 (which prescribes working hour limits, overtime provisions, and penalties) and the Code on Wages, 2019 (which redefines "wages" and determines the base for overtime calculation). Together, these codes replace the Factories Act (1948), the Mines Act (1952), the Plantation Labour Act (1951), the Contract Labour Act (1970), the Building and Other Construction Workers Act (1996), and several other statutes that individually regulated working hours in different sectors.

48-Hour Weekly Working Hours Cap: Section 25 of the OSH Code

Section 25 of the OSH Code establishes the fundamental working hours framework that every employer in India must follow:

The 48-hour weekly cap means a standard 6-day work week allows 8 hours per day, while a 5-day work week permits approximately 9 hours and 36 minutes per day. The critical distinction is that the daily limit of 8 hours applies as a norm, but the government retains power to prescribe variations as long as the 48-hour weekly cap is not breached. Any hours worked beyond 48 per week or beyond the prescribed daily limit, whichever triggers first, count as overtime.

Overtime Pay Calculation: Twice the Ordinary Rate

Section 26 of the OSH Code mandates that overtime wages must be paid at twice the ordinary rate of wages. The Code on Wages, 2019, defines how the "ordinary rate" is determined, making the calculation more transparent than under the old regime.

Step-by-Step Overtime Calculation Formula

The overtime pay for a worker is calculated as follows:

• Step 1: Determine total monthly wages (as defined under Code on Wages). Wages include basic pay, dearness allowance, and retaining allowance. Wages exclude employer PF contribution, gratuity, bonus, house rent allowance, overtime itself, and conveyance allowance
• Step 2: Calculate the ordinary hourly rate: Monthly wages ÷ (weekly hours × 4.33). For a 48-hour week, this equals Monthly wages ÷ 207.84
• Step 3: Overtime hourly rate = Ordinary hourly rate × 2
• Step 4: Total overtime pay = Overtime hourly rate × number of overtime hours worked

Overtime Pay Calculation Examples

125-Hour Quarterly Overtime Ceiling

One of the most significant changes under the draft Central Rules for the OSH Code is the increase in the maximum permissible overtime from 50 hours per quarter to 125 hours per quarter. This is a 150% increase that gives employers significantly more flexibility to manage seasonal demand, project deadlines, and production surges without violating the overtime cap.

How the Quarterly Ceiling Works

• The 125-hour cap applies per worker per quarter (January to March, April to June, July to September, October to December)
• Overtime hours are cumulative: if a worker works 50 hours overtime in Month 1, only 75 hours remain available for Months 2 and 3
• The employer must track overtime hours in a register of overtime and ensure no worker exceeds the quarterly ceiling
• States may prescribe a lower ceiling while framing their own rules. Employers must follow whichever ceiling is lower: central or state
• In exceptional circumstances involving national interest, public emergency, or serious threat to establishment, the government may temporarily raise or suspend the overtime ceiling through a notification

At 125 hours per quarter, a worker on a 6-day week can work approximately 9.6 additional hours per week as overtime, translating to roughly 1.6 extra hours per day. This means an employer can schedule shifts of up to 9 hours and 36 minutes on regular working days during peak periods without breaching the quarterly cap, provided the weekly 48-hour limit is separately tracked and overtime is paid at double rates.

Employer Penalties for Overtime Violations

The penalty framework under the new labour codes is substantially harsher than the old regime. The Factories Act, 1948, prescribed fines as low as ₹500 for overtime violations. The OSH Code penalties start at ₹2 lakh and can reach ₹5 lakh with imprisonment:

Comparison: Old Factories Act vs New OSH Code on Overtime

The following comparison highlights why the transition from the Factories Act to the OSH Code represents a fundamental shift in overtime regulation:

