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STRICTLY PRIVATE AND CONFIDENTIAL ATTORNEY WORK PRODUCT

Evaluer

Employment Law

Compliance Handbook

_______________________________

A Practical Compliance Reference

Evaluer I Employment Law Attorneys

SCO15, Sector 17/E, Chandigarh

Copyright © Evaluer | all rights reserved


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T A B L E O F C O N T E N T S

ABOUT THE FIRM - EVALUER 12

CONFIDENTIALITY 13 PURPOSE OF THIS HANDBOOK 14 CHAPTER 1

CONTRACT OF EMPLOYMENT 1. Legislations that must be considered while drafting an

appointment letter 16

2. Classification of employees 17

3. Sample contracts of employment

Temporary employee. 19

Probationer. 21

Apprentice / trainee. 23

Consultant. 25

Contract labour. 27

General manager of factory. 28

Managerial cadre (managers and senior executives). 32

Retainership contract. 35

CHAPTER 2

EMPLOYEES PROVIDENT FUND AND MISCELLANEOUS PROVISIONS 38 ACT, 1952 4. Introduction to the EPF Act 39

Once covered, the coverage of the establishment will

continue forever. 39

Contribution towards EPF. 39

Administrative charges. 39

Nomination to prevail over will. 40

Succession certificate not required for payment to nominee. 40

5. Definition of wages for EPF calculation 41

Items included in basic wages. 41

Items excluded in basic wages. 42

6. Important clarifications for EPF calculation 44

Definition of an ‘excluded employee’. 44

Can an employee contribute over and above the mandatory


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12 %, as voluntary contribution. 44

What is the salary limit towards EPF contribution. 44

What will be the treatment for EPF calculation when

an employee’s salary crosses the wage ceiling of

Rs 6,500. 44

Transfer of Provident Fund accumulations. 45

Will an employee hired afresh on higher than prescribed

salary be covered under the EPF Act. 45

Will an employee continue to be covered even

after his salary exceeds the prescribed limit . 44

Can an employer split minimum wages of a worker in order

to minimize provident fund contribution. 45

Can the employee withdraw a part of his PF accumulations

during employment. 46

Circumstances in which accumulations are paid to

the employee by way of final settlement. 49

What is the mode of payment of contribution. 49

Coverage of employees engaged by a contractor. 50

Will the arrears of wages, paid to an employee by virtue

of an award, attract provident fund

contributions. 50

Will the amount of commissions, as paid to the employees,

attract the applicability of EPF Act. 51

7. Pension Scheme

Contribution to the Pension Scheme. 52

Calculation of pensionable salary. 52

What are the conditions for receiving employee pension. 53

Pension – when an employee retires before the

age of 58 years. 53

Pension – if an employee has worked for less than

10 years. 53

Pension – if an employee dies before retiring. 54

Pension – when employee changes his job. 54

Benefits provided by pension scheme. 54


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What is ‘family’ under Pension Scheme. 56

An employee who is a member of the employee Pension

Scheme and leaves employment at 48 years of age and

8 years of service. When shall he be eligible to

receive his pension. 56

8. Employee Deposit-Linked Insurance Scheme 57

Assurance benefits. 57

9. Obligation of the Company under the EPF Act 58

10. Returns, forms, records to be maintained and submitted 61

For an un-exempted establishment (i.e. Trident Ltd) 61

For an exempted establishment. 66

CHAPTER 3

EMPLOYEE STATE INSURANCE ACT, 1948 69 11. Introduction and applicability of the ESI Act 70

12. Definition of wages for ESI calculation 71

13. Benefits provided to an insured employee: 79

Medical benefits. 79

Sickness (Cash) benefits. 80

Disablement benefit. 81

Dependant’s benefits. 82

Maternity Benefit (paid in cash). 85

Other Benefits. 86

14. Benefits to the Company 87

15. Step-by-step procedure to ESI compliance 88

16. Returns, forms, records to be maintained and submitted 91

One time return on coverage. 91

Regular returns. 92

Record maintenance. 93

Occasional return. 94

Other miscellaneous forms. 97

17. FAQ’s 98

How to get medical benefit when an insured person

is leaving for another station for a temporary

period. 98

Is there any provision for exemption from


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payment of employer’s contribution. 98

