Introduction

Rising discourse around overtime entitlement under the New Labour Codes

The New Labour Codes have placed overtime squarely back at the centre of labour policy debates. The OSH Code and the Code on Wages together consolidate rules on working hours, rest periods and overtime compensation—standardising entitlements that were previously fragmented across multiple statutes. Policy commentators and union leaders have emphasised the promise of higher statutory overtime rates (at least double the wage rate for overtime) and clearer record-keeping obligations as a corrective to longstanding underpayment and informal overtime practices in factories.

At a conceptual level, the discussion is simple: better-defined overtime rules should translate into fairer remuneration for workers who routinely exceed standard shifts. Yet the practical discourse is more layered. Economists and plant managers point to the costs of compliance, the potential for altered shift patterns, and the business incentive to substitute overtime with other forms of labour deployment. Meanwhile, trade unions focus on enforcement gaps and the need for robust inspection mechanisms to ensure that the statutory doubles-rate is both paid and enforced.

• The renewed emphasis on overtime arises from both worker welfare concerns and policy coherence objectives.
• Observers differ on whether statutory increases will be passed entirely to workers or absorbed by operational redesign.

Why the debate matters for industrial workers and manufacturing employers

The stakes of this debate are practical and immediate for two principal reasons: household income stability and production economics. For factory workers—particularly those in labour-intensive units—overtime can constitute a significant share of monthly earnings during peak seasons. An enforceable entitlement to higher overtime rates could therefore raise real incomes and reduce income volatility for vulnerable households.

For employers, overtime is not merely a payroll line item; it is an operational lever. Factories use overtime to smooth production, meet urgent orders, and avoid hiring costs associated with additional permanent staff. Changes to overtime rates or enforceable hour limits affect cost structures, pricing, and hiring strategies. Firms may respond by reorganising shifts, increasing temporary or contractual hires, or investing in automation—each response carrying consequences for employment patterns and industrial relations.

• For workers: potentially higher short-term earnings, but also uncertainty about whether additional hours will be available or appropriately compensated.
• For employers: increased direct payroll costs, and consequential incentives to redesign labour deployment or invest in capital substitution.

This article therefore examines not only the statutory promise of higher overtime but also the operational realities that determine whether that promise will be realised in factory wages and work patterns.

Legal Framework: Overtime Under the New Labour Codes

Relevant provisions of the OSH Code and the Wage Code

The Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) is the primary legislation regulating working hours, spread-over of shifts, weekly rest and overtime. It mandates that any work performed beyond the prescribed daily or weekly hours must be treated as overtime and compensated at the statutory rate. The Code on Wages, 2019 complements this by standardising how wages are calculated for the purpose of computing overtime rates, thereby removing the ambiguities that existed under earlier laws where different establishments applied different wage components.

A crucial reform is the centralisation of definitions. By consolidating overtime obligations under a unified framework, the codes aim to prevent employers from structurally excluding allowances to reduce the wage base used for overtime calculations. Enforcement mechanisms such as digital attendance records and mandatory maintenance of overtime registers further signal the policy intent of reducing informal, undocumented extra working hours.

• OSH Code governs when overtime becomes payable.
• Wage Code governs how overtime is calculated.

Statutory rate of overtime and working-hour ceilings

The OSH Code reiterates the long-standing principle that overtime must be paid at not less than twice the normal rate of wages. This establishes a clear monetary deterrent against excessive reliance on overtime as a substitute for additional hiring. Alongside this, the Code prescribes daily and weekly ceilings on work hours, subject to limited exemptions for continuous-process industries and special circumstances, such as technical breakdowns or urgent orders.

These limits ensure that overtime is present as a regulated exception rather than a normal practice. Where exemptions are granted, they are conditioned on providing compensatory rest periods and maintaining authorised registers accessible to inspectors. The structural logic is clear: the double-rate obligation and the hour-limit operate together to protect workers from exploitation while still preserving the flexibility that industries sometimes require.

• Double-rate overtime is non-negotiable unless a higher rate is already offered through contracts or standing orders.
• Hour-limits prevent routine overtime dependency by employers.

State-wise notifications and variations

Despite central legislation, implementation remains rooted in state governments, which notify working-hour limits, exemption conditions and specific overtime rules depending on industrial requirements. Most states follow the central double-rate principle; however, there are variations in maximum permissible overtime hours per quarter, shift spread-over, and special rules for seasonal industries like textiles and plantations.

This federal flexibility is intended to allow economic diversity while maintaining a uniform national floor for worker rights. For employers, however, this means that compliance obligations may vary across units in different states, requiring systematic monitoring of notifications and timely revisions of shift plans and payroll configurations.

• Baseline overtime rights are uniform nationally, but
• Operational caps and exemptions differ by state, affecting cost and workforce scheduling.