• Coverage expansion: The Factories Act applied only to manufacturing units employing 10+ workers (with power) or 20+ workers (without power). The OSH Code covers all establishments employing 10+ workers, including IT companies, BPOs, hotels, restaurants, shops, commercial establishments, and service providers. Millions of workers previously outside the overtime framework now have statutory protections
• Daily hours reduction: The Factories Act allowed 9 hours per day as the standard limit (Section 54). The OSH Code reduces this to 8 hours per day, aligning India closer to the ILO Convention C001 standard
• Overtime ceiling increase: The quarterly overtime cap jumps from 50 hours to 125 hours. While this increases employer flexibility, it also increases the compliance burden of accurate overtime tracking and payment
• Penalty magnitude: Factories Act penalties for overtime violations were ₹500 for first offence and ₹2,000 for subsequent offences. The OSH Code increases these to ₹2 lakh and ₹5 lakh respectively, a 400x to 2,500x increase. This makes non-compliance economically unviable
• Single registration: Instead of separate registrations under the Factories Act, Shops and Establishments Act, and Contract Labour Act, employers need a single registration under the OSH Code, simplifying the regulatory interface
• Women in night shifts: The Factories Act prohibited women from working in factories between 7 PM and 6 AM. The OSH Code permits night shifts for women with safety conditions, consent, and employer-provided transport
• Inspector-cum-Facilitator: The traditional "inspector raj" approach is replaced with an Inspector-cum-Facilitator who has a dual role: enforcement and compliance facilitation. Web-based inspection schemes assign inspections randomly to reduce corruption

Rest Intervals, Weekly Offs, and Compensatory Holidays

The OSH Code prescribes a structured rest framework that employers must integrate into work schedules:

Rest Intervals (Section 25)

No worker shall be required to work for more than 5 consecutive hours without a rest interval of at least 30 minutes. This means an 8-hour workday must include at least one 30-minute break. The rest interval does not count towards working hours but is included in the spread-over period. For shifts exceeding 8 hours (during overtime), additional rest intervals must be provided proportionally.

Weekly Holidays (Section 27)

Every worker is entitled to one full day of rest per week, consisting of at least 24 consecutive hours. The employer must specify the weekly rest day in the establishment's standing orders or employment contract. Key rules include:

• If the weekly rest day falls on a public holiday, the worker is still entitled to the weekly rest day on its scheduled date
• If the worker is required to work on the weekly rest day due to operational necessity, the employer must provide a compensatory holiday within the same month or within 3 days following the month
• Work on the weekly rest day is paid at overtime rates (twice the normal rate) in addition to granting the compensatory holiday
• The employer cannot substitute compensatory holidays indefinitely. Accumulated compensatory holidays not availed within the prescribed period lapse and the employer must pay wages in lieu

National and Festival Holidays

In addition to weekly rest days, workers are entitled to paid holidays on national holidays (26th January, 15th August, 2nd October) and such festival holidays as prescribed by the appropriate government. The total number of paid holidays (excluding weekly rest days) typically ranges from 7 to 15 per year, depending on the state. Work on these holidays also attracts overtime rates.

Night Shift Rules for Women Workers

Section 43 of the OSH Code marks a landmark change by allowing women to work night shifts (between 7 PM and 6 AM) in all establishments, subject to the following conditions:

• Consent: The woman worker's written consent must be obtained before assigning night shift work
• Safety measures: The employer must ensure adequate safety and security at the workplace during night hours, including CCTV surveillance, security guards, well-lit premises, and a safe working environment
• Transport: The employer must arrange safe transportation between the worker's residence and the workplace for night shifts. This is a mandatory, non-negotiable obligation
• Equal overtime pay: Women working overtime during night shifts receive the same twice-the-normal-rate overtime pay as male workers. No discrimination in overtime rates is permitted
• Maternity protections: Night shift work restrictions apply during pregnancy and for a period of 6 months following delivery, as prescribed under the Maternity Benefit Act (now subsumed under the Code on Social Security, 2020)

Record-Keeping and Register Requirements

Section 32 of the OSH Code requires every employer to maintain specific records related to working hours and overtime. Non-maintenance of these records is itself a punishable offence with fines up to ₹2 lakh:

Mandatory Registers

• Register of Workers: Details of every worker including name, age, sex, nature of work, date of appointment, wages, and working hours
• Attendance Register: Daily attendance with clock-in and clock-out times, verified by the worker's biometric or manual signature
• Register of Overtime: Name of worker, date, normal working hours, overtime hours worked, overtime wages calculated, overtime wages paid, and date of payment
• Wage Register: Monthly wage details including basic wages, dearness allowance, overtime wages, deductions (PF, ESI, TDS), and net amount paid
• Register of Leave and Holidays: Leave entitlement, leave availed, compensatory holidays granted, and balance leave for each worker