Benefits not to be combined. 98

Authority for certifying eligibility of claimants. 99

Once covered, no getting out. 99

Contribution / deductions. 99

Will an employee continue to be covered

under the ESI Act even if he crosses the

wage ceiling as prescribed under the ESI Act. 100

Contribution periods and benefit period. 100

If the wages of an employee exceed Rs 15,000

per month, can he be treated as not covered. 101

What is the manner of payment of contribution. 101

Will delayed payment of contribution attract

any interest. 101

What is the effect of increase of wages from

retrospective date. 102

Voluntary coverage of an establishment – not

Permissible. 102

Principal employer to pay contribution in the

first instance 102

Company not to dismiss or punish employee

during period of sickness. 102

Medical benefits to an insured person who

ceases to be in insurable employment

on account of permanent disablement. 102

Medical benefits to retired insured person. 102

Income limit of dependant parents for

eligibility to medical benefits. 103

Benefit payable up to and including day of death. 103

Availability of ESI benefits away from the place of work. 103

Availability of benefit – even when contributions

are not paid. 103

Accidents happening while commuting to place

of work. 103


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Bar against receiving or recovering compensation

or damages under any other law. 103

18. Critical evaluation of the ESI Act 104

CHAPTER 4 THE PAYMENT OF BONUS ACT, 1965 105

19. Introduction to the Bonus Act 106

20. Eligibility of bonus and definition of an employee 107

21. Wages for calculation of bonus 110

22. Payment of bonus and calculation thereof 113

23. Returns, forms to be maintained and submitted to authorities 116

24. FAQ’s

Bonus to employees engaged through contractor. 118

Time limit for payment of bonus. 118

Penalty under the Bonus Act. 118

Disqualification of an employee for bonus. 118

Bonus not to be remitted or deposited. 119

Piece-rate employees. 119

Can a Company adjust voluntary bonus against

bonus payable under the Bonus Act. 119

Entitlement of bonus to a suspended employee. 119

Can the bonus payable to an employee in an accounting

year be reduced if the employee has not

worked for all working days in that year. 119

Establishments to include departments,

undertakings and branches. 120

Special provision with respect to payment of

bonus linked with production or productivity. 120

CHAPTER 5 THE MATERNITY BENEFIT ACT, 1961 122 25. Introduction to the Maternity Benefit Act 123

26. Wages for calculating maternity benefit 124

27. Do’s and Don’ts for the Company 126

28. Returns, forms to be maintained and submitted to authorities 129

Annual Return. 129

Record maintenance. 129

Display of the Maternity Benefit Act. 129


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Miscellaneous. 130

CHAPTER 6 THE CONTRACT LABOUR (REGULATION AND ABOLITION) ACT, 1970 131

29. Introduction 132

30. Applicability and definition of workman under the

Contract Labour Act 133

31. Applicability of other labour laws on contract labour 134

The Factories Act, 1948. 134

Employee Provident Fund and Miscellaneous

Provisions Act, 1952. 134

Employee State Insurance Act, 1948. 134

The Payment of Bonus Act, 1965. 135

Payment of Gratuity Act, 1972. 135

The Minimum Wages Act, 1948. 135

Workmen’s Compensation Act, 1923. 135

32. Step-by-step procedure for obtaining license (for contractor)

and registration (for the Company) 137

33. Returns, forms, records, to be maintained and submitted

to authorities 142

Obligations of the company / principal employer 142

Obligations of contractor. 142

Registers and records to be maintained and filed

by contractor. 143

Welfare facilities to be provided by contractor. 146

Display of notices. 147

Penalties. 147

34. FAQ’s

Liability of principal employer in case of

sub-contracting. 149

Responsibility of payment of wages to

contract labour. 149

Terms and conditions of employment of contract

labour vis-à-vis regular employees. 149

Ratio of regular employees and workers through

Contractor. 149


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Laws, agreement or standing orders inconsistent with

the Contract Labour Act – not permissible. 150

Payment of wages. 150

Wage rate for contract labour and permanent

Workers. 150

License not renewed but contractor continues to

work – legal implication. 150

What is the legal implication of a contractor changing

but contract labour not changing. 150

What happens to contract labour when the contract between

a contractor and principal employer is terminated

due to unsatisfactory performance. 151

What is the liability of principal employer if contractor

runs away leaving behind his workforce. 151

Who is responsible for payment of wages to

contract labour. 151

CHAPTER 7 THE PAYMENT OF GRATUITY ACT, 1972 152

35. Introduction to the Gratuity Act 153

Applicability. 153

Employees eligible for gratuity. 153

Can every employee claim gratuity under the

Gratuity Act. 154

Will a director of a company be entitled to gratuity

under the Payment of Gratuity Act. 154

36. Calculation of Gratuity 155

Wages for the gratuity calculation. 155

Amount of gratuity payable. 155

37. Important clarifications 157

Payment of gratuity when no nomination has

been made. 157

Interest on late payment. 157

Calculation of gratuity when an employee has

been working for 22 days in a month. 157

Claiming gratuity before 5 years of service. 157


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Gratuity to employees engaged through a contractor. 157