Potential Gains for Factory Workers

Higher earnings opportunity through double-rate overtime

For industrial workers who regularly work beyond 8-hour shifts during high-demand cycles, the statutory double-rate overtime represents a direct increase in per-hour income. Where overtime constituted 10–30% of monthly earnings earlier, the revised structure strengthens the possibility of creating a more stable financial buffer, particularly during production peaks or seasonal surges.

The provision carries special importance for workers with limited base wages. Even modest overtime hours, if paid at double rate, can become a meaningful contributor to household budgets, especially for families dependent on a single wage earner. The enhancement of statutory rights also strengthens workers’ bargaining capacity in establishments where overtime compensation has historically been irregular or partial.

• Overtime becomes a high-value earning opportunity rather than a low-paid obligation.
• Improves income stability during demand-heavy periods.

Standardised calculation based on the new definition of “wages”

The new uniform definition of “wages” under the Wage Code is significant for overtime computation. Allowances such as conveyance, HRA, and bonuses cannot be excessively expanded to artificially lower the wage component used for calculating overtime. If allowances exceed 50% of total remuneration, the excess is automatically added back to “wages” for calculation purposes. This ensures that the statutory double-rate applies to a fair income base, preventing underpayment through structural payroll design.

In practice, this has the potential to raise the effective overtime payout, particularly in sectors where allowances were commonly used to suppress the wage base. Workers who previously received double rate on a limited portion of salary now stand to receive double rate on a broader and more realistic wage foundation.

• Reduces manipulation of payroll structure to bypass fair overtime rates.
• Brings greater transparency and predictability in wages received for extra hours.

Illustrative scenarios showing potential increase in income

Below are simplified hypothetical scenarios demonstrating the effect of the new framework:

If a worker performs 20 hours of overtime per month, the difference becomes:

• Earlier system: approx. ₹7,000
• New Codes: approx. ₹9,000 
• Net monthly gain: approx. ₹2,000

While this is an illustrative example, it shows how the definition-of-wages reform + double-rate mandate can materially enhance monthly earnings for industrial workers under peak-season workloads.

• Income gains grow proportionately with overtime hours.
• Workers benefit the most in industries where allowances were previously inflated to reduce overtime payouts.

Operational and Economic Realities for Employers

Increased labour cost and workforce planning challenges

With overtime now payable strictly at double the normal rate, overtime becomes substantially more expensive than regular hours. For employers operating on tight manufacturing margins, this transforms overtime from a flexibility tool into a cost-sensitive decision point. Every additional hour must now be justified financially, not merely operationally. This has immediate implications for production budgeting, tender pricing, and deadline-based fulfilment, especially in export-driven manufacturing and MSMEs.

The major adjustment is not simply financial but strategic. Managers will have to forecast peak workloads more accurately and decide whether overtime is more economical than hiring, subcontracting, or investing in mechanisation. For continuous-process industries, the cost impact is unavoidable; in others, payroll optimisation and labour productivity become central considerations.

• Overtime becomes a high-cost production input.
• Budgeting shifts from ad-hoc overtime planning to cost-controlled workforce planning.

Shift-based restructuring and monitoring requirements

The Codes also impose tight compliance requirements on shift organisation, spread-over limits, weekly rest provisions and record-keeping for overtime hours. To remain compliant, many establishments will need to redesign shift patterns, adjust roster cycles, or create staggered production schedules. This is particularly challenging for factories handling uneven workloads across product lines or seasonal demand fluctuations.

Moreover, a higher reliance on overtime increases the administrative burden—attendance tracking, digital time logs, payroll cross-verification, and approvals now become essential audit-sensitive processes rather than internal managerial controls. Human resources departments and factory managers will need to coordinate more closely to prevent violations triggered by simple clerical lapses.

• Shift redesign and dynamic rostering become unavoidable.
• Documentation becomes as important as payment to avoid compliance exposure.

Risk of non-compliance and inspection exposure

The cost of non-compliance rises not only in terms of penalties but also reputational and operational disruption. Inaccurate attendance registers, unapproved overtime, or discrepancies between payroll and muster rolls can attract scrutiny under the new inspection regime. Inspectors increasingly rely on digital logs and risk-based assessments, making inconsistencies easier to detect than under the earlier manual inspection model.

The risk is particularly acute for businesses dependent on informal overtime culture. Workers are now more aware of entitlements, union activity is increasing in industrial belts, and labour-law litigation has become more data-driven. Where factories fail to proactively adapt, disputes around overtime can escalate quickly into worker agitation or legal proceedings.

• Documentation lapses can trigger violations, not only payment defaults.
• Factories will need compliance audits, not merely payroll adjustments.

The Critical Question — Will Workers Actually Get More Overtime?

