India has a number of labour laws that govern almost all the aspects of employment such as payment of wages, minimum wages, payment of bonus, payment of gratuity, contributions to provident fund and pension fund, working conditions, accident compensations, etc.
The Government has enacted certain central legislations, viz, the Employees Provident Fund and Miscellaneous Provisions Act, Employees State Insurance Act, Payment of Wages Act, Minimum Wages Act, Equal Remuneration Act, Maternity Benefits Act, etc.
In addition, at the State level, the State Governments usually have a separate Labour Ministry, which seeks to ensure compliance with State labour laws (viz, State Shops and Establishments Act, Labour Welfare Fund Act, etc) through its Labour Department, which is generally operational at the district level.
The following are the thrust areas of the Government concerning labour laws:
The various labour legislations enacted by the Central Government can be classified into the following different broad categories:
Provident Fund Act
Applicability of PF Act
PF Act applies to factories and other notified establishments employing 20 or more persons. Once an establishment is covered, its departments and branches, wherever they are, are covered. Once establishment is covered, it continues to get covered even if employment goes below 20.
Schemes under PF Act
Employees Provident Fund, Employees’ Pension Scheme and Employees’ Deposit-Linked Insurance Scheme [EDLI] are the three schemes covered.
Partial or full exemption
Exemption can be granted to certain establishments or employees
Contribution to Provident Fund
Contributions to Fund are made by employers and employees. The fund is administered by Central Board of Trustees
Contribution equal to 125/10% of pay by employer as well as employee
Both employer and employee contribute @ 12% of ‘pay’ to Provident Fund (in some establishments like any establishment employing less than 20 persons, sick units, Jute industry, Beedi industry, Brick industry, Coir industry other than the spinning sector, Guar gum factories., contribution is 10%).
The contributions are payable on maximum wage ceiling of Rs 15000/- by employee and employer.
Part of Employer’s contribution to FPF
8.33% contribution of employer goes to Family Pension Fund. Balance is credited to Employee’s PF account. Entire contribution of employee is credited to his PF account. Interest is paid on this amount. Since last 4 years, interest is 8.5%.
Employees required to join the Fund
Employee whose pay is less than Rs 6,500 per month is covered under the Act. ‘Pay’ includes basic wages, dearness allowance, retaining allowance and cash value of food concession.
Contribution limited to salary of Rs 6,500 p.m, but higher contribution permissible.
If an employee is member, he continues to be a member even if his ‘pay’ becomes more than Rs 6,500. Employer is liable to pay contribution only on salary of Rs 6,500, though employer can voluntarily contribute more (as extra employee benefit). Employee can voluntarily pay contribution on pay above Rs 6,500
Employee to become member immediately on joining
An employee becomes member of PF immediately after joining an establishment to which PF Act applies. However, he should be ‘employee’. Mere casual engagement is not ‘employment’.
Person employed through contractor covered but not apprentice
Persons employed through contractor are also covered, but apprentices under Apprentices Act are not covered
Administration charges for PF
In addition to PF contribution, the employer also has to pay administration charges at prescribed rates. Presently, it is 0.50% effective 01.06.2018 [w.e.f.01.01.2015 (0.85%) w.e.f. 01.04.2017 (0.65%) ] of wages [Min Rs.500/-]. In case of exempted establishments, the employer has to pay 0.18% of wages / salary as inspection charges [Min Rs.75/-].
Contribution to be paid within 15 days
Contribution and administration charges are to be paid within 15 days from close of month. If employer delays payment, damages (interest) can be recovered from him.
Submission of details of employees joining and leaving
When a new employee joins, Employee’s details are to be submitted in form No. 5 to PF Commissioner within 15 days from close of the month in which the employee joins, along with declaration in form 2 given by employee. If an employee leaves, form No. 10 is to be filed.
Monthly return of contribution
Employer has to file a monthly contribution statement (abstract) in form 12A, within 25 days of close of month, along with copy of receipted challans regarding payment of contribution. Employer has submit only abstract every month in the prescribed form.