Completed year of service. 158

Gratuity to a retrenched employee. 158

Will a trainee having worked for 5 years be entitled

to gratuity. 158

Can gratuity be adjusted against loan taken by

an employee. 158

Attachment of gratuity payable to legal heirs. 159

Will an employee be entitled to gratuity on

his re-employment. 159

Forfeiture of gratuity. 159

Gratuity on resignation. 159

Retirement on attaining the age of 58. 159

Mode of payment of gratuity. 160

Nomination. 160


to authorities 161

Notice of opening, change and closure of factory

/ establishment. 161

Nomination. 162

Application for gratuity by employee. 162

Notice for payment of gratuity. 163

Display of the Act / Rules. 164

Penalty. 164

CHAPTER 8 THE INDUSTRIAL EMPLOYMENT (STANDING ORDERS) ACT, 1946 166

39. Introduction to the Standing Orders Act 167

40. Salient features of the Standing Orders Act 168

Applicability of the Standing Order Act. 168

Workman under the Standing Order Act. 168

Certification of Draft Standing Orders. 168

Temporary application of model standing orders. 169

Date of operation of Standing Orders. 169

Inconsistence between contract of employment

and certified standing orders – latter will prevail. 169


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Display of standing order. 169

Payment of subsistence allowance. 170

Procedure for certification of Standing Orders. 170

Penalty. 170

41. Forms to be prepared and maintained by the Company 172

42. Matters to be provided in the Standing Order 173

CHAPTER 9 THE MINIMUM WAGES ACT, 1948 174

43. Introduction to the Minimum Wages Act 175

44. Compliance checklist

Payment of wages. 176

Permissible deductions. 176

Total amount of deductions. 177

Maintenance of registers. 177

Annual returns. 178

Display of notice. 178

Weekly day of rest. 178

Number of hours of work which shall constitute a

normal working day. 178

Extra wages for overtime. 178

Maintenance of register of wages. 178

Muster roll. 179

Penalty and punishment for offences. 179


to authorities 180

Annual return. 180

Registers and records. 180

Display of Notice. 182

46. Minimum rates of wages w.e.f March 1, 2013

(Attached as annexure)

CHAPTER 10 THE APPRENTICES ACT, 1961 183

47. Objective of the Apprentices Act 184

48. Essential ingredients of contract of apprenticeship 184

49. Apprentice is not a workman 184

50. Bonus to an apprentice 185


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51. Apprentice and Employee Provident Fund 185

52. Apprentice and Employee State Insurance Act 185

53. Obligation of the Company 185

54. Payment of stipend 186


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About the firm – Evaluer

Evaluer is a law firm, attorneys at which specializing in Company law and Indian Employment laws. At

Evaluer we provide legal advice to established and start-up companies, HR managers, entrepreneurs,

venture capital firms and private equity investors on various compliances that govern their company,

investments and employees. This inter-alia includes drafting and negotiation of contracts, service

agreements, confidentiality and non-compete arrangements, non-disclosure agreements, share-

purchase agreements, shareholders agreements, joint venture formalities, restructuring, creating

employee benefit trusts, including ESOP trusts etc. We also undertake and file documents, as when

required on behalf of our clients. In the face of a complex regulatory regime, our team offers proactive

and practical advice & implementation support.

Our advice is delivered by well-informed, accessible, teams, which strive to provide the highest quality

of service to our clients, by listening, understanding their needs, responding promptly and living up to

the commitments that we make. We use plain English to communicate verbally and in our

documentation.

In short we advise our clients in order to keep them compliant with laws applicable to their company

and employees that they hire from time to time. We at Evaluer understand and appreciate the

different challenges that our clients face in the current business environment as a result of

technological changes, evolving government regulations, and competitive pressures in the

marketplace.


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Chapter 1

C O N T R A C T O F E M P L O Y M E N T

Employee

Employer

Contract of

Employment

Employment

Law


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C O N T R A C T O F E M P L O Y M E N T

The relationship between an employer and employee begins with the issuing of letter of appointment

and its acceptance by the employee and becomes a contract of employment between the two. Since

in general contracts, the parties are bound by the terms of contract and are liable for breach thereof,

so also in a contract of employment, the employer and the employee are governed by the terms of

employment, spelt in the letter of appointment and thus assumes great significance in determining

the rights and obligations of both parties. It is thus necessary to construct the terms of employment

and conditions of service in the letter of appointment with great diligence and prudence. Omissions

may cost the employer dearly in pecuniary terms at a later stage.

The following legislations must be considered while drafting an appointment letter

1. The Indian Contract Act, 1872 – Regarding written and implied conditions of service

2. Specific Relief Act, 1963

3. Arbitration and Conciliation Act, 1996

4. Constitution of India, 1949 – Article 14, 16, 19 & 21

5. General Clauses Act, 1956

6. The Employee Provident Fund and Miscellaneous Provisions Act, 1952

7. The Employee State Insurance Act, 1948

8. The Payment of Bonus Act, 1965

9. The Maternity Benefit Act, 1961

10. Industrial Statutes or Civil Procedure Code – as may be applicable

11. Income Tax Act, 1961

12. Industrial Employment Standing Orders Act, 1946

13. Limitation Act, 1963

14. Indian Evidence Act, 1872

Viewed in the aforesaid context of legal position on the terms in the letter of appointment, it is

imperative that the Company draft a comprehensive letter of appointment incorporating the clauses

and framing the terms diligently, spelling the rights and obligations clearly.


