Labour Laws Summary

8/3/2019 Labour Laws Summary

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The Industrial Disputes Act, 1947Objectives

The objective of the Industrial Disputes Act is to secure industrial peace and harmony by providing

machinery and procedure for the investigation and settlement ofindustrial disputes by negotiations.

Various studies indicate that Indian labour laws are highly protective of labour, and labour markets are

relatively inflexible. These laws apply only to the organised sector. Consequently, these laws have

restricted labour mobility, have led to capital-intensive methods in the organised sector and adversely

affected the sectors long-run demand for labour. Labour being a subject in the concurrent list, State-level

labour regulations are also an important determinant of industrial performance. Evidence suggests that

States, which have enacted more pro-worker regulations, have lost out on industrial production in general.

-- (Ministry of Finance, 2006, p. 209 the Industrial Disputes Act (IDA) of 1947. Particular attention has

been paid to its Chapter V-B, introduced by an amendment in 1976, which required firms employing 300

or more workers to obtain government permission for layoffs, retrenchments and closures. A further

amendment in 1982 (which took effect in 1984) expanded its ambit by reducing the threshold to 100

workers. It is argued that since permission is difficult to obtain, employers are reluctant to hire workers

whom they cannot easily get rid of. Job security laws thus protect a tiny minority of workers in the

organized sector and prevent the expansion of industrial employment that could benefit the mass of

workers outside. It is also argued that the restriction on retrenchment has adversely affected workplace

discipline, while the threshold set at 100 has discouraged factories from expanding to economic scales of

production, thereby harming productivity. Several other sections of the IDA allegedly have similar effects,

because they increase workers bargaining strength and thereby raise labour costs either directly through

wages or indirectly by inhibiting work reorganization in response to changes in demand and technology.

The Act also lays down

1. The provision for payment ofcompensation to the workman on account of closure or lay

off orretrenchment.

2. The procedure for prior permission of appropriate Government for laying off or

retrenching the workers or closing down industrial establishments

3. Unfair labour practices on part of an employer or a trade union or workers.

Applicability

The Industrial Disputes Act extends to whole of India and applies to every industrial establishment

carrying on any business, trade, manufacture ordistribution of goods and services irrespective of the

number of workmen employed therein. Every person employed in an establishment for hire or reward

including contract labour,apprentices and part time employees to do any manual, clerical, skilled,

unskilled, technical, operational or supervisory work, is covered by the Act. This Act though does not

apply to persons mainly in managerial or administrative capacity, persons engaged in a supervisory

capacity and drawing > 1600 p.m. or executing managerial functions and persons subject to Army Act, Air

Force and Navy Act or those in police service or officer or employee of a prison.
http://en.wikipedia.org/wiki/Industrial_disputehttp://en.wikipedia.org/wiki/Indian_labour_lawhttp://en.wikipedia.org/wiki/Unemployment_benefitshttp://en.wikipedia.org/wiki/Retrenchmenthttp://en.wikipedia.org/wiki/Trade_unionhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Contract_labourhttp://en.wikipedia.org/wiki/Apprenticehttp://en.wikipedia.org/wiki/Prisonhttp://en.wikipedia.org/wiki/Industrial_disputehttp://en.wikipedia.org/wiki/Indian_labour_lawhttp://en.wikipedia.org/wiki/Unemployment_benefitshttp://en.wikipedia.org/wiki/Retrenchmenthttp://en.wikipedia.org/wiki/Trade_unionhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Contract_labourhttp://en.wikipedia.org/wiki/Apprenticehttp://en.wikipedia.org/wiki/Prison


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Payment of Gratuity Act, 1972

ObjectivesThe Payment of Gratuity Act, 1972 envisages to provide a retirement benefit to the workmen who haverendered long and meritorious services to the employer.

ApplicabilityThe Act applies to

every factory, mine, oilfield, plantation, port, railway company;

every shop or establishment governed by the Shops and Establishments Act of that State inwhich 10 or more persons are employed, or were employed on any day of the preceding 12months; and

every other establishment wherein 10 or more persons are employed, or were employed on anyday of preceding 12 months and which is so notified by the Central Government.

The Central Government has made the Act applicable to all the educational institutions in thecountry having 10 or more employees, and to all registered trusts and societies employing 10 ormore persons.

The Act has been made applicable also to motor transport undertakings, clubs, Chambers of

Commerce & Industry, local bodies and solicitors offices employing 10 or more persons. The shop or establishment to which this Act has become applicable shall continue to be governed

by this Act, irrespective of the fact that the number of employees working therein hassubsequently fallen below 10.

This Act is not applicable to apprentices and persons holding a post under the Central or StateGovernment who are governed by any other Act or by any other rule providing for payment ofgratuity.

ExemptionThe appropriate government is empowered to exempt by notification any establishment, etc. where theemployees of such establishment, etc. are in receipt of gratuity or pension benefits not less favorable thanthe benefits conferred under this Act. The appropriate government may also exempt any employee orclass of employees, similarly.

Eligibility

Gratuity shall be payable to an employee on termination of his employment after he

has rendered continuous service for not less than 5 years:

on his super annuation, or

on his retirement orresignation, or

on his death or disablement due to accident or disease.