Annual Contribution Statement of PF
Employer has to submit consolidated Annual Contribution Statement of PF in form 6A for March paid in April to February paid in March of current year, along with contribution card of each employee for same period in form 3A by 30th April.
Withdrawal of Provident Fund by Employee
A member of provident fund gets the fund with interest at the time of retirement. Early withdrawal for housing, marriage, illness etc. is permissible
Pension under EPF scheme
Member is entitled to get pension after retirement after completion of 58 years of age. The pension depends on service of number of years and his average salary of last 12 months. No pension is available for less than ten years service. Only contribution is returned with slightly reduced interest.
Employees Deposit Linked Insurance Scheme is to provide life insurance benefits to employees who are already covered under PF. Employer is required to pay contribution of 0.5% Min Rs.200/-. Employer is also required to pay administration charges @ 0.1% of total wages Min Rs.25/-.
PF for international workers
There is PF and EPF scheme for international workers.
Employees State Insurance Act (ESI)
Applicability to factories and shops
ESI Act applies to factories. It can be made applicable to shops also. The Act is administered by Employees State Insurance Corporation [ESIC].
Meaning of ‘factory’ for ESI Coverage
The ‘Factory’ means any premises where manufacturing process is carried out and persons employed are at least 10 (Till 1-6-2010, if factory was not using power, the limit was 20. Now that distinction has been abolished). Once a factory or establishment is covered, it continues to be covered even if number of employees reduce.
Employee covered under ESI
Employees drawing wages upto Rs. 15,000 per month are presently covered under the ESI scheme [The limit was Rs 10,000 upto 30-4-2010, Rs 7,500 upto 30-9-2006 and Rs 6,500 p.m. upto 31-3-2003]. Employees include * persons employed through contractor * Apprentices other than those covered under ‘Apprentices Act’ * Persons employed in administration office, department or branch for purchase or sale of products. * Casual workers engaged in work incidental to or connected with work of factory or establishment * Employees working at head office when factory is located at different place * Canteen staff, watch and ward staff are employees * Staff in hospital attached to factory are employees (Apprentices appointed under standing orders will also get covered w.e.f. 1-6-2010)
Employer’s and Employee’s contribution to ESI
The employee’s contribution is 1.75% of wages, rounded to next higher rupee. Employer’s contribution is 4.75% of wages payable to each employee, rounded off to next higher rupee.The contribution has to be paid within 21 days from close of the month. If the contribution is not paid in time, interest @ 12% is payable.
Wages for purpose of ESI
‘Wages’ means all remuneration paid or payable in cash to employee according to terms of contract of employment and includes any payment made to an employee in respect of period of authorised leave, lock-out, lay-off, strike which is not illegal and other additional remuneration paid at interval not exceeding two months. It does not include * contribution paid by employer to any pension fund or provident fund * Travelling allowance * Reimbursement of expenses made by nature of employment of the employee * gratuity. Thus, wages include basic pay, dearness allowance, city compensatory allowance, payment of day of rest, overtime wages, house rent allowance, incentive allowance, attendance bonus, meal allowance and incentive bonus.
Contribution period and benefit period
Contribution period is (a) 1st October to 31st March – corresponding benefit period is following 1st July to 31st December (b) 1st April to 30th September – corresponding benefit period is following 1st January to 30th June. Thus, ‘benefit period’ starts three months after the ‘contribution period’ is over. The relevance of this definition is that sickness benefit and maternity benefit is available only during ‘benefit period’. However, other benefits e.g. medical benefit, disablement benefit, dependant’s benefit and funeral expenses are available during contribution period also.
Unemployment benefit under ESI
Unemployment Benefit scheme known as ‘Rajiv Gandhi Shramik Kalyan Yojana’ is introduced. Under the scheme, an insured person going out of insured employment involuntarily on account of closure of a factory or establishment, retrenchment or permanent invalidity arising out of non-employment is entitled to get unemployment allowance for a maximum period of 12 months in his entire period of service. Spell of unemployment shall not be less than one month. Employees who have completed three years of insurable employment are eligible under the scheme.
