## Overtime — Key Concepts
Overtime work: Work done beyond normal working hours.
Overtime payment has two components:
1. Normal wages for the overtime hours worked
2. Overtime premium — the extra amount paid above the normal rate for working beyond normal hours
Example: If normal rate = ₹100/hr and overtime rate = ₹200/hr:
- Normal wages portion = ₹100/hr
- Overtime premium = ₹100/hr
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## Legal Provision — Factories Act 1948
If a factory worker works more than 9 hours in a day or more than 48 hours in a week, they are entitled to wages at twice the ordinary rate for the overtime portion.
Ordinary rate of wages includes:
- Basic wages
- Relevant allowances
- Cash equivalent of certain perquisites (e.g., concessional food grain)
Ordinary rate excludes: Bonuses and wages for overtime work itself.
Piece-rate workers: Overtime is calculated using the daily average of full-time earnings in the previous month as the time-equivalent rate.
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## Occasional vs. Persistent Overtime
| Type | Implication |
|---|---|
| Occasional overtime | Healthy sign — firm operating at optimum capacity |
| Persistent overtime | Warning sign — indicates capacity shortfall or habit of delaying work |
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## Accounting Treatment — Based on Cause
| Reason for Overtime | Treatment of Overtime Premium |
|---|---|
| Customer's special request / urgency | Charged directly to that customer's job |
| General production shortfall / urgent orders | Charged to departmental overhead of the department working overtime |
| Fault of another department causing this dept to work late | Charged to the department at fault |
| Abnormal conditions (flood, earthquake, etc.) | Charged to Costing P&L Account — not to production cost |