Labour laws as a branch of law is very obscure area of law for most people. India is a country with a long history of labour struggle. The first set of labour laws were legislated by the British Government, but after independence, the first laws to be enacted were pro-labour rights laws that attempted to protect labour interests. While some of those laws were very progressive and need of the hour when they were legislated, since India embraced the globalised economy, the ground realities of business and economic organisation have vastly changed. Most of the laws tailormade for low-skill industrial labourers are unsuitable for application in the new economy industries, and especially the booming service sector (which, goes without saying, didn’t exist in the 1950s in the way we know it now). Legislative reforms are being demanded for more than two decades now – but its a touchy political topic and no party has shown political determination to venture into the so far extremely sticky area of labour law reforms.
Businessmen and entrepreneurs have consistently rated archaic labour laws in India as a steady barrier to doing business in India. Nevertheless, as things stand, one has to respect and implement prevailing labour laws, and failure to do so can result in legal harassment, wastage of valuable time of top executives (board of directors of a company or the top manager of a factory is personally liable for most labour law violations), fine and even imprisonment.
In this article, I have made a no-frills attempt to explain and summarize the important concepts of most of the labour laws prevailing in India (except the Factories Act), with the hope that those who make business decisions and manages employees will benefit from reading this. For all of the laws I have covered the following points:
1. Who has to comply to this law?
2. Are there any exemptions for any category of businesses?
3. What are the main objectives of the law?
4. What all documentation (filing annual returns/ maintaining registers etc) does one require to comply to that law?
5. What is the punishment for non-compliance with that law?
There are a host of laws that apply to any commercial establishment, shops or manufacturing unit the moment the number of employees engaged cross 20. If it is less than 20, some laws may still apply, but you will still probably fly under the radar for the labour department to take notice of violations and haul you up for them – unless of course, your enemies or competitors (they have to be knowledgeable about the requirements themselves) complains about you. There are serious consequences of not following labour laws – the most major being the kind of harassment that leads to loss of productive hours and mental peace of senior managers and owners.
Payment of Wages Act, 1936
The Payment of Wages Act, 1936 applies to every person employed in a factory or a manufacturing unit to employees who earns less than Rs. 16,000 a month. It is a central legislation which has been enacted to regulate the payment of wages to workers employed in order to ensure that employers do not engage in illegal deductions and/or unjustifiably delay in paying wages to them. It applies to the persons employed in a factory, industrial or other establishment even if one is employed through a sub-contractor.
For the first offence under this act, there are nominal fines (in the range between Rs.200-2000) but for repeated offenders, there is provision for imprisonment. One needs to be careful!
You need to maintain the following in order to comply with this act (the forms can be found online):
Registers, Returns & Abstracts
* Register of Fines
* Register of Advance
* Register of Deductions
* Register of Wages
* Annual Return – Form – IV
* Payment of Wages Abstract – Form – V
* Notice of rates of wages – Form – VI
* Notice of Date of Payment
Minimum Wages Act, 1936
Every state has a minimum daily wage that one must pay to any labourer or employee, skilled or unskilled. It safeguards the interests of workers, mostly in the unorganised sectors, but in organized sectors too, by providing for the fixation of minimum wages. You can find updated rates of minimum wages over here: http://www.paycheck.in/main/officialminimumwages
Violation of this act is punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five hundred rupees, or with both. Violation includes non-maintenance of certain registers or not filing annual returns.
Registers, Returns & Abstracts:
* Wage Register
* Over Time Register
* Annual Return – Form-III
* Abstract of Minimum Wages – Form-V
* Minimum rate of Wages fixed Form-XI, XII & XIII
* Name Address of Inspector
Payment of Gratuity Act
The Gratuity Act is applicable to all establishments in which ten (10) or more persons are employed. Gratuity is payable to any employee who has rendered at least 5 (five) years of continuous service before the termination of his/her employment or if the employee dies or is disabled due to an accident or disease even prior to the said period of 5 (five) years. The Act provides a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments.