Report to ESIC by employer when employee joins
When an employee joins, his declaration in Form I has to be obtained. The declaration should be submitted within 10 days to ESIC office. Temporary Identification certificate is also to be issued. Employer has to maintain register of all employees in form 6. Employee and his family members should obtain ‘Smart card’ identity from ESIC which will enable them to get ESI benefit anywhere in India.
Return of contribution to ESIC
Return of Contribution of employees (employed through Principal as well as Immediate Employer) shall be submitted in form 5. The return is to be certified by Chartered Accountant if the number of employees are 40 or more. If number of employees are less than 40, self declaration is to be made by employer regarding maintenance of records and registers, submission of declaration forms, distribution of TIC/PIC received/distributed to employees engaged directly or through immediate employer and wages paid. Due dates are 12th May and 11th November.
Annual declaration to ESIC
Every employer has to submit annual declaration by 31st January in form 01(A)
Payment of Bonus Act
Reward for hard work and share of profit
Bonus is a reward for hard work or share of profit of the unit where employee is working [practically, it is not so]
Applicability of Act
The Act applies to factory employing 10 or more persons where processing is carried out with aid of power and other establishment established for purpose of profits employing 20 or more persons
Employees eligible for Bonus
Employee whose salary and wages are upto Rs 10,000 per month and who has worked for at least 30 days in a year is entitled to get bonus
Salary for calculating bonus@
Salary above Rs 3,500 per month is not considered for purpose of bonus.
Quantum of bonus
Quantum of bonus is ‘allocable surplus’, which is equal to 60% of ‘available surplus’. ‘Available surplus’ is equal to gross profit less prior charges allowable as deduction plus amount equal to income tax on bonus portion.
Minimum and maximum bonus
Minimum bonus is 8.33% and maximum is 20%. Provisions of set off and set on are made to take care of shortfalls and excess in ‘allocable surplus’.
Time limit for payment
Bonus should be paid within eight months from close of accounting year
Bonus based on productivity
Alternate mode of payment of bonus based on productivity is permissible
Audited accounts for bonus
Audited accounts of employer cannot be challenged before Arbitrator or Tribunal, but clarifications can be asked
Details of amendments to the Payment of Bonus Act, 1965:
Year of Amendment
Eligibility Limit (Rs. Per Month)
Calculation Ceiling (Rs. Per Month)
Rs. 7000 Or the minimum wage for scheduled employment, as fixed by the appropriate Government, whichever is higher.
Payment of Gratuity Act
Applicability of Gratuity Act
The Payment of Gratuity Act applies to every factory, mine, oilfield, plantation, port. The Act also applies to every ‘shop and establishment’ where 10 or more persons are employed or were employed on any day in preceding 12 months. Once the Act becomes applicable to any shop or establishment, the Act will continue to be applicable even if later number of employees falls below ten [section 1(3A) of Payment of Gratuity Act]
Employees covered under Gratuity Act
Payment of Gratuity Act is applicable to all employees – workers as well as persons employed in administrative and managerial capacity. The Act is applicable to all employees, irrespective of the salary.
When gratuity is payable
Gratuity is payable to a person on (a) resignation (b) termination on account of death or disablement due to accident or disease (c) retirement (d) death. Normally, gratuity is payable only after an employee leaves after completing five years of continuous service. In case of death and disablement, the condition of minimum 5 years’ service is not applicable.
Insurance of gratuity liability not mandatory
Insurance of gratuity liability by employer is optional. It is not compulsory.
Quantum of gratuity
Gratuity is payable @ 15 days wages for every year of completed service in case of regular employees. In the last year of service, if the employee has completed more than 6 months, it will be treated as full year for purpose of gratuity, i.e. 15 days gratuity will be payable. In case of seasonal establishment, gratuity is payable @ 7 days wages for each season.