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C L A S S I F I C A T I O N O F E M P L O Y E E S

Employees are broadly classified into the following eight categories:

1. Temporary employee Means an employee who has been appointed for a

limited period for work which is of essentially

temporary nature and who is employed temporarily as

an additional employee in connection with temporary

increase in work of permanent nature.

2. Probationer Means an employee who is previously employed to fill

a permanent vacancy or post and who has not

completed 6 (Six Months) or 240 (Two Hundred Forty)

days of service in the aggregate in that post.

3. Apprentice / Trainee Means a learner who has been admitted for training.

4. Part-time employee Part-time employee means an employee who is

employed for less than the normal period of working

hours.

5. Permanent employees Means an employee who has been employed on a

permanent basis, or who, having been employed as a

substitute or a temporary employee has subsequently

been made permanent by an order in writing by the

Manager or any person authorized by him in that

behalf.

6. Fixed term employee Means a person employed for a specified period on the

expiry of which, the employment comes to an end.


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7. Substitute Means a person who is a reliever, being employed in

the place of any employee who is absent for any

reason.

8. Casual employees Means an employee who is employed for any work

which is not incidental to or connected with the main

work of manufacturing/service process carried on in an

establishment and which is essentially of a casual

nature.


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S A M P L E C O N T R A C T O F E M P L O Y M E N T

TEMPORARY EMPLOYEE

To, Date:

_________________

_________________

Dear Sir,

With reference to your application dated (●) for the post of (●) in our organization and subsequent

interview you had with us, the Company is pleased to appoint you on the post of (●) on the following

terms and conditions:

Terms and conditions

1. Your employment is purely of temporary nature with effect from (●) for a maximum period of

(●) months or till the completion of temporary work whichever is earlier.

1.1. If for any reason the temporary work is not completed within the expected time or company

gets more temporary work, period of your temporary employment may be accordingly

extended but your appointment will continue to be temporary only.

2. During the period of temporary employment, you will be entitled to a consolidated salary of

Rs (●) and you will not be entitled to any other benefits, privileges, concessions applicable to

permanent employees except the statutory benefits, if any. You will observe punctuality and

be regular in your attendance.

3. Your services are liable to be transferred to any other section/department in the same

establishment or to any other establishment (existing or which may be set-up in future)

anywhere in the county.

4. You may also be sent on deputation to any other organization under the same management

or under different management anywhere in the country.

4.1 You will keep us informed of any change in your residential address.


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CONSULTANT

Mr/Ms. (●)

___________

Dear Mr/Ms (●),

With reference to your application dated (●) and subsequent interview/ discussions you had with us,

you are appointed as a Consultant in our organization on the following terms and conditions which

are mutually agreed upon.

1. You will be engaged as a Consultant for (●) with the Company for all its locations in India for

a period of (●) commencing from (●). On completion of the period, this arrangement will

automatically come to an end unless renewed for a period of (●) on mutually agreed terms

and conditions. You will provide consultancy service on all matters relating to the above

area/subject/ work.

2. During this tenure period you will be paid an all inclusive fixed consultancy charges of Rs (●)

per month subject to taxes.

3. During the tenure of this agreement, the same can be terminated by giving (●) notice in

writing by either side or by paying amount equivalent to this notice period.

4. As a Consultant you will not divulge or make known any dealings, accounts, or any other

information relating to the company’s current and future business without the written

consent by the company.

5. You will be responsible for safekeeping and return in good condition and order all our

property/documents which may be in your use, custody and charge. On termination or expiry

of the agreement, you will return the company’s documents or property immediately.

6. You are requested to mention your PAN Number on all claims (where applicable).


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Employee Provident Fund Miscellaneous Provisions Act, 1961

C H A P T E R

2

In this chapter we will address the following:

What the Employee Provident

Fund Act, Employee Pension Scheme and Employee Deposit Linked Insurance mean.

Meaning of wages for the purpose of provident fund deductions.

Checklist and Do’s and Don’ts for

the Company.

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Employment Law


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Can the employee withdraw a part of his PF accumulations during employment?

An employee can utilize his provident fund accumulation partially for specific occasions, such as:

(i) Medical Treatment:

Advance from the fund for illness viz. hospitalization for more than a month, major surgical

operation or suffering from T.B, leprosy, paralysis, cancer, heart ailment, etc. For self or

family (spouse, children, and dependent parents). The maximum amount that can be

drawn shall not exceed the member’s basic wages (and dearness allowance) for 6 (Six)

months or his own share of contribution with interest in the Fund till date, whichever is

less. The member has to show proof of hospitalization for 1 (One) month or more with

leave certificate for that period from the Company. He must also prove that he is not a

member of the Employee State Insurance Corporation.

Additionally, a physically handicapped employee can withdraw up to 6 (Six) months basic

salary and dearness allowance, or his share of provident fund contribution with interest or

the cost of equipment. He will have to submit a medical certificate to prove the same.

(ii) Marriage or education of self, children, sister or brother etc:

An employee should have completed a minimum of 7 (Seven) years of membership of the

Fund. The maximum amount he can draw is 50 (Fifty) percent of his contribution.

