Contractual Loopholes and Labor Law Exemptions: How India’s IT Sector Circumvents Overtime Pay and Maximum Working Hour Regulations
Authors: - SWETHA JETTI 
Published: January 2025

The rapid growth of India's IT sector has cemented its position in the global market. This has also given rise to significant labor concerns. A common concern is the pervasive issue of unpaid overtime where companies utilize contract terms, legal exemptions and workplace expectations to force employees to work extended hours without compensating them appropriately. Ironically, this is a phenomenon that is spread across countries, jurisdictions and industries, yet continues to exist unchecked.
Indian labor laws including the Shops and Establishments Act which applies to IT and IT enabled services(ITES), set clear limits on work hours and mandate overtime pay to prevent exploitation of employees. In Spite of this, many IT companies find ways to bypass these regulations by taking advantage of the existing loopholes in the regulations. They exploit employees’ unfamiliarity with their rights. One of the common tactics employed by IT companies to avoid paying overtime is by encouraging an unsaid expectation among its employees that they do not report their overtime hours or underreport their hours. As a result, it is common for employees to officially log out but continue working on work assignments in their personal time or even avoid logging overtime altogether. This makes it difficult to measure the true extent of overtime hours accurately. Vague clauses such as 'flexible working hours' or 'performance-based requirements' are fairly common in the IT industry. Such terms indirectly put immense pressure on employees to work beyond standard hours to meet project deadlines without complaining because employees understand that complaints related to excessive work and lack of work life balance would reflect poorly in employee appraisal reports. Employees generally do not wish to not fall behind in the race for incentives and promotions and end up being indirectly coaxed into working overtime. It is evident that these terms are one-sided, seem to favor only the employers, and are unconscionable from the employee's perspective. To sum it up, they go against public policy, as they create an unstated expectation of availability beyond regular hours, which impacts employees' well-being and denies them fair compensation for their work and efforts. In competitive industries like the IT industry, employees fear repercussions like poor performance appraisals, low year end bonuses and hikes and a stagnant career devoid of growth opportunities if they voice their concerns about the persistent culture of overtime and the poor work-life balance that exists in the industry. As a result of these fears, the culture of unpaid overtime in the Indian IT industry continues to exist, unregulated and unmonitored.
In Spite of clearly stated provisions related to overtime and standard working hours, improper enforcement allows companies to extend working hours without any repercussions. In order to attract domestic and foreign investments, state governments generally grant exemptions to IT/ITES. But these exemptions are only from select provisions of the Shops and Establishments Act and are also subjected to certain conditions. Many employees misinterpret that IT/ITES companies are entirely exempted from labor regulations, causing them to accept unpaid overtime without resistance.
Additionally, the “always-available” workplace culture prevalent in the IT industry has normalized unpaid overtime. Employees often feel pressured to stay available after work hours to meet client needs across different time zones or to keep up with challenging project deadlines. Remote and hybrid work models have only made the situation worse. The boundaries between work and personal life have faded away with these new work models , making it difficult for employees to fully disengage or switch off from work.
The effects of these practices on employees' mental health are becoming more and more evident. Research indicates a significant prevalence of anxiety, work-related stress and suicides among professionals in demanding sectors like IT, where extended working hours are expected as the norm.
Despite the labor and contract laws in India which are designed to protect employees against exploitation, insufficient monitoring of IT companies' compliance of these safeguards often prove ineffective in practice. There is an urgent need for legislative reforms to hold IT/ITES establishments violating labor laws accountable, and setting a standard for compliance across the industry. Additionally, tighter enforcement and monitoring of working hours are crucial to protect employees' rights and support their physical and mental well-being.
This paper explores factors that influence employees in the IT industry to comply with unpaid overtime. This research brings to light the need for stronger regulatory enforcement of maximum working hours in the tech sector, and also highlights the need for enhanced employee education to create awareness of their rights around working hours and overtime pay. The paper advocates for reforms to reduce health risks associated with prolonged work hours and to support the well-being of employees in one of India’s most crucial industries.