Wages for calculating gratuity
Wages for gratuity means all emoluments which are earned by an employee while on duty or on leave in accordance with terms and conditions of his employment and which are payable to the employee in cash. It includes dearness allowance. However, allowances like bonus, commission, House Rent allowance (HRA), overtime and other allowances are not to be considered as ‘wages’ for purpose of Payment of Gratuity Act.
Employees getting pay on monthly basis
In case of employees paid on monthly wages basis, fifteen days wages will be calculated by dividing monthly salary by 26 days and multiplying by 15 days. For example, if last drawn salary of a person (basic plus DA) is Rs. 2,600 per month, his salary per day will be Rs. 100 (2,600 divided by 100). Thus, the employee is entitled to get Rs. 1,500 [15 days multiplied by Rs. 100 daily salary] for every year of completed service.
Ceiling of gratuity
Maximum gratuity payable under the Act is Rs 10 lakhs w.e.f. 24-5-2010 [section 4(3) of Payment of Gratuity Act. The limit was Rs 3.50 lakhs upto 24-5-2010].However, Employer can offer better terms to their employees than those specified under the Act as per any award, agreement or contract.Income tax exemption is available upto Rs 10 lakhs w.e.f. 24-5-2010.
Payment of gratuity within 30 days
Employer is under obligation to pay the gratuity within 30 days from the date it becomes payable. Otherwise, interest @ 15% is payable.
Employees’ Compensation Act
Compensation if injury/death occurs out of and during the course of employment or for occupational disease
Under Employees’ Compensation Act, 1923 (earlier known as Workmen’s Compensation Act upto 18-1-2010), an employee who dies or suffers disablement (partial or total) due to accident is entitled to get compensation from employer, if it is employment injury, i.e. arising out of andduring the course of employment. Notional Extension of employment –A workman is entitled to get compensation even beyond working hours or beyond his work place, if there is nexus between the time and place of the accident and the employment of workman. Occupational disease – Employer is liable if a employee contracts any specified occupational disease, while he is in service of employer for at least 6 months. [section 3(2)].
No compensation if employee covered under ESI
Since an employee is entitled to get compensation from ESIC, an employee covered under ESI Act is not entitled to get compensation under Employee’s Compensation Act, as per section 53 of ESIC.
Applicability of Act
Act is applicable to factories, mines, plantations, transport establishments, construction work etc. (who are not covered under ESI Act). In most cases, Act applies even if number of employees are much less than 20.
Coverage of employees
Every employee, including those employed through contractor, but excluding casual employees who is engaged for purpose of employer’s business is eligible.Persons employed outside are also covered. Persons employed in clerical capacity are also included w.e.f. 18-1-2010.
Employment through contractor
Person employed through contractor is also eligible for compensation. Principal employer is liable though he can recover the amount from contractor.
No fault liability
Employer is liable even if the employee was negligent or careless or was at fault.
Computation of liability
Mode of computation of compensation is given in section 4 of the Act. Compensation is payable to employee for total or partial disablement.. No compensation is payable if disablement is upto only three days. Compensation is payable to dependents of employee in case of death.All actual medical expenses for treatment of injury will be reimbursed to employee. If employee dies, funeral expenses upto Rs 5,000 are payable by employer.Interest is payable in case of default.
Compensation only through Commissioner in case of death or total disablement
The compensation must be paid only through the ‘Commissioner of Employee’s Compensation’ in case of death or total disablement. Any lump sum payment to employee under the Act must be made only through Commissioner.
Industrial Disputes Act
Object of IDA
The object of the Industrial Disputes Act is to make provisions for investigation and settlement of industrial disputes. However, it makes other provisions in respect of lay off, retrenchment, closure etc. The purpose is to bring the conflicts between employer and employees to an amicable settlement. [The Act is achieving exactly opposite]. The Act provides machinery for settlement of disputes, if dispute cannot be solved through collective bargaining.