Gratuity becomes payable to any employee on the termination of his employment after continuous service for not less than five years:- (i) on his superannuation; or (ii) on his retirement or resignation; or (iii) on his death or disablement due to accident or disease, provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.
The employer is required to pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of wages last drawn by the employee concerned for every completed year of service or part thereof in excess of six months. The ceiling on gratuity payment is three lakhs and fifty thousand rupees.
Companies has to take an annual certificate from an actuary who calculates and certifies the gratuity liability of the company for that year depending on the number of employees, their age and other relevant information.
* Notice of opening – Form – A
* Declaration – Form – F
* Payment of Gratuity Act, Abstract
Payment of Bonus Act, 1965
Payment of bonus based on productivity and profitability of an enterprise (every factory, and any establishment where at least 20 or more persons are engaged) is institutionally recognized through this statute. Someone who works continuously for more than 30 days in an establishment becomes eligible for bonus. However, an employee is disqualified from receiving bonus under this statute if dismissed from service for fraud, riotous or violent behavior while on the premises of the establishment, theft, misappropriation or sabotage of any property of the establishment.
The statute provides a formula to calculate allocable surplus from the profits of the organization, which has to be shared with the employees. Even if there is no allocable surplus, the employer has to pay the employee (unless he is paid more than Rs. 10,000 per month as salary) 8.33% of his entire salary or wage earned in that accounting year as minimum bonus. The maximum bonus, on the other hand, can be 20% under the act. In reality though, many employers pay even higher annual bonus. The employer has to pay this bonus within 8 months of closing of the accounting year.
This act does not apply to employees of central or state government, universities, non-profit organizations, railway or merchant navy. Punishment to officers of the company for violation of the act varies between a fine of Rs. 1000 to imprisonment for 6 months.
Register and returns to be filed:
* Register of Bonus – Form – C
* Annual Returns – Form-D
* Payment of Bonus Abstract
Equal Remuneration Act, 1976
The Equal Remuneration Act was passed in 1976, providing for the payment of equal remuneration to men and women workers for same or similar nature of work. Under this law, no discrimination is permissible in recruitment and service conditions except where employment of women is prohibited or restricted by the law. The following records evidencing compliance with the act has to be maintained – failing which the employer shall be punishable with simple imprisonment for a term which may extend to one month or with fine which may extend to ten thousand rupees or with both.
Read more: Equal Remuneration Act – How labour law can land a million Indian businessmen in jail? | iPleaders
* Equal Remuneration – Form – D
Industrial Employment (Standing Order), 1946
Industrial Employment (Standing Orders) Act, 1946 lays down that every employer of an Industrial Establishment employing 100 or more workmen is required to draft a standing order which sufficiently states the condition of employment for workers and employees. This standing order is to be negotiated with representatives of employees (labour union or employees’ association) and the employer is required to get it certified by the certifying authorities provided under Section 3 of this Act. There is a standard standing order provided with the act – which is applicable by default and any employer can directly adopt it – or adopt it with modifications. Such certified conditions of service will prevail over the terms of contract of employment.
* Standing Order to be displayed on Notice Board
Shops & Commercial Establishment Acts
Apart from factories, every shop and commercial establishment (including hospitals, BPOs, clinics, datacenters, back offices, banks, offices, movies, hotels, guest houses – almost any place where some sort of commercial activity or a part of such activity is taking place) require to register under this Act with state authorities. In a few cities, Including Kolkata, one is required to take a trade license under local municipal law instead of a certificate of registration under Shops and Establishments Act. It is a very important statute from the point of view of working conditions in shops and commercial establishments. This is one of the rare labour statutes which manage to have an effect on a large portion of the unorganized business sector.
