Overtime Pay: What Counts as Your "Ordinary Wage"?

For millions of factory workers across India, overtime is a reality of life. Whether it’s to meet a surge in demand, complete urgent orders, or keep production lines running, putting in extra hours beyond the standard 48-hour week is common. But when that extra work is done, how is the extra pay calculated? Does it include just your basic salary, or does it also account for the various allowances that make up a significant part of your take-home pay?

This question sparked a massive legal battle that stretched over 15 years, involving employee unions, various government ministries, and multiple courts, finally reaching the Supreme Court of India in 2026. The case, Union of India vs. Heavy Vehicles Factory Employees' Union, is not just about numbers on a payslip. It’s about the interpretation of a crucial labour law, the power of government circulars, and the fundamental principle of fair compensation for extra labour.

Let’s unpack this landmark judgment and understand why it matters to every worker and employer governed by the Factories Act, 1948.

 The Core Dispute: Allowances and Overtime

The heart of the conflict was simple yet had huge financial implications.

Factory workers, especially in defence production units under the Ministry of Defence, receive several allowances on top of their basic pay:

a.   House Rent Allowance (HRA): To offset housing costs.

b.   Transport Allowance (TA): To cover commuting expenses.

c.   Clothing and Washing Allowance (CWA): For maintenance of work clothing.

d.   Small Family Allowance (SFA): An incentive for limiting family size.

For decades, when calculating overtime wages, many factories included these allowances. The logic was straightforward: overtime pay should be based on what you ordinarily earn.

However, starting in the early 2000s, different ministries of the Government of India began issuing office memorandums (OMs) and letters stating that these compensatory allowances should not be included for overtime calculation. Only Basic Pay and Dearness Allowance (DA) should count.

The government’s rationale, as argued in court, was:

1.  Uniformity & Avoidance of Disparity: Not all employees receive the same allowances (e.g., some live in company housing and get no HRA, some use company buses and get no TA). Including them would create unequal overtime rates for workers doing the same job.

2.  Financial Burden: Including all allowances would significantly increase the overtime wage bill for factories, especially large defence units.

The employee unions challenged this. They argued that the law was clear and the government’s memorandums, which were just executive instructions, could not override the plain language of the statute.

The Legal Provision: Decoding Section 59(2)

The entire case hinged on the interpretation of Section 59 of the Factories Act, 1948.

a.   Section 59(1) states that workers who put in overtime (exceeding 9 hours a day or 48 hours a week) shall be paid at twice their "ordinary rate of wages."

b.   Section 59(2) defines what "ordinary rate of wages" means:

"ordinary rate of wages" means the basic wages plus such allowances, including the cash equivalent of the advantage accruing through the concessional sale to workers of foodgrains and other articles, as the worker is for the time being entitled to, but does not include a bonus and wages for overtime work."

The employees’ argument was crystal clear: The law says "basic wages plus such allowances... as the worker is for the time being entitled to." The term "such allowances" is broad and inclusive. The only two things explicitly excluded are "bonus" and "wages for overtime work." HRA, TA, CWA, and SFA are allowances the worker is "entitled to." Therefore, they must be included.

The government’s attempt to exclude them via office memorandums was, in their view, an illegal act of amending the law without parliamentary authority.

 The Long Journey Through Courts

The fight moved through three levels of the judiciary:

1. Central Administrative Tribunal (CAT) - 2010:

The CAT sided with the government (Union of India). It upheld the office memorandums and ruled that overtime need only be calculated on Basic Pay and DA, dismissing the employees’ applications.

2. High Court - 2011:

The employees’ unions appealed to the High Court. The High Court overturned the CAT’s decision. It held that:

a.   The plain language of Section 59(2) was unambiguous.

b.   The government’s memorandums could not override a statutory provision.

c.   The executive cannot "read additional exclusions into an Act that the Legislature did not contemplate."

3. Supreme Court - 2026:

The Union of India appealed to the Supreme Court, leading to the final and authoritative judgment.

 Supreme Court’s Analysis: Key Principles Established

The Supreme Court, in a judgment by Justice Rajesh Bindal, dismissed the government’s appeal and upheld the High Court’s ruling in favour of the workers. The Court’s reasoning laid down several important principles of law.

 1. The Plain Language of the Statute is Supreme

The Court began with the most basic rule of legal interpretation: when the words of a statute are clear, they must be given their plain meaning. Section 59(2) clearly states "basic wages plus such allowances... as the worker is for the time being entitled to." The Court emphasized that the legislature specifically named only two exclusions (bonus and overtime wages). If Parliament intended to exclude HRA, TA, etc., it would have said so.

"The Legislature never wastes its words."