Whether factories will require additional hours in practice

While the Codes formally expand workers’ rights, the practical question is whether manufacturers will actually deploy overtime hours frequently enough to increase earnings. Overtime is fundamentally a by-product of demand spikes, seasonal production cycles, or sudden export orders. If companies restructure to avoid overtime, the theoretical benefit may not translate into real household income gains.

The result will vary across industries. Large automotive and steel plants with continuous processes may continue extensive overtime cycles. In contrast, smaller consumer-goods and garment factories—where profit margins are slim—might actively reduce overtime due to cost pressure. The possibility exists that workers technically have higher legal rights but receive fewer opportunities to exercise them.

• Demand pattern, not legislation, will determine overtime volume in practice.
• Workers in large capital-intensive plants may benefit more than those in MSMEs.

Possible shift to contract labour, fixed-term employment and automation

To avoid the financial burden of statutory overtime, many factories may reconsider their labour composition. Instead of depending on full-time workers who become costlier during peak periods, companies may increasingly switch to contract labour, fixed-term workers, apprentices, and gig-style roles that provide scalability without triggering overtime liabilities. Some may accelerate mechanisation and automation investment, substituting labour-intensive segments of production.

These trends are already visible globally—higher overtime costs often incentivise companies to redesign processes rather than extend working hours. The same pattern could emerge in India, especially in export-oriented manufacturing and industries with fluctuating demand.

• Higher overtime costs can push hiring toward flexible labour models instead of stable full-time roles.
• Automation becomes cheaper relative to labour over the long term.

Limiting strategies — capping overtime, workforce rotation, or multi-shift scheduling

Even before structural labour transformation, factories retain immediate managerial options to restrict overtime and contain cost escalation. These include rigid caps on monthly overtime, rotation of overtime hours between workers rather than offering extra hours to the same individuals, and expanded multi-shift schedules that distribute hours across a larger workforce rather than extending individual shifts. While these approaches support compliance and cost control, they also reduce the volume of overtime per worker.

Therefore, although the Codes significantly increase the payout per hour, they also motivate employers to systematically minimise overtime itself. The net financial gain for workers will depend on whether factories decide that paying double-rate overtime remains operationally worthwhile.

• More overtime per hour ≠ more overtime in total.
• Employers can legally comply while limiting overtime opportunities through scheduling strategies.

Comparative Perspective — Global Benchmarks and Trends

How overtime rules operate in major manufacturing economies

Overtime regulation varies significantly across global manufacturing hubs, but a common trend is evident: overtime is permitted, but tightly controlled and increasingly expensive for employers. In countries such as Japan, South Korea and Germany, the standard legal workweek is capped between 35–40 hours, with overtime payable at higher rates and subject to strict annual limits. China allows greater working-hour flexibility for export industries, but its factories still face explicit ceilings on monthly overtime and mandatory rest intervals.

The pattern suggests that deeper industrialisation does not translate to unlimited working hours. Instead, economically advanced manufacturing nations impose higher statutory costs for overtime to discourage excessive dependence on long shifts and promote productivity-driven competitiveness rather than hour-driven output. India is moving in the same direction under the New Labour Codes, with the double-rate overtime formula aligning with widely accepted global benchmarks.

• Competitive economies do not rely on longer hours — they pay more for them.
• Higher overtime rates are used globally to push industries toward efficiency instead of overwork.

Productivity vs working-hour debates internationally

International labour policy debates have shifted from the traditional metric of “hours worked” to “value generated per hour worked.” Empirical evidence from OECD nations shows that sectors working shorter hours with higher hourly productivity often outperform those operating through prolonged shifts. Prolonged working hours correlate with higher error rates, reduced innovation capacity and increased attrition — all of which ultimately erode global competitiveness rather than enhance it.

India’s labour reform landscape is evolving during this transition. The New Codes substantially modify the logic of labour use by creating a cost-deterrent against relying on long hours while leaving room for legitimate peak-demand overtime. The implication is clear: India’s manufacturing future is expected to be shaped by productivity optimisation, not exhaustion-driven output.

• Overtime compensation becomes a temporary tool, not a growth model.
• Productivity-centric strategies outperform hour-centric strategies in global practice.

Insights for India’s labour reform journey

The global evidence holds an important lesson: overtime benefits workers only when used sparingly and ethically, while productivity-centric industrial policy benefits both workers and employers in the long run. Higher overtime payments can meaningfully improve wages during peak production cycles, but a sustainable manufacturing ecosystem eventually depends on skill enhancement, process optimisation and technological upgrading.

Therefore, India’s reforms are most effective if accompanied by complementary industry initiatives — workforce training, operational efficiency programmes, and gradual reduction of reliance on labour-intensive scheduling. This creates a dual dividend: higher real wages for workers and competitive cost structures for producers.