Retention and Inspection

All registers and records must be preserved for a minimum of 3 years from the date of the last entry. The Inspector-cum-Facilitator can demand production of any register during an inspection. Employers may maintain electronic records, provided the records are authenticated, tamper-proof, and producible in printed form upon demand. The Shram Suvidha Portal facilitates electronic filing and self-certification of compliance for registered employers.

Exemptions from Overtime Provisions

Not all workers and establishments fall under the overtime provisions of the OSH Code. The following exemptions and exclusions apply:

Category-Based Exemptions

• Managerial and supervisory employees: Workers in managerial or supervisory capacity earning wages above the threshold prescribed by the appropriate government (expected to be ₹18,000 per month or higher based on draft rules) may be excluded from the overtime provisions. They remain subject to the weekly rest day provision
• Workers in confidential positions: Employees holding positions of a confidential nature may be excluded from daily hour limits but must still receive overtime pay if they work beyond weekly limits
• Establishments below threshold: Establishments with fewer than 10 workers are not covered under the OSH Code. These establishments continue to be regulated by state Shops and Commercial Establishments Acts

Situational Exemptions

• Urgent work: In case of an accident (actual or threatened) or urgent repair work, the employer may require workers to exceed daily/weekly limits. Overtime wages at double rates still apply, and compensatory rest must be provided within the next 3 days
• Seasonally urgent work: For work that is seasonally urgent or requires continuous processing (such as sugar manufacturing, food processing, or tea leaf processing), the appropriate government may grant exemptions from daily hour limits for specified periods
• Preparatory and complementary work: Workers engaged in preparatory or complementary work (such as machine warm-up, cleaning, or security checks) may be required to work up to 15 minutes before or after their normal shift without this time counting as overtime, subject to the total not exceeding the daily working hour limit

Gig Workers and Platform Workers

Gig workers, platform workers (delivery executives, ride-hailing drivers), and independent contractors are not covered under the overtime provisions of the OSH Code. Their working conditions are addressed separately under the Code on Social Security, 2020, which provides for social security benefits but does not prescribe working hour limits or overtime pay. This remains a significant gap in India's labour protection framework.

Impact on Different Types of Employers

Manufacturing and Factory Units

Factory owners will see the most direct impact. While the weekly 48-hour cap remains unchanged from the Factories Act, the daily hour reduction from 9 to 8 hours means production schedules must be recalibrated. The increased quarterly overtime ceiling (125 hours vs 50 hours) provides more flexibility for seasonal demand spikes, but the dramatically higher penalties (₹2 lakh vs ₹500) make compliance non-negotiable.

IT and Service Sector

IT companies, BPOs, and service-sector establishments with 10 or more workers are covered under the OSH Code for the first time. Previously regulated under state Shops and Establishments Acts with varying provisions, these employers now face a uniform national framework for working hours and overtime. The key compliance actions include:

• Implementing overtime tracking for all employees (not just factory workers)
• Paying overtime at twice the normal rate for hours beyond 48 per week
• Maintaining the register of overtime in the prescribed format
• Ensuring spread-over limits are not breached in extended client engagements

Startups and Small Businesses

Startups with 10 or more employees must comply with the full range of OSH Code provisions. The culture of extended working hours that characterizes many Indian startups will need to be formalized: hours tracked, overtime paid, and records maintained. Startups registered under Private Limited Company Registration should build compliance into their HR processes from the outset rather than retrofitting later.

Construction and Infrastructure

The construction sector, previously regulated under the Building and Other Construction Workers Act, 1996, transitions to the OSH Code with enhanced safety requirements and overtime provisions. Project-based overtime tracking, worker rotation schedules, and site-level record-keeping become mandatory. The 125-hour quarterly ceiling benefits construction companies dealing with project deadlines, but the higher penalties for safety violations (up to ₹10 lakh for serious injury or death) demand rigorous compliance.

