Nupur Gupta & Sharmishtha Poundrik

Abstract: For a large portion of the workers in India, the statutory minimum wage remains anunsustainable ₹176 per day, with the national wage floor unchanged since 2017. Whilethis figure is itself inadequate for a decent standard of living, the problem iscompounded by the manner in which overtime compensation h been linked to theminimum wage framework in India as per the judicial interpretation of Section 14 ofthe Minimum Wages Act. The courts had interpreted the provision to provideminimum wages to only those who are earning equivalent to minimum wages, withthis position being upheld in a recent 2024 judgment as well. However, there has beena legislative shift in Section 14 of the Code of Wages, 2019 by stipulating overtime tobe double the “normal wages”. The Paper examines the contradicting legal positionin regard to Section 14 of the MWA, in light of the legislative change to overtimeframework in India. Further, it gives recommendations for an improved overtimecompensation system in India.

Introduction

Overtime remuneration has been an essential element of welfare-oriented legislations around the world. In India, overtime compensation has been provided under Section 14 of the Minimum Wages Act, 1948. A two-judge bench of the Hon’ble Supreme Court in the Municipal Council Hatta v Bhagat Singh, 1968case held that the provision will not be applicable to those employees who are being paid wages in excess of the fixed minimum wages. Interestingly, a 3-judge bench in Y. A. Mamarde And Ors vs Authority Under The Minimum Wages, 1972 case had contestably taken the opposite position before the Municipal Council Hatta case was decided. With the enactment of the new labour laws, this ambiguity and inequitable interpretation have been removed.

In light of this development, the Paper herein in Part II gives the general legal framework for overtime pay in India. In Part III, it analyses the evolution of the overtime compensation system under Section 14 of the MWA, primarily highlighting the inequitable and conflicting judicial interpretations. Part IV then explains the legislative shift in section 14 of the Code of Wages, 2019 and cautions the courts to adopt a wider and more equitable interpretation of the provision. Part V further highlights that despite the legislative shift, the overtime framework remains inadequate to address other realities of the Indian labour market, and proposes reforms inspired by international standards.

Legal framework for overtime pay in India

The Factories Act, 1948, and the Minimum Wages Act, 1948 (“MWA”) were the cornerstone of the legal framework governing overtime compensation in India till recently. Under Section 59 of the Factories Act, overtime compensation must be provided to workers who work for more than nine hours daily or forty-eight hours weekly. Non-compliance could result in punitive actions, including penalty and imprisonment of employers. For persons not covered under the Factories Act, Section 14 of the MWA provided for fixed overtime compensation to employees whose minimum wage was fixed under the Act and who worked beyond the normal working hours on any given day. Apart from these major enactments, state-specific Shops and Establishments Acts regulated the working hours and overtime of workers employed outside factories.

With the enforcement of the new labour laws last year, Code on Wages, 2019, (the “Code”) has become the major legislation concerning overtime compensation now. According to Section 14 of the Code, if an employee, whose minimum wages are fixed under the Code, works in excess of the hours constituting a normal working day, the employee is entitled to overtime at a rate not less than twice the “normal rate” of wages. The Occupational Safety, Health and Working Conditions Code, 2020, provides for a similar overtime rate of twice the normal wages, with a daily and weekly limit on the amount of overtime an employer can demand.

While the new codes have streamlined the fragmented foundation of labour law in India, the actual impact of this change will be felt only upon the re-interpretation of the existing jurisprudence in light of the new codes, including that of overtime. The next Part of this paper analyses the judicial conundrum in the interpretation of Section 14 of the MWA and the inequitable stance being taken by the courts in some cases.

Section 14 of the MWA: The Conflicting Position of Law

Under Section 14 of the erstwhile MWA, anyone, whose minimum wages had been fixed under the MWA and was working for more than the prescribed work hours, would have to be paid overtime.