Withdrawal is permitted for his own marriage, the marriage of his or her daughter, son,

sister or brother or for the post- matriculation education of his or her son or daughter.

Proof to be submitted will be fee payable to the educational institute or the wedding invite

as the case may be. Not more than 3 (Three) advances shall be permissible under this head.

(iii) Damage to movable or immovable property of member due to natural calamity:

A member whose property (movable or immovable) has been damaged due to a natural

calamity such as earthquake, floods or riots can withdraw up to Rs 5,000 (Five Thousand

Only) or 50 (Fifty) percent of his total contribution including interest thereon whichever is

less to meet the unforeseen expenditure. The concerned member will have to will have to

apply within 4 (Four) months of the calamity. Proof to be submitted will be a certificate of

damage from the requisite authority and a calamity declaration by the State Government.

The EPF Act does not provide for any minimum service condition for the member in such a

scenario.

(iv) Employee physically handicapped:


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3rd Advance

5. Addition, alteration or improvement in the dwelling house.

10 years from the date of completion of dwelling house.

12 months basic or member’s own share of contributions with interest thereon.

(i) Proof of ownership.

(ii) Details of addition / alteration to be carried out along with permission to carry out additions etc.

(iii) Estimate from the appropriate authority.

(v) Option for withdrawal for investment in Pension Beema Yojana:

The employee should be more than 55 (Fifty Five) years of age. Amount receivable is 90%

of both contributions. Payment to be made to Life Insurance Corporation directly.

Circumstances in which accumulations are paid to the member by way of final settlement:

Accumulation in the provident fund account of a member become payable for final settlement

under following circumstances:

(i) on retirement from service after attaining the age of 58 (Fifty Eight) years;

(ii) on retirement as a result of total and permanent disablement rendering incapable for

work;

(iii) immediately before migration from India for permanent settlement abroad or for taking

employment abroad;

(iv) termination of service upon mass or individual retrenchment;

(v) termination of service under voluntary retirement scheme; and

(vi) termination of job and remaining unemployed for over 2 (Two) months or leaving the job

from a covered establishment and joining the establishment not covered by the EPF Act.

What is the mode of payment of contribution?

Para 38 of the EPF Scheme provides that all remittances are remitted within 15 (Fifteen) days of

close of every month by separate bank drafts or cheques on account of contributions and

administrative charges. If the payment is made by cheque it should be drawn only on the local

bank of the place in which deposits are made. Where there is no branch of the Reserve Bank of

India (the “RBI”) or the State Bank of India (the “SBI”) at the station where the establishment or

factory is situated, the Company shall pay to the Fund the amount by RBI (Governments Drafts at

par) separately on account of contributions and administrative charges.

Employer E-Sewa Scheme of EPFO:


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EPFO has introduced Electronic Challan cum Return (ECR) from April, 2012 for remittance of

contributions by all employers with a view to provide greater transparency, better quality of

service to employees and greater convenience and ease to employers. According to this Scheme:

(i) the employer can automatically update the accounts on receipt of contribution by EPFO;

(ii) the employer can download annual accounts slips for their employees for the year 2010-

2011 onwards from the website of EPFO;

(iii) there is no need to file returns in Form 5, 10, 12A, 3A, 6A by employer of un-exempted

establishment;

(iv) there is no need for annual updation of accounts;

(v) EPF contributions of individual members shall be credited to their respective accounts on

monthly basis;

(vi) members can get the detailed account statements with all credit and debit on request

through the EPFO website with effect from May 1, 2012

For this, an employer is required to register the establishment on EPFO website

(www.epfindia.gov.in) for their user ID and password for filing the Electronic Challan cum Return

(ECR) for wage month of March 2012 onward. For further details and steps to be followed for

depositing contributions through ECR, please visit EPFO website www.epfindia.gov.in (Link –

“Employer e-Sewa”).


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E M P L O Y E E D E P O S I T – L I N K E D I N S U R A N C E S C H E M E

The third scheme to operate under the EPF Act is the Employee Deposit Linked Insurance Scheme (the

“EDILS”). The purpose of this scheme is to provide for life assurance benefits to the employees of an

establishment to which the EPF Act applies. According to the EDLI Scheme, the Company is required

to contribute 0.5 % percent of the employee’s monthly basic pay, capped at Rs 6,500 (Six Thousand

Five Hundred), as premium. This contribution is deposited in a Deposit-Linked Insurance Fund

established under the EPF Act. The employees are not required to make any contribution.

