Employees working beyond scheduled hours will now receive double pay for overtime, following the implementation of the updated Code on Wages effective April 1, 2026. The reform aims to standardise wage practices, improve transparency, and strengthen worker protections across sectors.

Under the new rules, any work beyond normal hours must be recorded and compensated at twice the regular rate. In practical terms, every extra hour worked now earns the equivalent of two hours’ wages. This marks a significant shift, particularly for blue-collar workers who frequently log extended hours.

Overtime rules

The Code sets a 48-hour weekly work limit, beyond which any additional work qualifies as overtime. While employers are allowed flexibility in scheduling — with daily shifts extending up to 12 hours including breaks—the total weekly cap must be adhered to.

One notable change is the rounding-off mechanism for overtime. Even small increments of extra work are counted:

15–30 minutes of additional work will be treated as 30 minutes of overtime
This ensures employees are compensated fairly, even for short extensions beyond shift hours

States will continue to play a role in implementation, including setting quarterly overtime caps, typically ranging between 125 and 144 extra hours over three months.

MUST READ: New labour law twist: Can you get gratuity in just 1 year?

Faster payments, stronger compliance

The new framework also tightens rules around wage payments. Employers are now required to settle all dues promptly, including overtime, in cases of resignation or termination. This provision aims to reduce disputes and ensure timely compensation.

Additionally, companies must maintain accurate records of working hours, increasing accountability and compliance requirements.

Salary structure

Alongside overtime reforms, the labour codes introduce a major shift in salary structuring. Basic pay must now constitute at least 50% of total compensation (CTC). While this improves transparency, it also increases statutory contributions such as provident fund (PF) and gratuity.

MUST READ: New gratuity rules explained: What changes mean for you and your retirement benefits

As a result, many employees may see a slight dip in monthly take-home pay, even if their overall CTC remains unchanged or increases. However, higher contributions translate into better long-term retirement benefits.

Who gains the most?

The impact of these changes varies across workforce segments:

Blue-collar workers:
Stand to benefit the most due to clearly defined overtime rules and mandatory double pay. This could significantly boost monthly earnings, provided enforcement remains strong.
White-collar employees:
Gains may be limited, as many roles do not qualify for overtime pay. Longer working hours may not necessarily translate into higher income, though retirement savings improve.

Implementation depends on states

It is important to note that labour codes are implemented at the state level. While the Centre has rolled out the framework, actual enforcement will depend on individual states adopting and notifying the rules.

The bottomline

The consolidation of nearly 29 labour laws into four codes represents one of India’s most significant labour reforms. While the transition may create short-term challenges for payroll systems and employers, the long-term objective is clear—simpler compliance, better wage clarity, and stronger worker protection.

For employees, the key is understanding how overtime is calculated and how salary restructuring affects take-home pay versus long-term savings.

Published on: Apr 25, 2026 3:50 PM IST