• The Codes are a step toward global best practice, not an isolated statutory experiment.
• Long-term labour stability arises from skills and efficiency, not stretch-based man-hours.

Balancing Worker Welfare and Industrial Productivity

Long-term sustainability of extended hours

From a welfare perspective, the higher overtime rate strengthens the legal protection of factory workers, but reliance on overtime as a wage-booster raises sustainability concerns. Prolonged shifts frequently result in fatigue-related accidents, musculoskeletal stress and long-term health problems — particularly on assembly lines and hazardous shopfloors. The industrial workforce becomes more vulnerable when temporary wage boosts are achieved at the cost of physical well-being.

From the macro-economic side, frequent overtime reflects structural inefficiencies, not efficiency. If capacity expansion is driven by increased hours rather than workforce scaling or process enhancement, industries risk stagnation in labour productivity over time. Thus, protection of workers and economic progress converge on the same conclusion — overtime must remain a contingency tool, not a labour model.

• Extended hours are not physically or economically sustainable, even if well-paid.

Implications for health, fatigue, skill development and retention

A factory workforce that depends heavily on overtime to secure a living wage often deprioritises upskilling and career mobility. Excessive hours leave little scope for training, certification or upward mobility within the shopfloor hierarchy. This undermines the long-term prospects of both workers and employers, as skill stagnation directly affects productivity and error-free operation.

Employee retention is also sensitive to exhaustion. As labour markets tighten and industrial zones offer alternative employment options, a fatigued workforce becomes more likely to switch employers. Thus, overtime-driven wage dependency can erode loyalty and institutional knowledge — a risk manufacturers cannot ignore.

• Fatigue reduces skill trajectory and institutional stability.
• Balanced hours facilitate training, safety and workforce advancement.

Economic argument for productivity-based models rather than hour-based models

The economic trajectory of successful manufacturing ecosystems suggests a shift from labour time to labour value. Investments in workflow optimisation, lean manufacturing, automation support, and cross-skilling enable higher output without stretching workdays. For employers, this is the only sustainable way to compete globally while staying compliant domestically. For workers, it ensures higher lifetime earnings through upward mobility — not just longer shifts.

In this vision, the New Labour Codes act less as an overtime entitlement mechanism and more as a signal to transition industrial India toward efficiency, safety, and skill-driven productivity. Overtime becomes an occasional premium, not a continuous wage structure.

• Competitive factories of the future will grow through productivity, not exhaustion.
• Labour reforms must be paired with skill-building and efficiency-driven industrial strategy.

Conclusion 

Summary of Policy Intent vs Practical Outcome

The New Labour Codes aim to provide enhanced statutory protection for industrial workers by mandating double-rate overtime, regulating work hours, and ensuring fair calculation based on the redefined “wages.” On paper, these provisions represent a significant step forward in formalising workers’ rights, preventing wage underpayment, and aligning India with global labour practices.

However, the practical outcome is contingent on how factories implement these reforms. While overtime rates have increased, employers are likely to adjust operational practices to limit actual overtime hours, restructure shifts, and explore alternative workforce arrangements such as contract labour or automation. Therefore, the legal entitlement does not automatically equate to higher take-home pay for all workers.

• Legal protection has increased, but operational realities may moderate the actual gain.
• Implementation strategies will vary across industries, company sizes, and states.

Whether Higher Overtime Entitlement Translates to Real Benefits

Workers stand to benefit most in industries with consistent demand peaks or where existing payroll practices previously undercompensated overtime. For many others, structural measures to cap overtime, redistribute shifts, or reduce reliance on full-time labour may limit these benefits.

Additionally, while overtime boosts short-term earnings, long-term worker welfare depends on sustainable practices that balance hours worked with health, skill development, and job security. Without accompanying measures — monitoring compliance, promoting workforce training, and enforcing overtime calculation transparently — higher rates alone may not significantly improve financial or social outcomes for employees.

• Short-term gains are scenario-dependent, not guaranteed.
• Long-term welfare requires balanced, sustainable industrial practices.

What Industry and Regulators Must Monitor Going Forward

For the Codes to achieve their intended effect, regulators, employers, and worker representatives must track several key indicators:

• Overtime hours vs entitlement — ensuring the legal ceiling and double-rate payment are adhered to.
• Shift restructuring and employment patterns — monitoring whether contract labour or automation is replacing potential overtime.
• Worker feedback and health metrics — tracking fatigue, morale, and retention as indirect measures of overtime impact.
• Compliance audits and documentation — ensuring payroll, registers, and digital logs reflect actual hours worked and payments made.

By maintaining oversight on these fronts, India can ensure that the statutory increase in overtime is translated into tangible benefits for industrial workers while safeguarding productivity and economic competitiveness.