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Labour laws applicable to establishments with a minimum employee threshold


1. Payment of Gratuity Act, 1972

The Payment of 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

2. Employees’ State Insurance 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

3. 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 engage 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

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

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 of three months to one year and with fine (ranging between Rs. 2000-5000).

* Abstract – Form – G

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.

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.

The Maharashtra Labour Welfare Fund Act, 1953 which is applicable to establishments all over Maharashtra (including in Mumbai and Pune), provides for the constitution of a fund for financing activities to promote labour welfare in Maharahstra.

Any establishment which is covered under the Bombay Shops and Establishments Act, 1948 or employs at least 5 employees is required to make bi-annual contributions in the months of June and December every year to the Maharashtra Labour Welfare Fund with respect to each of its employees (including contract labourers) except those employed in managerial capacity or supervisory role drawing monthly salary of more than INR 3,500.

For this purpose, apart from paying its own contribution with respect to each employee covered under the statute, the employer needs to deduct a contribution amount from the salary of the employee as well and submit such amount to the labour welfare fund. Employers are allotted code numbers for this purpose. The employer has to apply for allotment of code number to the Welfare Commissioner, Maharashtra Labour Welfare Board. The Government also adds some contribution to the Fund. The Fund is administered by the Welfare Commissioner.

Calculation of contribution amount

Both the employer and the employee are required to contribute under the Maharashtra Labour Welfare Fund Act. The employees contribution is Rs. 6 for an employee who earns Rs. 3000/- while it is Rs.12 for those who earn more than 3000. Whereas the company contributes is three times what the employee contributes, that is – Rs.18 and Rs. 36 for employees who draw Rs. 3000 and more than Rs. 3000 respectively.

Dues and penalty

Any dues under this act are treated as land revenue due to the state government. If an employer is not paying contributions due to the Board, the commissioner will issue a notice to pay the dues. If the employer fails to pay despite notice, interest will be charged on the dues. If the employer does not deduct employees contribution in a timely manner, employer may have to pay it himself. There is no provision for imprisonment under the statute.

There are similar welfare fund acts in many other states.

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