In the case of Municipal Council, Hatta, the Supreme Court (the “SC”) held that the employees being paid higher than the prescribed minimum wages will not be entitled to overtime under the MWA. The employees, who were peons working under the MP Municipal Services Rules, 1967, were being paid much higher than the minimum wages prescribed under the MWA. The employees argued that since employment under a local authority is listed in the Schedule of the MWA, Section 14 entitled them to overtime wages. However, the SC clarified that two conditions must be met: (i) wages fixed at the prescribed minimum wages under the MWA, and (ii) work performed beyond the normal working day. As there was no provision for overtime in the statutory rules as well, they were left without any compensation for putting in extra time and efforts. This was a division bench judgment passed in 1998.

The case of Y.A. Mamarde was decided by a triple-judge bench in 1972. In the case, the employees were being paid higher wages than the prescribed minimum wages and the MP Minimum Wages Act was applicable to them. Under Rule 25 of the MP Minimum Wages Act, they were entitled to double the “ordinary wages” being paid to them, with “ordinary wages” being equivalent to the actual wages received by them, which maybe more than the prescribed minimum wages. The employer contended that they will be entitled to overtime equivalent to double the minimum wages prescribed under the MWA as per Section 14, and not double the ordinary wages. On the other hand, the employees interpreted Rule 25 literally, to demand double the actual wages received by them. The Court held that they would be entitled to double the “ordinary wages”, not the minimum wages, to uphold the ordinary, plain meaning of the language of Rule 25. While referencing Section 14 of the MWA, the Court stated that the provision does not militate against the view taken by them. While the judgment did not directly answer the question as to whether an employee being paid wages in excess of the specified minimum wages would be entitled to overtime or not, it permitted such overtime in light of Rule 25 of the MP Minimum Wages Act.

The SC Division Bench in Sushil Kumar case discusses the apparent conflict between the Municipal Council, Hatta and Y.A. Mamarde judgments. The plea was that CPWD employees were not entitled to double the overtime under the MWA but only at rates set by the employer, since they were governed by Central Government rules and earned above minimum wages. The plea was upheld, with reliance upon Municipal Council, Hatta. Though employees argued this overlooked Y.A. Mamarde, the Division Bench held that Y.A. Mamarde dealt only with Rule 25 of the MP Minimum Wages Act, not Section 14 of the MWA, and therefore there was no conflict in the two judgments.

In National Airports Authority v. Sudershan Kumar, it was opined that the reasoning given in the Sushil Kumar case was incorrect as Section 14 MWA had, in fact, been considered in Y.A. Mamarde and notwithstanding the same, the SC held that the employees earning above minimum wages were also entitled to double-rate overtime. Despite this, the Court preferred the reasoning in Municipal Council, Hatta. It explains that applying the MWA to employees in scheduled employment who received higher wages and better working conditions would amount to legislative interference in contractual terms of scheduled employment. Consequently, overtime was denied on the ground that employees could not claim advantages under both, their service conditions and the statute. However, given that Section 26(2) of the MWA empowers the appropriate Government to exempt employees working in scheduled employment from applicability of the MWA, the Court should not have assumed such exemption in the absence of any such government notification. Similarly, State of Gujarat v. Savailal H. Shah also denied overtime to the employee who had been paid more than the fixed minimum wages.

While the above-mentioned cases have reiterated the position taken in Municipal Council, Hatta, there are also judgments supporting the view taken in Y.A. Mamarde. In P.A. Thomas v. Authority and  UOI v. CPWD Mazdoor Union , the Court held in favour of the employees and granted them overtime under Section 14 MWA despite them receiving more than minimum wages. It stated that Municipal Council, Hatta was not the applicable precedent, as it had overlooked the three-judge bench decision in Y.A. Mamarde.

The case analysis shows that even the judiciary has been inconsistent in determining this legal question under the MWA. Recently in a 2024 case, Surat Municipal Corporation v. Secretary Sudhari Majdoor Union, the Court again relied upon Municipal Council, Hatta to deny overtime to the workers therein. Therefore, it is evident that the courts have continued to rely upon Muncipal Council Hatta to deny overtime to workers earning above the minimum wages.