The EDLI Scheme provides for payment of assurance benefits upon death of the member while in

service. On the death of an employee, who is a member of the Fund the persons entitled to receive

the provident fund accumulations of the deceased member, shall in addition to such accumulation be

paid an amount equal to the average balance in the account of the deceased in the Fund, during

preceding 12 (Twelve) months, except where the average balance exceeds Rs 50,000 (Fifty Thousand)

the amount payable shall be Rs 50,000 (Fifty Thousand) plus 40 % of the amount in excess of Rs 50,000

(Fifty Thousand) subject to of ceiling of Rs 1,00,000 (One Lac)

Assurance Benefits:

Assurance benefit means a payment linked to the average balance in the Provident Fund Account of

an employee, payable to a person belonging to his family or otherwise entitled to it in the event of

death of the employee. On the death of the employee while in service, the nominee or any other

person entitled to receive the provident fund benefits will, in addition to the provident fund, receive

the assurance benefit under the Employees Deposit Linked Insurance Scheme.


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O B L I G A T I O N S O F T H E C O M P A N Y

Obtain code number for a new establishment:

In case of a new establishment, the Company must first obtain a code number. In order to obtain a

code number the Company needs to submit a form known as ‘Performa for Coverage’ along with

documents mentioned in the form. The following particulars and documents must be furnished along

with the above mentioned Form:

Particulars of the establishment (to be submitted along with documents mentioned below):

(i) Name of establishment / factor and address;

(ii) Details of Head Office and branches with address;

(iii) Details of Code No, if any allotted to the Head Office;

(iv) Date of incorporation of the company, along with documentary proof of incorporation

(v) Employment strength at present; and month-wise employment strength from the date of set

up may be furnished in separate statement;

(vi) Nature of business activity / manufacturing activity;

(vii) Details of legal set-up of the establishment (i.e. whether it is a private / public limited company,

partnership, society or proprietary concern;

(viii) Ownership particulars: name, addresses and designation of managing director, directors,

partners, secretary etc;

Obtain Code No for the establishment

Obtain employee number of each employee and declaration by

person taking up employment

Payment of contribution and

prepration of contribution cards

Periodical returns to be sent by an employer to the Provident Fund

Office


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Employee State Insurance Act, 1948

C H A P T E R

3


What the Employee State

Insurance Act mean.

Meaning of wages for the purpose of ESI calculation.


the Company.

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Employment Law


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I N T R O D U C T I O N

Employees State Insurance Act, 1948 (the “ESI Act”) is a social security legislation enacted to

provide health insurance cover for workers. The ESI Act is applicable to workers / employees earning

Rs 15,000 (Fifteen Thousand) or less per month. Like most of the social security schemes the world

over, this too is a self financing health insurance scheme, contributions to which are raised from

employees and their employers as a fixed percentage of wages. As of now, employees contribute 1.75

% of their wages, whereas and the employer contributes 4.75% of the wages, payable to an

employees.

The fund (the “ESI Fund”) in which contributions are deposited is managed by the Employee State

Insurance Corporation (the “ESIC” or “ESI Corporation” or “Corporation”) according to rules and

regulations stipulated under the ESI Act. ESI Corporation is an autonomous corporation under Ministry

of Labour and Employment, Government of India.

Additionally, the Employee State Insurance Regulation (the “ESI Regulations”, “Scheme” or the “ESI

Scheme”) has been enacted under the ESI Act in order to clearly outline modalities of registration of

factories / establishments, collection of contributions, filing of returns / forms and claims with respect

to sickness, maternity or death and disablement benefits due to employment injury.

A P P L I C A B I L I T Y O F T H E E S I A C T

The ESI Act is applicable to factories which employ 10 (Ten) or more persons on any day of the

preceding 12 (Twelve) months and for an establishment the Supreme Court in ESI Corporation Vs M.M

Suri and Associates (P) Limited1 has clarified that there must be at least 20 (Twenty) eligible

employees. The Supreme Court has made it clear that unless there are 20 (Twenty) or more eligible

employees drawing less than Rs 15,000 (Fifteen Thousand) per month remuneration, the ESI Act will

not apply to an establishment. The ESI Act however, does not apply to employees drawing salary /

wages exceeding Rs 15,000 (Fifteen Thousand). The ESI Act shall also not apply to a factory or

establishment if employees of that factory or establishment are receiving benefits similar or superior

to benefits outlined in the ESI Act.

1 1998 LLR 1105 (SC): 1999 AIR SCW 429: (1998) 8 SCC 111


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R E T U R N S F O R M S R E C O R D S T O B E M A I N T A I N E D A N D S

U B M I T T E D

S.No Compliance Requirements

Source

Verification

Due Date Responsibility

for

Compliance

Total Number of employees

____________

Total Number of Apprentices

___________

Total Number of employees drawing

wages of Rs. 15,000 and below

_______________

ONE TIME RETURN ON COVERAGE

1. 2.

Registration of factory /

establishment:

(In order to obtain Employer’s Code

Number).

(Section 2A of the ESI Act and

Regulation 10 B of the Employee State

Insurance (General) Regulations, 1950)

Any change in particulars in the above

mentioned form should be intimated to

the regional office of the ESI

Corporation.

(Regulation 10 C of the Employee State Insurance (General) Regulations, 1950)

Form 01

Not later than

15 days after the

ESI Act becomes

applicable to the

factory or

establishment.

