The New Wage Code Is Out. Your Overtime Exposure Is Bigger Than You Think

So, someone on your team stayed back past 9 PM last night. Again. 

Late hours have become so routine in Indian workplaces that most HR teams have stopped tracking them closely. According to ILO data, 51% of India’s workforce works more than 49 hours a week, making India one of the most overworked countries in the world. 

India’s new labor codes are changing that. The government has consolidated 29 old labor laws into four simplified codes. One of the biggest shifts is that overtime pay is now a legal right with teeth. 

Here is what HR professionals need to know right now. 

The Big Picture: Why These New Labor Codes Matter 

For decades, Indian labor law was fragmented and hard to follow. There were different rules for different industries, states, and even types of workers. This often created gaps that employers often exploited. 

The new labor codes aim to fix that. They create a single, uniform definition of wages across all sectors. They also set clear rules for working hours, overtime, salary structure, and exit settlements. 

The codes were officially notified in November 2025. Full enforcement kicked in from April 2026, with some variation at the state level. 

Takeaway for HR:

If your payroll and compliance policies have not been reviewed since 2024, do it now. The rules have changed significantly.

The Overtime Rule, Plain and Simple

Any employee who works beyond 9 hours a day or 48 hours a week is entitled to overtime pay. The rate is double their regular hourly wage. 

That part is not new. What has changed is how that rate gets calculated. Overtime is paid on wages, and the new Code on Wages has widened what counts as wages. Basic pay must now be at least 50% of the total CTC. 

Effectively, higher wages mean higher overtime payouts. Many companies kept basic pay artificially low to reduce costs. That loophole is now closed. 

There is also a 30-minute rule. If an employee works more than 30 minutes beyond their scheduled hours, that counts as overtime. Employers cannot round it down and ignore it. 

Takeaway for HR:

Your overtime liability starts 30 minutes after the scheduled shift ends. Audit your attendance records and check how many employees are regularly crossing that threshold.

Overtime Must Be Agreed To

Here is something employers and HR managers need to know. Under the new codes, overtime work must be consent-based. You cannot force your employees to stay back without their agreement. 

This is a formal legal requirement, not just a best practice. Employers who compel overtime without consent are in violation of the code.  

Let us illustrate this with an example. 

Priya works at a logistics firm in Hyderabad. Her manager regularly asks the team to stay till 10 PM during peak season. Under the new code, Priya has the right to formally decline. If her employer compels her to stay anyway, it is a direct violation of the code. That opens the company up to the same penalties as non-payment of overtime: fines up to ₹ 50,000 for a first offence and up to ₹ 1,00,000 or three months in prison for repeat violations. 

Takeaway for HR:

Update your overtime policy to include written or digital consent from employees. This protects both the employees and the company.

How Overtime Pay Is Calculated Under the New Labor Code

Before the new Labor Code, overtime calculation varied widely across companies and sectors. That inconsistency is now gone. The formula is fixed and built on three inputs: basic pay, working days, and hours logged beyond the threshold. It looks technical, but it is straightforward once you break it down. 

Takeaway for HR: 

The formula is: 2 x (Basic + DA divided by working days x daily hours) x overtime hours.

Going back to our earlier example of Priya, for every 5 extra hours worked that month, she is owed ₹ 1,442 on top of her salary. Multiply that across a team and the liability adds up fast. 

Four Things That Directly Shape Your Overtime Liability

Knowing the rate is one thing. But there is more to overtime liability than just the hours clocked. Four changes in the new codes directly affect how much your organization owes and how far that exposure can go. 

Basic pay must be at least 50% of CTC

Many companies currently keep basic pay at 30 to 40% of CTC. This reduces PF contributions and other statutory costs. The new codes require basic pay to be at least 50% of total compensation. 

This has a direct bearing on overtime. Since overtime is calculated on basic pay, a higher basic means a higher payout per overtime hour. Companies that have kept basic pay low to manage costs will find their overtime liability going up alongside the restructuring. 

There is a quarterly cap on overtime hours

Overtime is not an open-ended obligation on either side. The new codes cap overtime at 125 hours per quarter. Beyond that limit, an employer cannot ask an employee to work extra hours regardless of consent or pay. 

For HR, this means overtime needs to be tracked and managed across the quarter, not just flagged when it happens. Employees who are regularly clocking extra hours may hit the cap sooner than expected. 

More employees now qualify for overtime protection

Managerial and supervisory roles have historically been excluded from overtime entitlements. The new codes tighten the definition of who qualifies for an exemption. This means a larger share of your workforce is now legally entitled to overtime pay than before. 

HR teams should audit job classifications and check whether roles that were previously exempt still meet the threshold for exclusion under the new definition. 

Overtime records are now a legal requirement

Employers are required to maintain detailed registers of overtime hours worked and wages paid. These records must be available for inspection at any point. Gaps or inconsistencies in the register can be used as evidence in a dispute. 

For employees, this means there is now a paper trail. For HR, it means informal tracking on spreadsheets or WhatsApp messages will not hold up if a complaint is raised. 

Takeaway for HR:

Overtime compliance under the new code is not a one-time audit. It runs across attendance, payroll, and job classification every month. The fewer places that data lives, the better.

What Happens If Employers Do Not Comply 

The new codes do not just define rights. They put a number on what happens when those rights are ignored. For HR teams still running on old policies, the exposure is more significant than most expect. 

• First offence: fines up to ₹ 50,000 
• Repeat violations: up to ₹ 1,00,000 or three months in prison 
• States like Maharashtra can impose additional fines up to ₹ 2,00,000 

Beyond the fines, there is a reputational and legal cost that is harder to quantify. Employment litigation has gone up since the codes were notified. A Hyderabad techie recently took his employer to court over workdays that regularly crossed 16 hours. That case is one of many that HR teams should be watching.

Takeaway for HR:

Document everything. Maintain digital records of attendance, overtime hours, and consent for at least three years.

The Bottom Line

India’s workforce laws have finally caught up with the real world. Extra hours now have a price attached to them. Employers who have relied on informal expectations of unpaid overtime have less room to operate. 

For HR leaders, this is a compliance deadline and a culture reset. For employees, this is legal protection worth knowing and using. 

The law is now on your side. Make sure your pay slip reflects that. 

Frequently Asked Questions 

Does the overtime rule apply to salaried employees?

Yes. The new codes cover salaried employees, not just hourly or daily wage workers. If a salaried employee crosses 9 hours a day or 48 hours a week, they are entitled to double pay. The only exceptions are roles that meet the specific managerial exemption criteria under the new definition. 

What counts as wages for overtime calculation?

Under the new Code on Wages, basic pay and dearness allowance form the base for overtime calculation. Allowances that make up more than 50% of total CTC are now reclassified as wages. This is why salary restructuring and overtime liability need to be reviewed together. 

How do we track the 125-hour quarterly cap across a large team?

Manually, it is difficult. You need attendance data, shift records, and payroll inputs talking to each other in real time. Most HR teams that are managing this well have moved off spreadsheets and onto platforms like Keka where that data sits in one place. 

What if an employee works overtime without formal consent?

The employer is still liable to pay. Consent protects the employer from being compelled to offer overtime, but it does not cancel the payment obligation if the hours were worked. Document consent before the fact, not after. 

How far back can an employee claim unpaid overtime?

Under the Limitation Act, an employee can typically raise a claim for up to three years of unpaid wages. If your overtime records are patchy or missing, that window represents real financial exposure. Clean records are your first line of defense.