Wide definition of ‘industry’
In Bangalore Water Supply & Sewerage Board v. Rajappa (1978) 2 SCC 213 = 36 FLR 266 = 1978(1) LLN 657 = 1978(2) SCR 213 = 1978(1) LLJ 349 = AIR 1978 SC 548 (SC 7 member bench 5 v 2 judgment), a very wide interpretation to the term ‘industry’ was given. It was held that profit motive or a desire to generate income is not necessary. Any systematic activity organized by cooperation between employer and employees for the production and/or distribution of goods and services calculated to satisfy human wants and wishes is ‘industry’.
Who is ‘workman’
‘Workman’ means any person (including apprentice) employed in any industry to do any manual, clerical or supervisory work for hire or reward. It includes dismissed, discharged or retrenched person also. However, it does not include (i) Armed Forces i.e. those subject to Air Force Act, Army Act or Navy Act (ii) Police or employees of prison (iii) Employed in mainly managerial or administrative capacity or (iv) person in supervisory capacity drawing wages exceeding Rs 1,600 per month or functions are is mainly of managerial nature.
21 days notice for change in condition of service
Section 9A provides that an employer cannot effect any change in the conditions of service applicable to any workman without giving 21 days notice.
Adjudication of Industrial Disputes
The Industrial Disputes Act provides for ‘Works Committee’ in factories employing 100 or more workers. The committee will consist of equal number of representatives of employer and employees. Representatives of employees will be selected in consultation with Registered Trade Union. The Works Committee will first try to settle disputes. If dispute is not solved, it will be referred to ‘Conciliation Officer’. He is appointed by Government. The matter may also be referred to ‘Board of Conciliation’. He will try to arrive at fair and amicable settlement acceptable to both parties. If he is unable to do so, he will send report to appropriate Government. The Government may then refer the industrial dispute to Board of conciliation, Labour Court or Industrial Tribunal.
Compensation for layoff
A factory employing 50 or more but less than 100 employees on an average per working day can lay off the workmen, who have completed one year of service, by paying compensation equal to 50% of salary (basic plus DA)
‘Retrenchment’ means discharge of surplus labour or staff by employer. It is not by way of punishment. The retrenchment should be on basis of ‘last in first out’ basis in respect of each category, i.e. junior-most employee in the category (where there is excess) should be retrenched first. If employer wants to re-employ persons, first preference should be given to retrenched workmen.
Protection to employee completing 240 days
Once an employee completes 240 days, he is deemed to be permanent employee under Industrial Disputes Act. He cannot be termed as ‘contingent workman’
Restrictions on large industry in layoff, retrenchment or closure
Large industries employing 100 or more workmen on an average for preceding 12 months cannot lay-off, retrench or close down the undertaking without permission from Government (sections 25M to 25-O of Industrial Disputes Act).
.In case of public utility, employees have to give at least 14 days notice for strike. The notice is valid only if strike commences within 6 weeks. Otherwise, fresh notice is required. – - Similarly, an employer cannot declare lock out without giving 14 days notice.
Disciplinary action against employee
The workman is issued with a ‘Show Cause Notice’ giving details of charges of misconduct against him. He has to give his reply. Then, enquiry into charges is conducted by an ‘Enquiry Officer’ appointed by Management. Such ‘Enquiry Officer’ can be an employee of the company or an outsider. The workman can defend himself before the Enquiry Officer or he can be defended by his co-worker or a Union Representative. The workman is not allowed to engage a lawyer to defend his case. After enquiry, the ‘Enquiry Officer’ has to give his findings and state whether he finds the workman ‘guilty’ or ‘not guilty’. He should give reasons for his views. However, the ‘Enquiry Officer’ should not give his opinion about the punishment that should be imposed on the workman. Copy of the report of Enquiry Officer has to be given to the workman. The workman has right to state his case on the basis of ‘Enquiry Report’ After the reply of workman, the authorised Manager will go through enquiry papers, report of Enquiry Officer and observations/reply of workman on the report of Enquiry Officer. The Authorised Manager will then issue suitable order.
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