However, the recently enforced labour codes have taken the position favouring the Y.A. Mamarde reasoning, prescribing double the “normal wages” as the overtime rate. The next Part analyses Section 14 of the Code in light of this judicial conundrum, and explains the potential and more equitable interpretation of the new provision.

Latest Law: Section 14 of the Code on Minimum Wages, 2019

The MWA is a welfare legislation, and therefore, should have been construed widely. The courts, by restricting the right to overtime to persons receiving only minimum wages, have defeated the very object of the welfare legislation. Minimum wages have continuously proven inadequate to provide a dignified standard of living and all workers, regardless of their wages, are entitled to compensation for overtime. Even going by the literal reading of Section 14, the provision refers to employees whose minimum rate of wages were fixed under the Act, and not employees who receive minimum wages as fixed under the Act.

Notably, Section 14 of the Code now explicitly stipulates payment of overtime at twice the “normal wages”. Section 2(y) of the Code defines wages as remuneration being paid to the employees. Y.A. Mamarde equated ordinary wages with actual wages being earned by the employees. Similarly, in Natraj Picture Palace v. Commr., the Court has clarified that normal wages cannot in any case, be less than the statutory minimum wage, reinforcing that normal wages refers to the actual wages payable, with minimum wages operating as the floor.

Consequently, after the enforcement of the Code, overtime is now payable at double the employee’s actual wage, even where such wage exceeds the statutory minimum. Therefore, Section 14 of the Code cannot, now be interpreted as excluding employees earning above minimum wages. By prescribing overtime at double the normal wages, the legislature has made it clear that all employees, whether earning the minimum wages or more, are entitled to overtime. In this way, the legislature has statutorily resolved the above-explained judicial conundrum by incorporating the position of the Court in Y.A. Mamarde.

While this position has been rectified by the legislature, the overtime compensation framework in India still requires certain reforms, as has been discussed in the next Part.

Recommendations

One of the major setbacks of the new codes is the retention of the uniform rate of overtime. The Indian legislature has failed to address the ground realities of the Indian labour market, including the diverse working conditions. The assumption, that overtime in any employment leads to identical degrees of physical and mental strain and therefore must be compensated at a uniform rate, is flawed. Employees such as factory workers and healthcare professionals undergo a higher degree of physical exertion, while employees in the education or administrative sectors face more mental strain. Construing all these sectors as equally demanding in terms of stress and risk undermines the overall objective of welfare legislations.

India can take inspiration from foreign jurisdictions when it comes to determining overtime rates. For instance, the uniform overtime system places a significant economic burden on employers, particularly small and medium businesses, by forcing them to pay equal compensation to an employee working overtime for an hour or two, and an employee working overtime for several hours. This may result in higher non-compliance or informal arrangements with lower remunerations. French labour laws, considered to be one of the best frameworks on labour law, have created a tiered overtime system, where the rate of overtime pay is based on the number of overtime hours. There, a surcharge of up to 25% is applicable for the first eight hours of overtime, and beyond this period, the surcharge rises to 50%. Similarly, in Australia, the overtime rate is 1.5 times the person’s hourly rate for the first two hours of overtime, and doubles for any subsequent hours. These systems would suit the Indian context as they recognise the economic burden faced by employers, while also ensuring employers are deterred from overworking their employees.

Raising the rate of overtime a worker is entitled to, based on the amount of skill or labour the type of work requires, could also be considered. For instance, in Australia, the overtime rate varies industry-to-industry. The country follows a system of awards (modern awards), which lay down the minimum wages and conditions of employment to be ensured by the employer, varying depending upon the industry. For example, employees in the Hospitality industry are entitled to 150% of ordinary hourly rates for overtime within two hours on weekdays. Overtime beyond two hours on weekdays, or anytime during weekends, is fixed at 200% of ordinary hourly rates. Some awards, like the Educational Services (Schools) General Staff Award 2020, lay down different overtime rates for casual and other employees, and even within this, there’s a tiered system of rates based off whether it is a weekday, public holiday or a Sunday. Awards for persons like healthcare professionals base the overtime rate on minimum hourly rates, as opposed to ordinary hourly rates.