Every state has a different local statute for this purpose, so minor details vary and one should check the specific state law before coming to conclusions. However, the following is a list of compliances which is applicable to all states (there may be minor exceptions):
* Inspection Book
* Annual Return – Form – G
*opening hours, closing hours, interval for rest, weekly holiday
* provisions of leave & payment of wages, health & safety, termination of service
* wages for overtime work
National & Festival Holidays Act
many states have local statutes named national and festival holidays act which lays down the compulsory and optional holidays for workers. The same subject is often covered by local Shops and Establishment legislations as well. You should check if this law exists in your state.
Labour Welfare Fund Act
Most of the states have established a labour welfare fund, where a nominal amount is contributed by the employer, employee and government every month for the welfare of labourers in the state.
* Form – D
The Contract Labour (Regulation & Abolition) Act, 1970
The Contract Labour (Regulation & Abolition) Act aims at regulating employment of contract labour so as to protect the interests of indirectly employed workers, as otherwise employers can easily avoid their statutory responsibilities towards workers by introducing a middleman. The act deals with working conditions and certain other benefits of contract labourers. Contract labour refers to the workers engaged by a contractor for the user enterprises.
This statute applies to every establishment (and contractor engaged by such establishment) in which twenty or more workmen are employed (or were employed in the preceding twelve months as contract labourer, even if for one day). Every establishment and contractor, to whom the Act applies, have to register themselves or obtain a license for execution of the contract work.
* Registration Certificate (Before appointing contractor) – Form-1
* Register of Contractor – Form-XII
* Register of Employees employed by Contractor – Form-XIII
* Muster Roll, Wage Register, Over Time Register, Fine Register
Deduction Register, Advance Register ( contractor)
* Notice regarding rates of wages
* Display of the Act & Rules both in English & Kannada
* Half yearly return by contractor – Form – XXIV
* Annual Return by Principle Employer – Form – XXV
Professional Tax Act, 1976
In India, the professional tax is imposed on Business owners, working individuals, merchants and people carrying out various occupations in the states of Karnataka, West Bengal, Andhra Pradesh, Maharashtra, Tamilnadu, Gujarat, and Madhya Pradesh. There are different slabs for this purpose in these states. Every employer is supposed to deduct this tax from the salary of employees and deposit the same with the designated account for this purpose. professionals and self-employed people have to do so on their own.
In some states both individuals and companies need to pay (eg. Maharashtra) and others states where only individuals pay it. In some states one has to register under the statute first, and the periodically renew this registration for paying professional tax.
Returns to be filed:
* Monthly return – Form – 5
* Annual Return
Professional Tax Slabs in Various States
In West Bengal
|Income||Tax to be imposed|
|From ` 1501 To Rs 2001||Rs. 18|
|From ` 2001 To Rs 3001||Rs. 25|
|From ` 3001 To Rs 5001||Rs. 30|
|Rs. 5001||Rs. 40|
|From ` 6001 -7001||Rs. 45|
|From Rs.7001 to Rs.8000||Rs.50|
|From Rs.8001 to Rs.9000||Rs.90|
|From Rs.9001 to Rs.15,000||Rs.110|
|From Rs.15001 to Rs.25,000||Rs.130|
|From Rs.25,001 to Rs.40,000||Rs.150|
|Income||Tax to be imposed|
|upto ` 2500||Nil|
|From ` 2500 to Rs 3500||Rs.60|
|From ` 3500 to Rs 5000||Rs.120|
|From ` 5000 to Rs 10000||Rs.175|
|More than Rs.10000||Rs 200|
|Income||Tax to be imposed|
|From Rs.21001 to Rs.30000||Rs.75|
|From Rs.30001 to Rs.45000||Rs.188|
|From Rs.45001 to Rs.60000||Rs.390|
|From Rs.60001 to Rs.75000||Rs.585|
|More than Rs.75001||Rs.810|
|Income||Tax to be imposed|
|From Rs.1,10,000 To ` 1,45,000||Nil|
|From Rs.1,45,000 To ` 1,50,000||10 %|
|From Rs.1,50,000 To ` 1,95,000||20 %|
|From Rs.1,95,000 To ` 2,50,000||20 %|
|More than Rs.2,50,000||30 %|
Employee State Insurance Corporation Act, 1948
The Employees’ State Insurance Act, 1948 (ESI Act) provides for social security in the nature of health care and cash benefit payments (usually through insurance) in the case of sickness, maternity and employment injury. The Act applies to all factories and commercial establishments employing more than 10 people (20 people in case of a factory that does not use power). Those employees who earn less than INR 15,000 a month are entitled for benefits under ESIC schemes. The employer has to register itself with Employees’ State Insurance Corporation for this purpose. The contribution payable under this statute in respect of an employee comprises of contribution payable by the employer and contribution payable by the employee and is paid to the Corporation on a monthly basis. Offences and non-compliances are punishable by imprisonment and fine.