To be submitted

within 2 weeks

of such change.

Company

Company


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The Payment of Bonus Act, 1965

C H A P T E R

4


What the Payment of Bonus Act means

Important definitions for calculation of bonus including the definition of wages

Concept of set-on and set-off

Exemption from payment of bonus

Returns, forms to be maintained

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The following case study explains the concept of set-on and set-off:

In the following illustration minimum statutory bonus (8.33% of annual salary / wage of an employee)

is assumed to be Rs 1,04,167 (One Lac Four Thousand One Hundred Sixty Seven) and maximum

statutory bonus is assumed to be 2,50,000 (Two Lac Fifty Thousand) (20% of annual salary of all

employees).

Year Allocable surplus Amount payable as

bonus

Set on or set off the

year carried forward

Total set on or

set off carried

Forward

Of

(year)

1. Rs 1,04,167 Rs 1,04,167** Nil Nil

2. Rs 6,35,000 2,50,000* set on 2,50,000* set on 2,50,000* (2)

3. 2,20,000 2,50,000* (inclusive

of 30,000 from year-

2)

Nil Set on 2,20,000 (2)

4. 3,75,000 2,50,000* Set on 1,25,000 Set on 2,20,000

1,25,000

(2)

(4)

5. 1,40,000 2,50,000* (inclusive

of 1,10,000 from

year-2)

Nil Set on 1,10,000

1,25,000

(2)

(4)

6. 3,10,000 2,50,000* Nil Set on Nil +

1,25,000

60,000

(2)

(4)

(6)

7. 1,00,000 2,50,000* (Inclusive

of 1,25,000 from

year-4 and 25,000

from year-6)2

Nil Set on 35,000 (6)

8. Nil

(due to loss)

1,04,167** (inclusive

of 35,000 from year-

6)

Set off 69,167 Set off 69,167 (8)

9. 10,000 1,04,167*** Set off 94,167 Set off 69,167

94, 1267

(8)

(9)

10. 2,15,000 1,04,167** (after

setting off 69, 167

from year-8 and

41,666 from year-9)

Nil Set off 52,501 (9)

2 The balance of Rs1,10,000 set-on from year-two lapses.


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R E T U R N S F O R M S T O B E M A I N T A I N E D A N D S U B M I T T E D

Section 26 of the Bonus Act provides for maintenance of registers, records, and other documents by

an Company in certain prescribed form and manner. Payment of Bonus Rules, 1975 (the “Bonus

Rules”) makes it obligatory for the Company to maintain the following registers:

(i) a register showing the computation of the allocable surplus in form A (section 2).

(ii) a register showing the set-on and set-off of the allocable surplus in form B (under section 15).

(iii) a register showing the details of the amount of bonus due to each of the employees, the

deductions under sections 17 and 18 and the amount actually disbursed, in Form C.

Additionally, the Company shall send a return in Form D to the Inspector within 30 (Thirty) days after

the expiry of the time limit specified in section 19 of the Bonus Act for payment of bonus.

S.

No.

Compliance Requirement Source

Verification

Due Date Responsibility

for Compliance

Total number of

employees___________

Total number of employees drawing

salary of Rs. 10,000 and

below____________

ANNUAL RETURN

1. Annual return: an annual return of

bonus paid to employees in an

accounting year must be sent to the

Inspector.

(Rule 5 of the Payment of Bonus Rules)

Form D Within 30

days after the

payment of

bonus.

Company

RECORD MAINTENANCE

2. Allocable Surplus: A register showing

the computation of the allocable

Form A Company


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surplus referred to in clause (4) of

section 2.

[Rule 4 (a) of the Payment of Bonus

Rules]

3. Set-on and set-off of allocable

surplus: Register showing the set-on

and set-off of the allocable surplus,

under section 15.

[Rule 4 (b) of the Payment of Bonus

Rules]

Form B Company

4 Bonus Paid: Register showing the

amount of bonus paid to each

employee and the deductions under

section 17 and 18 made.

[Rule 4 (c) of the Payment of Bonus

Rules]

From C Company


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Maternity Benefit Act,

1961

C H A P T E R

5


What the Maternity Benefit Act

means.

Meaning of wages explained for calculation of maternity benefit

Checklist and Do’s and Don’ts for the Company

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One of the primary

objectives of the Maternity

Benefit Act is to maintain the

health of a pregnant female

employee and her child.

The Maternity Benefit Act, 1961 (the “Maternity Benefit Act”)

applies to every factory, mine or plantation and to every shop

or establishment wherein 10 (Ten) or more people were

employed in the preceding 12 (Twelve) months. One of the

primary objectives of the Maternity Benefit Act is to maintain

the health of a pregnant female employee and her unborn

child.

To be eligible to receive maternity benefit, a pregnant female

employee must have worked for at least 80 (Eighty) days

within 12 (Twelve) months immediately preceding her date of

delivery. Pregnant female employees are eligible to receive

payment at the rate of average daily wage3 of up to 6 (Six)

weeks of leave before delivery, and payment of up to 6 (Six)

weeks of leave after delivery. The maximum period for which

any women shall be entitled to maternity benefit is 12

(Twelve) weeks of which not more than 6 (Six) weeks shall

precede the date of her expected delivery.