The condition of completing 5 years service is not applicablein case of disablement or death ofan employee. In case of death of the employee, gratuity is payable to the legal heirs or nominees

of such employee.

Calculation of GratuityThe gratuity shall be paid @ 15 days wages for every completed year of service, but the wages for amonth will be calculated as if the month comprises of 26 days.The maximum gratuity payable to anemployee is Rs.350,000.


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For example, if an employee is drawing Rs.10,400/- per month as his last drawn salary and either heresigns/retires or his services are terminated after working for 20 years, he will be entitled to receivegratuity ofRs.120,000 as under:-

10,400 (salary) x 15 (days) x 20 (years)/26 = Gratuity Amount Rs.120,000.

Continuous Service

Service without interruptions or breaks is continuous service. But any absence from duty becauseof sickness, accident, leave, layoff or strike, lockout, stoppage of work for which the employee isnot at fault will not be considered to be an interruption or break in service.

Employee shall be deemed to be in continuous service for one year if he/she has put in 240 days'work in 12 calendar months preceding the date of calculation, or 190 days if the establishmentworks less than 6 days a week or the employee works below ground in a mine.

Employees in a seasonal establishment shall be deemed to be in a continuous service if theyhave worked for not less than 75 per cent of the required attendance.

Forfeiture of GratuityAn employee can forfeit his gratuity on two counts:

His service is terminated on account of misconduct and the charge is proved against him. Themisconduct has to result in the damage or loss or destruction of property of the employer. Theloss is deducted from the amount of gratuity payable to the employee.

o If the service of the employee is terminated for proven misconduct of

riotous or disorderly conduct,o any other act of violence committed by him/her, or

o an offence involving moral turpitude committed by him/her during the course of

employment, the gratuity payable may be wholly or partially forfeited.

Employers Obligations

To notify regarding opening of establishment to the controlling authority. To correctly ascertain the amount of gratuity payable and pay the same accordingly.

To obtain an insurance in the prescribed manner for his liability for payment of gratuity under theAct or establish approved Gratuity Fund in the prescribed manner.

PAYMENT OF BONUS ACT, 1965

ObjectivesThe payment of Bonus Act, 1965 aims at providing for the payment of bonus to the employees of certainestablishments, on the basis of profits or production or productivity and for matters connected therewith.

Applicability

The Act applies to every factoryand every other establishment employing not less than 20 persons on anyday during an accounting year.The Central/State Government can, however, extend its provisions to any establishment employing lessthan 20 but more than 10 persons.The establishments covered under the Act shall continue to pay bonus even if the number of employeesfalls below 10, at a later date.

EligibilityEvery employee (other than an apprentice) receiving salary or wages up to Rs.3,500 per month andengaged in any kind of work whether skilled, unskilled, manual, managerial, supervisory, technical,


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clerical,etc. is entitled to bonus for every accounting year, if he has worked for at least 30 working days inthat year.

Employees of the general insurance companies, LIC, Central/State Government establishments, IndianRed Cross Society, Universities and Educational Institutions, Hospitals, Chambers of Commerce,Reserve Bank of India, Industrial Finance Corporation of India, Unit Trust of India,Social Welfare

Institutions, Local Bodies, etc. are not entitled to bonus under the Act. What they are paid as bonus, is ex-gratia payment.

Salary or WageSalary or wage means basic pay plus dearness allowance.Payment received by way of encashment ofleave will not form salary or wages for the purpose of the Act. However, for purposes of calculating thesalary or wage all the four allowances, viz. Ad-hoc, family, house rent and tiffin allowances, would beincluded.

Allocable surplusAllocable surplus means -

In relation to an employer, being a company other than a banking companywhich has not made

the arrangements prescribed under the Income Tax Act for the declaration and payment withinIndia of the dividends payable out of its profits in accordance with the provisions of section 194 ofthat Act, sixty-seven per cent of the available surplus in an accounting year.

In any other case, sixty per cent of such available surplus.

Minimum BonusThe minimum bonus which an employer is required to pay even if he suffers losses during the accountingyear or there is no allocable surplus (except in case of new establishments),is8.33% of the salary orwages of the employee during the accounting year.

Maximum Bonusiif in any accounting year, the allocable surplus exceeds the amount of minimum bonus, the employershall pay bonus in proportion to the salary or wages earned by the employee during that accounting year,subject to a maximum of 20% of such salary or wages.

Mode and Time for Payment of BonusBonus should be paid in cash and within 8 months from the close of the accounting year.Bonus is payableonly annually.


To calculate and pay the annual bonus as required under the Act.

To maintain the prescribed registers and file annual returns of bonus paid.

EMPLOYEES STATE INSURANCE ACT, 1948

ObjectivesThe Employees State Insurance Act, 1948 aims to provide certain benefits to the workers in case ofsickness, maternity and employment injury including occupational diseases,through a contributory fund.

ApplicabilityThe Act applies to all factories other than seasonal factories, using power in the manufacturing processand employing 10 or more persons and factories not using power but employing 20 or more persons forwages.


