Wages for the purpose of overtime calculation shall include all allowances as per contract of employment. Therefore, if the employee is given HRA separately as a compensatory allowance to meet the cost of staying in leased accommodation, then only the same can be excluded from the scope of wages. Similarly, conveyance allowance paid to reimburse or compensate the cost of travel to and from the factory can be excluded.
Special allowance is an allowance paid only to some category of employees who possesses some special skill. If the employee to whom special allowance is paid works overtime, naturally, his overtime allowance should be calculated on the wages including special allowance. It is also an accepted rule that an allowance paid to all employees universally should be part of basic wages.
Simply. if the HRA, conveyance and special allowance are subjected to proportionate deduction in the case of absence without leave/ without pay, they are part of the salary only, and in such a scenario the gross salary inclusive of allowances should be considered for overtime calculation. On the other hand, if HRA is paid to a particular employee as per separate arrangement, then that amount is practically an amount payable even if the employee is absent without leave for a few days. Obviously, if he works overtime, the land lord will not ask for enhanced rent. Similarly, if an employee is paid travelling allowance for the days physically present at a prescribed rate, the same is not required to be paid for overtime working because in order to do the overtime work, he is not going back and coming again so that he will incur additional expenditure.