In addition to maternity benefit, an eligible woman employee

shall also be entitled to receive from the establishment a

medical bonus of Rs 2,500 (Two Thousand Five Hundred)4, if

no pre-natal, confinement and post-natal care is provided for

by the establishment, free of charge. The medical bonus shall

be paid along with the second installment of the maternity

benefit.

3Average daily wage means the average of the women’s wages payable to her for the days on which she has worked during the period of three calendar months immediately preceding the date from which she absents herself on account of maternity. 4 Increased from Rs 1,000 vide S.O. 2016 (E), dated 11th August, 2008, published in the Gazette of India, Extra., Pt. II, Sec, 3 (ii), dated 11th August, 2008.


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The Industrial Employment (Standing Orders) Act, 1946

C H A P T E R

8


What the Standing Orders Act

Means

Registers to be maintained by the Company


the Company

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The Industrial Employment

Standing Order Act, 1946

(“Standing Order Act”)

There are various labour legislations that disregard the

concept of private contract of service between an Employer

and employee. Standing Order Act is one of them. The

Standing Orders Act provides for provision to define the

contract of service between an employer and employee. The

scheme of the Standing Order Act requires an employer to

formally define the conditions of employment for workmen.

In other words, define in writing the conditions of service and

rule of discipline under which workers have to work. In fact,

it is a statuary contract of service between the employer and

employee. A Company cannot enter into an agreement with

a workman which is inconsistent with the Standing Order. The

terms of the Standing Orders will prevail over the

corresponding terms in the contract of service. An employer

additionally cannot enforce simultaneously the Standing

Orders regulating the classification of workmen and a special

agreement with an individual workman settling his

categorization. Provisions of Certified Standing Orders and

the terms specified, become service conditions of the

workmen.

It is mandatory for the employer to get standing orders

certified. In case an employer fails to get the Standing Orders

certified, the Model Standing Orders will be applicable. It is

therefore advisable that instead of applying the Model

Standing Orders, the Company should get the Standing

Orders certified.


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The Minimum Wages Act, 1948

C H A P T E R

9


What the Minimum Wages Act

Means

Registers to be maintained by the Company

Mandatory filing of certain forms


the Company

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the wage period, indicating also in precise terms the wage period to which the ‘nil’ entry relates.

Annual Returns:

The Company shall send annually a return in Form III so as to reach the Inspector not later than

the February 1 following the end of the year to which it relates.

Display of notice:

Notices in Form IX-A containing the minimum rates of wages fixed together with abstracts of the

Minimum Wages Act and the name and address of the Inspector shall be displayed in English and

in a language understood by the majority of the workers at the main entrance to the factory /

establishment. Such notices shall also be displayed on the notice boards of all sub-divisional and

district offices.

Weekly day of rest:

Every worker shall be allowed a day of rest every week (“Rest Day”) which shall ordinarily be

Sunday, but the Company may fix any other day of the week as the rest day for any worker. Where

any worker works on a rest day he / she shall be granted for rest day wages calculated at the rate

applicable to the next preceding day.

Number of hours of work which shall constitute a normal working day:

The number of hours which shall constitute a normal working day shall be, in the case of an adult5,

9 (Nine) hours and in the case of a child6, 4 ½ (Four and Half) hours.

Extra wages for overtime:

When a worker works in an employment for more than 9 (Nine) hours on any day or for more

than 48 (Forty Eight) hours in any week, he shall in respect of overtime work, be entitled to wages

at double the ordinary rate of wages7. Additionally, a register of overtime shall be maintained by

the Company in Form IV in which entries under the columns specified therein shall be made as

and when overtime is worked. Where no overtime has been worked in any wage period, a ‘nil’

entry shall be made across the body of the register at the end of the wage-period indicating also

in precise terms the wage period to which the ‘nil’ entry relates.

Maintenance of register of wages:

A register of wages shall be maintained by the Company at the work-spot in Form X. A wage slip

in Form XI shall be issued by the Company to every worker at least a day prior to the disbursement

of wages.

5 Adult means a person who has completed his 18th year of age. 6 A child means a person who has not completed his 14th year of age. 7 The expression ‘ordinary rate of wages’ means the basic wages plus such allowances including the cash equivalent of the advantages accruing through the concessional sale to the person employed of food grains and other articles as the person employed is for the time being entitled to, but does not include a bonus.


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For further information please contact:

[email protected]

Disclaimer:

This Handbook is not an advertisement or any form of solicitation. This

Handbook has been compiled for general information of the client and does

not constitute professional guidance or legal opinion. Readers should

obtain appropriate professional advice.

Evaluer I Employment Law Attorneys

SCO 15, Sector 17/E, Chandigarh

[email protected] | 9814666141

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