Moreover, overtime rates differ in various countries based off the day and time as well. In many countries, if an employee works overtime on rest days and holidays, the overtime rate is a lot higher than the rate for normal work days. Employees are entitled to regular rest days in most employments as regular time off from work is considered necessary for their mental and physical health. Additionally, religious and national occasions are of great significance to the people, as their religion, culture, and traditions are an intrinsic part of their lives. Requiring such people to work overtime on holidays in honour of these occasions or on rest days without additional compensation devalues their religious sentiments, social identity and liberty. Overtime rate can also differ based off the work hours. Working outside standard hours, such as night-time shifts, disturb the circadian rhythm of the body and result in health problems. Many countries recognise work beyond standard hours as more strenuous and fix compensation accordingly. For instance, in the UAE, overtime between 9PM and 4AM is compensated at a much higher rate than on normal working days. The overtime rates for weekly rest days and official public holidays also differs. Similarly, in the Philippines, overtime rates are higher for working during less desirable hours, which can reach up to 230% of the regular rate for working during nighttime and holidays.

In certain countries, employers can also offer “banked overtime” instead of pay, mitigating economic hardships of employers and enhancing work-life balance of employees. Alberta, for instance, allows employment agreements to contain clauses of “bank” overtime hours, where every hour of overtime can be banked as 1.5 hours of paid time off. The employee can then utilise this banked time off at a mutually agreed date or with reasonable notice, depending upon the wordings of the agreement. France has a similar provision for certain industries. There, an employee may agree to take time off instead of receiving pay, and in such a case, the time off will be equivalent to the overtime hours. Notably, such countries are very strict in ensuring voluntariness in employment agreements. Such alternatives to overtime pay, however, may not be suitable for contemporary India, where the average monthly salary barely exceeds minimum wages of most states. In such a scenario, most people work overtime out of economic necessity, and would prefer pay instead of time off. Moreover, the enforcement of labour standards is extremely weak. Employees could “agree” to work overtime due to threat of repercussions like unemployment, making the bargaining power skewed in favour of employers. Efforts to liberalise labour laws might end up enabling exploitation. India must have stricter enforcement to allow such reforms.

Towards a three-tiered overtime compensation framework in India

To address the issues with overtime in India, a Commission should be established which lays down industry-specific standards regarding overtime compensation, inspired from the Australian system of “modern awards”. First, the Commission should formulate a tiered overtime framework specific to each industry, weighing factors such as physical exertion, mental strain, occupational risks, etc. Second, the tiers of overtime rates would differ based on the number of hours worked overtime. This model could be inspired from France or Australia, where the overtime rate increases after the first few hours. Third, the overtime rates should differ further based on the time of the day. Night shift employees should get more compensation than their day shift counterparts. To simplify the complexities which may arise during calculation of overtime, a fixed multiplier can be applied to the day shift overtime rates, to calculate the corresponding night shift rates. Consequently, while calculating overtime, first the industry of the worker will be looked at, then the number of overtime hours and then if it was a day or night shift.

Once these suggestions have been incorporated and adequately enforced, further modifications can be introduced to address factors like distinction between weekdays and holidays and region-specific considerations. Such a model would facilitate in building a better overtime framework, thereby furthering the objectives of labour law.

In conclusion, Section 14 of the Code, by incorporating the court’s position in Y.A. Mamarde, has rectified the earlier interpretation where any worker earning even slightly above the minimum wages would become disentitled to overtime. It can now be hoped that Section 14 of the Code is approached by the courts in a more liberal manner, in accordance with the bare text of the provision. Further, a three-tiered overtime framework would further enhance overtime compensation in India, making it more equitable for both, the employers and the employees.

Nupur Gupta is a 3rd year BA LLB student at WBNUJS, Kolkata.

Sharmishtha Poundrik is a 3rd year BA LLB student at WBNUJS, Kolkata.