By trying to exclude compensatory allowances, the government was effectively adding exclusions to the law, a power only Parliament possesses.

 2. Government Circulars Cannot Override Acts of Parliament

This is perhaps the most significant part of the judgment. The Court meticulously examined the Factories Act to see if it gave the Central Government the power to issue clarifications or rules on this matter.

a.   Chapter VI (which contains Section 59) gives rule-making and exemption powers only to the State Governments (Sections 64 & 65).

b.   Chapter XI gives the Central Government the power only to issue directions to State Governments for implementing the Act, not to frame rules or interpret provisions.

The Supreme Court’s clear finding: None of the sections in the Factories Act empower the Central Government or its various Ministries (Defence, Labour, Finance) to issue binding interpretations or carve out exceptions to Section 59(2). The office memorandums were merely executive instructions with no statutory force. They could not amend, dilute, or override the law passed by Parliament.

The Court cited its own precedent (Rajasthan State Industrial Development Corpn.) which held that executive instructions cannot override the law.

 3. The Factories Act is a Beneficial Legislation

The Court reaffirmed that the Factories Act, 1948, is a social welfare and beneficial legislation. Its primary objectives are:

a.   Guaranteeing occupational health and safety.

b.   Protecting workers from exploitation due to unequal bargaining power.

c.   Ensuring their material and physical well-being.

Chapter VI, which limits working hours and mandates double pay for overtime, is a crucial part of this protective shield. The Court quoted from its earlier judgment in Gujarat Mazdoor Sabha:

"An interpretation which restricts or curtails benefits admissible to workers under the Factories Act has to be avoided."

The government’s interpretation, which reduced the overtime wage base, was seen as curtailing a benefit and was thus rejected.

 4. The "Double Rate" is a Bulwark Against Exploitation

The Court highlighted the social and economic rationale behind paying double the ordinary rate for overtime. This isn’t just extra pay; it’s a deliberate deterrent.

a.   It discourages employers from routinely overworking employees.

b.   It justly compensates workers for sacrificing rest and personal time.

c.   It acknowledges the additional strain of extended work hours.

Calculating this double rate on a reduced base (excluding allowances) undermines this protective intent.

 5. Inconsistent Government Practice is Irrelevant

The employees had pointed out a glaring inconsistency: while the Ministry of Defence was excluding these allowances, the Ministry of Railways was including HRA and TA for calculating overtime for its staff (as per a 2011 letter).

The Supreme Court agreed this was untenable. A law passed by Parliament cannot have one meaning for defence factory workers and another for railway workers. The statute means the same thing for everyone, and the plain meaning must prevail over inconsistent departmental practices.

 Why This Judgment is a Landmark for Workers’ Rights

The Supreme Court’s decision in the Heavy Vehicles Factory case is far more than a settlement of an accounting dispute. It has profound implications:

1.  Clarity and Certainty in Law: It settles a 15-year-old controversy with a clear, text-based interpretation. Overtime must be calculated on "Basic Wages + All Allowances the worker is entitled to" (except bonus).

2.  Reinforces Parliamentary Sovereignty: It draws a bright line between legislative power (Parliament making laws) and executive power (Government implementing them). The executive cannot use circulars to rewrite laws.

3.  Protects the Sanctity of Labour Laws: It sends a strong message that the core protections in beneficial legislation like the Factories Act cannot be diluted through administrative fiats.

4.  Significant Financial Impact: For millions of factory workers, especially in government-run establishments, this means a rightful increase in their overtime earnings. It also implies potential claims for past arrears, though the judgment itself does not explicitly order retrospective payment.

5.  A Guide for Future Interpretation: The judgment reinforces that when a law lists specific exclusions, courts cannot add more. This principle (expressio unius est exclusio alterius) will guide the interpretation of other labour and social welfare statutes.

Conclusion: A Victory for Text and Context

The Union of India vs. Heavy Vehicles Factory Employees' Union case is a classic example of the judiciary’s role as the guardian of statutory intent. When faced with a conflict between the clear words of a protective law and later government instructions seeking to limit its scope, the Supreme Court unhesitatingly chose the law.

For the worker on the factory floor, this judgment affirms that their extra sweat and toil will be valued in full measure, calculated on what they actually take home, not on a pared-down version of their earnings. It’s a reminder that in a rule-of-law democracy, even the government must obey the law it is sworn to uphold, especially when the well-being of its citizens is at stake.

The case stands as a robust precedent, ensuring that the "ordinary rate of wages" for overtime will be calculated in the fairest and most literal sense possible—including all those allowances that make work life just a little more manageable.

Case Name: Union of India & Ors. vs. Heavy Vehicles Factory Employees' Union & Anr. (Civil Appeal Nos. 5185-5192 of 2016)