The Supreme Court of India (SCI), on January 19, 2026, delivered its judgment in Union of India & Others v. Heavy Vehicles Factory Employees’ Union & Another, settling the issue of whether compensatory allowances form part of the “ordinary rate of wages” for calculating overtime wages under Section 59(2) of the Factories Act, 1948. The appeals were filed by the Union of India challenging the Madras High Court’s decision which had set aside the Central Administrative Tribunal’s order excluding such allowances from overtime wage calculations.
The Court held that the plain language of Section 59(2) clearly includes basic wages plus all allowances to which a worker is entitled, excluding only bonus and overtime wages themselves. It ruled that executive instructions, office memoranda, or clarifications issued by various Ministries have no statutory force and cannot curtail or override benefits granted under a Parliamentary enactment. The Court further emphasized that the Central Government has no authority under the Factories Act to issue binding clarifications altering the scope of “ordinary rate of wages,” as rule-making powers vest with State Governments.
Affirming the beneficial and protective nature of the Factories Act, the Supreme Court dismissed the appeals and upheld the High Court’s view that allowances such as HRA, Transport Allowance, Small Family Allowance, and similar compensatory payments must be included while computing overtime wages. Any interpretation restricting workers’ statutory entitlements was held to be impermissible, and contrary High Court views were expressly overruled.
[Civil Appeal Nos. 5185–5192 of 2016]