The following has to be maintained for compliance under this statute:
* Muster Roll
* Wage Register
* Inspection Book
* Accident Register
* Cash Books, Vouchers & Ledgers
* Paid Challans, RDF and Declarations
* Register of Employees – Form – 7
* Half Yearly Return – Form – 6
Employees Provident Fund Act, 1952.
Provident fund is a fund that provides benefits to the employees of a company (who are members of the fund), upon termination of their employment. Both the employees and the employer are required to contribute a certain percentage of the salary or wages (basic wage, dearness allowance and retaining allowances) to the fund. One becomes eligible for membership of the fund on completion of one year’s continuous service, or on having worked for 240 days during a period of 12 months. This act applies to establishments that enagage 20 or more employees. The Act provides insurance to workers and their dependents against risks of old age, retirement, discharge, retrenchment or death of the workers.
Violations of this law can result in imprisonment of one to two years or fine of ten thousand to fifty thousand Indian Rupees.
The following is to be maintained by the employer for compliance:
* Muster Roll
* Wage Register
* Form- 3A, 5, 10 & 12A
* Inspection Book
* Cash Book, Voucher & Ledger
* PF work sheet
* monthly return – Form – 5, 10, 12A along with paid challans
* Annual Return – Form – 3A & 6A
Maternity Benefit Act, 1961
This act protects interests of women employees before and after childbirth. This act stipulates that no employer shall knowingly employ a woman in any establishment during the six weeks immediately following the day of her delivery or her miscarriage. Also, no woman shall work in any establishment during the six weeks immediately following the day of her delivery or her miscarriage. An employee who has worked for 160 days in the preceding one year, becomes entitled to paid holidays on account of maternity from six weeks before childbirth and six weeks after that. She can also take another 12 weeks of unpaid holiday on the account of maternity.
If any employer fails to pay any amount of maternity benefit to a woman entitled under this Act or discharges or dismisses such woman during or on account of her absence from work in accordance with the provisions of this Act, he shall be punishable with imprisonment which shall not be less than three months but which may extend to one year and with fine (ranging between Rs. 2000-5000).
* Abstract – Form – G
Employment Exchange (Compulsory Notification of Vacancies) Act
The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959requires that every vacancy must be compulsorily notified and employment returns are submitted in forms ER-I and ER-II by the employers to the employment exchanges established by the government for this purpose.
This is imposed by the statute on all public sector establishments as well as private sector establishements which are engaged in non-agricultural activities and employ 25 or more workers. The employers in every establishment have to furnish information about vacancies in presecribed return, even if any vacancy is to arise in the future. While there is no obligation to select any of the candidates who come through the employment exchange,
The following are the returns to be submitted to the government:
* Notification of Vacancies – Form – 6
* Quarterly Return – Form : ER-I
* Bi- Annual Return – Form : ER-II
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please clarify if PF ESI rule is applicable for Interns as well. Internship will last for 3 months & further evaluation will confirm her employment
Good in Brief, Excellent
Very useful presentation.