Supreme Court: Overtime Must Be Paid on Full Wages, Not Just Basic Pay 

Supreme Court: Overtime Must Be Paid on Full Wages, Not Just Basic Pay 

The dispute arose from instructions issued by various Central Government Ministries excluding compensatory allowances such as House Rent Allowance (HRA), Transport Allowance, Clothing and Washing Allowance and Small Family Allowance from the computation of overtime wages payable to employees of defence production factories. Employee unions challenged these exclusions before the Central Administrative Tribunal, which rejected their claims.

The High Court reversed the Tribunal’s decision, holding that such allowances must be included while calculating overtime wages under Section 59(2) of the Factories Act, 1948. Aggrieved, the Union of India filed appeals before the Supreme Court.

Main Issue: Whether compensatory allowances form part of the “ordinary rate of wages” for the purpose of calculating overtime wages under Section 59(2) of the Factories Act, 1948.

Apex Court Held: The Supreme Court dismissed the Union of India’s appeals and upheld the Madras High Court’s ruling. It held that Section 59(2) of the Factories Act clearly defines “ordinary rate of wages” as basic wages plus all allowances to which a worker is entitled, except bonus and overtime wages. The Court ruled that executive circulars or office memorandums issued by Central Government ministries have no authority to introduce exclusions not provided by Parliament.

As the Act vests rule-making and exemption powers only with State Governments, Central ministries cannot narrow workers’ statutory entitlements through administrative instructions. The Court held that any interpretation curtailing workers’ rights must be avoided. Thus, compensatory allowances such as HRA and Transport Allowance must be included while computing overtime wages.

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