Legalities of Overtime in IT Companies

Average working hours of employees in India are among the longest compared to global peers, according to a report by the National Sample Sample Survey Office (NSSO) in 2018. Workers in Indian cities worked for 53-54 hours and those in villages worked 46-47 hours in a week. The survey also indicated that rural women were underemployed, as nearly 50 percent of them worked less than 36 hours in a week. Men in cities worked for comparatively longer hours – often in the range of 60-84 hours per week. The report also stated that most employees in India work for more than 48 hours a week — higher than the International Labour Organization (ILO)’s prescribed time-limit.

Generally, as per the applicable State Laws, all commercial establishments should maintain certain permitted opening hours (for eg: 8.30am to 9.30pm). However, most of the States have given exceptions for Information Technology Companies and some Research Organizations from such restrictions and these establishments can function 24/7 through out the year. But various labour laws mandated the maximum number of working hours an employee can work during a day, week and quarter. 

Even though there are slight differences from State to State, generally no employee shall be required to work for more than 9 hours in any day and 48 hours in any week. An employee may be allowed to work in excess of the limit specified above, if such period does not exceed 6 hours in any week with additional payment. That means, the total number of hours of work including overtime shall not exceed 10 hours in any day. Apart from these daily and weekly restrictions, there are quarterly restrictions on the number of overtime hours. The total number of overtime hours worked by an employee does not exceed fifty in a period of three continuous months. Unlike in some of the western countries, in India, there is no concept or differentiation of active and passive working hours.

Apart from such provisions in the State Acts, the the Factories Act of India (a Central Law) has similar restrictions. A worker cannot work for more than 48 hours in a week and not more than 9 hours in a day. According to this Act, the spread over including break should not exceed 10-1/2 hours. The Minimum Wages Act also specifies about the working hours and it says the total number of working hours in a day should not exceed 9 hours. Currently all  the Information Technology Companies fall under the State’s Shops and Commercial Establishments Act. But IT firms engaged in any kind of manufacturing activities (in a recent ruling, while determining the applicability of the ESI Act to a software company, the Bombay High Court took a view that software development is a manufacturing process) and the end product of which is tangible and visible, may come under the Factories Act. Since custom software development is a service functions, such companies come under the State Shops and Establishment Act only. With regard to other social security related laws like ESI and Provident Fund, all IT companies are considered as ‘factories’.

Where an employee works for more than nine (9)  hours in any day or for more than forty-eight (48) hours in any week he shall in respect of such overtime work be entitled to wages at twice’ the rate of normal wages. “Normal wages” means the basic wages plus such allowances but does not include a bonus [Section 8 of the Karnataka Shops and Commercial Establishments Act, 1961].

Is there any exceptions for Information Technology Companies?

Generally, Shops and Commercial Establishments Acts of various States had given exceptions for IT and ITES companies from provisions pertaining to Opening and Closing Hours”; and  “Weekly Holidays”. Apart from the above provisions, various State Governments have also exempted any establishment of IT or ITES from the provisions relating to employment of women during night, subject to the condition that the establishment provides facilities of transportation and security to such women employees and subject to other conditions as specified in the notification. In Karnataka, if a woman employee is employed for night-shifts i.e.  between 8 p.m. and 6 a.m., the employer needs to provide transport  facilities from the residence to workplace and back, free of cost and  with adequate security [Section 25 of the Karnataka Shops and Commercial  Establishments Act, 1961 read with Government of Karnataka (Dept. of IT)  Circular dated 15.10.2015]. The Circular provides for a list of  compliance items that must be complied by an employer if a woman employee has to work in night shifts.