What it is and what it is not
Night shift allowance rewards the timing of work, not its length. An employee who works a normal 8-hour night shift earns the allowance without any overtime. An employee who works 11 hours on a day shift earns overtime but no night allowance. When both happen, both are paid: overtime at double rate for the excess hours, plus the night allowance for the shift.
There is no central statute requiring private employers to pay a night allowance. Some state minimum-wage notifications for specific scheduled employments, and many industry-level settlements and standing orders, do include one. Where none applies, the allowance is a matter of policy and the appointment letter.
Common designs
The simplest design is a flat rupee amount per night shift actually worked, credited in the month's payroll. A second design pays a percentage of basic wage for each night, useful when wage levels vary widely. A third pays a monthly fixed allowance to anyone on a permanent or rotating night pattern, with pro-rata for partial months. Each has trade-offs.
Flat-per-night is easiest to audit because it maps directly to attendance. Percentage designs scale with seniority. Fixed monthly amounts reduce administration but overpay absentees and underpay people who cover extra nights. Whatever the design, define what counts as a night (for example at least 4 hours between 22:00 and 06:00) and pay only for nights the attendance record shows.
- Define the night window in the policy and in the shift template.
- Pay per night worked, not per night rostered.
- State whether the allowance is paid on leave, weekly off or holiday nights (usually not).
- Decide whether it forms part of wages for PF/ESI and for the 50% rule.
Taxability and statutory treatment
Night shift allowance is fully taxable as salary income; there is no specific exemption under the Income Tax Act. For ESI, all remuneration paid at intervals not exceeding two months is generally wages, so a monthly night allowance is included in gross for the ₹21,000 ceiling test and the 3.25% and 0.75% contributions.
Under the Code on Wages, allowances excluded from 'wages' are capped at 50% of total remuneration; anything above is added back. A large night allowance can therefore push up the wage base for gratuity and PF. See the night shift allowance policy guide for drafting language and the 50% rule explainer.
A hospital pays ₹150 per night shift to nursing assistants. In a month a nursing assistant is rostered for 8 nights but works 7 (one night she was on sick leave, and her replacement earned that night's allowance). Payroll credits 7 × ₹150 = ₹1,050 as night shift allowance, adds it to gross for ESI, and taxes it as salary. Her overtime for one night when she stayed 2 hours late is calculated separately at double rate.
Attend Mitra records which employee worked which shift template on which date, so a night count per employee per month can be exported directly for allowance payment. When payroll runs inside Attend Mitra, the allowance can be configured as an attendance-linked component, so it is paid for nights actually worked rather than rostered.