Economic Survey: Work hour, overtime limits barriers to improving factory workers’ earning potential

While noting that working hour restrictions are intended to protect workers’ health and prevent overwork, the Survey underscored that the various limits on working hours—per day, week, quarter, and year—could be in conflict, which in turn reduces workers’ earning potential by heavily restricting the number of overtime hours they can put in.

The Factories Act limits a worker to a maximum of 10.5 hours daily, or around 63 hours in a six-day week. Of these, only 48 hours are considered regular work hours, three hours are considered rest intervals, and the remaining 12 hours count as overtime. Over a 13-week quarter, this would allow for 156 overtime hours, but another provision of the Factories Act caps overtime at only 75 hours per quarter. Unlike India, some countries allow such caps to be averaged over multiple days and weeks.

“As a result, these laws inadvertently hinder workers’ earning potential, ultimately affecting their financial wellbeing,” the Survey said.

“To reduce time-to-market, manufacturers must be capable of temporarily scaling up production. Labour laws in other countries allow manufacturers to average working hour limits across weeks and sometimes months. The International Labour Organisation (ILO) also recommends allowing manufacturers the freedom to average working hour limits across 3 weeks. However, India’s working hour limits may increase the cost, time, and risk of manufacturing,” the Survey said.

It noted that compliance requirements pertaining to these laws are “extensive and elaborate”, demanding considerable management bandwidth, which is a “scarce resource in small enterprises”. The Survey added that current regulations also “discourage innovation and creative destruction”. For instance, Indians cannot undertake apprenticeships while undergoing formal education due to working hour limits on apprentices.

The Survey also noted that under the new Labour Codes, seven states—Maharashtra, Haryana, Himachal Pradesh, Odisha, Punjab, Karnataka, and Uttar Pradesh, have increased the ceiling of overtime hours from 75 up to 144 hours in any quarter.

The Centre has notified four Labour Codes – the Code on Wages, 2019, the Code on Social Security, 2020, the Industrial Relations Code, 2020, and the Occupational Safety, Health, and Working Conditions Code, 2020 – after rationalising and combining 29 existing central laws. In line with the Labour Codes, several states have already carried out reforms, the Survey said.

“However, the new Labour Laws represent a step in the right direction. With the introduction of flexible regulations and their effective implementation, these laws could lead to growth for firms, creating more employment opportunities. They also safeguard labour rights and allow workers to increase their earnings,” the Survey said.