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Informist, Tuesday, Jan. 20, 2026

 

NEW DELHI – The Supreme Court Tuesday ruled that compensatory wages such as house rent allowance, transport allowance, clothing and washing allowance, and small family allowance would fall within the term "ordinary rate of wages" and must, therefore, be considered while calculating overtime wages under The Factories Act, 1948.

 

Section 59 of the Act mandates that any worker in an Indian factory working more than nine hours a day or 48 hours a week is entitled to overtime wages at double the ordinary rate of wages. Further, the Act says the "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, but does not include a bonus and wages for overtime work.

 

"Notably, when the statute provides for only two specific exclusions: bonus and wages for overtime work, in the absence of any formal rules governing the exclusion of other entitlements, the Executive cannot, through a mere Office Memorandum, read additional exclusions into the Act that the Legislature did not contemplate," said a bench of Justice Rajesh Bindal and Justice Manmohan. Different ministries of the central government cannot assign different meanings to a provision in an Act of Parliament that is otherwise clearly evident from a plain reading of Section 59(2) of the 1948 Act, the bench said. The top court ruled that the Madras High Court had correctly said that it is a well-settled principle of statutory construction that the legislature never wastes its words.

 

The court was hearing an appeal by the government against the Madras High Court order in favour of the Heavy Vehicles Factory Employees' Union that held that compensatory wages would come under "ordinary rate of wages". The government had said that according to letters issued by different ministries, the employees would not be entitled to add various components of compensatory allowances for the purpose of calculation of overtime wages.   

 

The government stated that a 1959 letter from the Ministry of Defence to all factories under it clarified that wages payable for overtime to civilian employees for work in excess of normal working hours would be calculated on the basis of the basic pay and dearness allowance only. Similar letters and office memoranda were issued by different ministries about calculation of wages for overtime work, the government said.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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