Implementation Status and Timeline

As of mid-2025, the implementation status of the new labour codes is as follows:

• Parliamentary passage: All 4 codes passed between August 2019 and September 2020. The Code on Wages received Presidential assent on 8th August 2019. The remaining 3 codes received assent on 28th September 2020
• Central Rules: Draft Central Rules for all 4 codes were pre-published in November 2020, inviting public comments. Final Central Rules have not been officially notified as of this writing
• State Rules: Over 31 states and union territories have pre-published draft rules for one or more codes. Key states include Uttar Pradesh, Madhya Pradesh, Karnataka, Uttarakhand, Bihar, Jharkhand, Himachal Pradesh, Arunachal Pradesh, Manipur, Mizoram, and Nagaland
• Appointed date: The labour codes require the Central Government to notify an "appointed date" for each code to come into effect. This notification has been deferred multiple times. The government has indicated that simultaneous implementation of all 4 codes is the preferred approach to avoid regulatory gaps
• Employer preparedness: Despite the delay, the government has encouraged employers to begin voluntary compliance and salary restructuring under the new wage definition (50% wage floor). Many large corporates have already restructured their salary components in anticipation

Compliance Checklist for Employers

Use this checklist to assess your readiness for overtime compliance under the new labour codes:

• Salary restructuring: Verify that at least 50% of every worker's CTC is classified as wages (basic + DA). Restructure salary components if the current basic is below 50%
• Working hour policy: Document a clear policy specifying daily working hours (8 hours), weekly hours (48 hours), spread-over limits (10 hours 30 minutes), and rest intervals (30 minutes after every 5 hours)
• Overtime authorization process: Implement a system where overtime must be pre-approved by a designated manager. Unapproved overtime hours still attract payment obligations but create accountability
• Attendance and time tracking: Deploy biometric or electronic attendance systems that record clock-in and clock-out times. Manual registers are acceptable but harder to audit
• Overtime register: Set up the register of overtime in the prescribed format. Ensure it captures worker name, date, normal hours, overtime hours, overtime rate, overtime wages, and payment date
• Quarterly ceiling tracking: Build a dashboard or report that tracks cumulative overtime per worker per quarter against the 125-hour ceiling. Alert managers when a worker approaches 100 hours
• Night shift compliance (if applicable): Document safety measures, obtain written consent from women workers, and arrange transport for night shifts
• Payroll system update: Configure payroll software to calculate overtime at twice the ordinary wage rate, using the new wage definition. Test calculations before the codes come into effect
• Manager training: Train all line managers and supervisors on the 8-hour daily limit, 48-hour weekly limit, spread-over limit, and the consequences of violations. Manager awareness is the first line of compliance defence
• Legal registration: Ensure your establishment is registered under the OSH Code (or prepared for registration when the codes are notified). Companies with PF registration and ESI registration already in place have a head start

Summary

The new labour codes represent the most significant reform of India's labour law framework in over 70 years. For overtime specifically, the key changes under the OSH Code, 2020, and the Code on Wages, 2019, are: a 48-hour weekly cap that now extends to all establishments with 10 or more workers (not just factories), a daily limit reduced to 8 hours from the earlier 9 hours, overtime pay at twice the ordinary rate of wages calculated on a restructured wage base where at least 50% of CTC constitutes wages, and a quarterly overtime ceiling of 125 hours replacing the old 50-hour cap. Penalties for non-compliance have increased from ₹500 to up to ₹5 lakh with imprisonment up to 6 months, making regulatory violations a genuine business risk rather than a minor cost of doing business. Women can now work night shifts with safety safeguards, and employers must maintain detailed overtime registers for a minimum of 3 years. While the appointed date for implementation has been deferred, every indication points to imminent enforcement. IncorpX provides end-to-end compliance support, including salary restructuring under the 50% wage floor, overtime policy drafting, PF registration, ESI registration, quarterly compliance audits, and ongoing compliance management. Companies that proactively restructure salaries, implement overtime tracking, and build compliance systems now will avoid the penalties, employee disputes, and operational disruption that reactive compliance inevitably produces.