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The Act contains enabling provision under which the appropriate government is empowered to extendthe provisions of the Act to other classes of establishments industrial, commercial, agricultural orotherwise.Under this provision, most of the State Governments have extended the provisions of the Act tothe following classes of establishments-

Shops, hotels, restaurants, cinemas including preview theatres, road motor transport agencies,

newspapers establishments etc.employing 20or more persons.

EligibilityEvery employee (including casual and temporary employees), whether employed directly or through acontractor, who is in receipt of wages up to Rs. 6,500/- per month is entitledto be insured under the E.S.I.Act. However, apprentices engaged under the Apprentices Act are not entitled to the E.S.I. benefits.

WagesWages means all remuneration paid or payable in cash to an employee including any payment for theperiodof authorized leave, strike which is not illegal, lock-out or lay-off and other additional remuneration,if any, paid at intervals not exceedingtwomonths, but excludes-

employers contribution to any pension, provident or E.S.I. funds,

any travelling allowance/ concession, reimbursement of any special expenses,

gratuitypayable on discharge.

What is included in wages and what is not, is important for the purpose of calculating ESIcontribution.According to the official public claim Employers Guide to Employees State Insurance Act, theposition is as under:

Deemed to be wages: Basic Pay;Dearness Allowance;;House Rent Allowance, CityCompensatory Allowance;Overtime Wages; Payment for day of rest;Production incentive (whenpaid at intervals of less than 2 months);Bonus; Night Shift Allowance;Heat, Gas & DustAllowance; Payment forun substituted holidays;Meal/Food Allowance;Suspension Allowance;Lay

off Compensation; Children Education Allowance. Not to be deemed as wages:

Contribution paid by employer to any Pension/Provident Fund or under ESI Act; any Travelling Allowanceor value of any Travelling Allowance; any sum paid to defray special expenses entailed by the nature ofemployment; Gratuity payable on discharge;Pay in lieu of notice of retrenchment compensation; Benefitspaid under the ESI Scheme; Encashment of Leave; Payment of Inam (gift money) which does not formpart of the terms of employment; Washing allowance for liveries; Conveyance allowance; Productionincentive.

ContributionsThe rates of contribution payable by employees and employers are as under:-

Employees Contribution 1.75 per cent of the wages Employers Contribution4.75 per cent of the wages

Employees in receipt of an average daily wage of up to Rs. 25 are exempt from payment of contribution.

Advantages to EmployersEmployees who come under the purview of the E.S.I. Act, 1948 derive the following benefits from theapplicability of the Act:


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Employers are absolved of all liability of providing medicare facilities toemployees,reimbursement of actual expenses, lump sum grant or opting for any health insurancepolicy.

Employers are exempted from the applicability of the:

o Maternity Benefit Act, 1961.

o Workmens Compensation Act, 1923.

Benefits to Employees

Free medical treatment is offered to insured employees at hospital and dispensaries run by theE.S.I. Corporation.

Periodical payments to the insured employeefor the period of sickness at specified standardbenefit rate.ty benefits to the covere

Periodical payments towoman employee in case of confinement, or miscarriage or sickness frompregnancy etcleave for 12 weeks, of which not more than 6 weeks should be precedingconfinement.

Injury in the course of employment resulting in temporary/permanent disablement entitles thecovered employee to a regular payment to substitute his lost wages.

Death inthe course of employment entitles specified dependent of the deceased employee to acash benefit payable up tothe day of his death.

Death due to injury sustained in the course of employment or due to an occupational diseaseentitles the employees dependents to a benefit in the form of pension.

One time payment of Rs.1500 to help meet funeral expenses of the covered employee.


To get his factory or establishment registered with E.S.I. Corporation and obtain employers CodeNumber.

To obtain declaration from the employees covered and submit same to E.S.I. office and obtainemployees Insurance Number and Identity Cards.

To deposit employees and his own contributions. To furnish Returns of Contributions.

Not to reduce the wages of an employee on account of contribution made by him.

To maintain prescribed records/registers.

To report to the E.S.I. authorities of any accident, arrange for first-aid and transportation ofemployee to the hospital.

To inform E.S.I. office, dispensary/hospital in case of death of an employee immediately.

Not to put to work any sick employee and allow him leave if he has been issued the prescribedcertificate.

Not to dismiss or discharge any employee during the period he/she is in receipt ofsickness/maternity/ temporary disablement benefit, or is under medical treatment or is absentfrom work as result of illness duly certified or due to pregnancy or confinement.

WORKMENS COMPENSATION ACT, 1923

ObjectivesIt aims to provide workmen and/or their dependents some relief in case of accidents arising out of and inthe course of employment and causing either death or disablement of workmen.


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ApplicabilityThe Act applies to railways and other transport establishments, factories, establishments engaged inmaking, altering repairing, adapting, transport or sale of any article, mines, docks, establishmentsengaged in constructions, fire-brigade, plantations, oilfields and other employments listed in Schedule II ofthe Act.

The Workmens Compensation (Amendment) Act, 1995has extended the scope of the Act to coverworkers of newspaper establishments, drivers, cleaners, etc working in connection with a motor vehicle,workers employed by Indian companies abroad, persons engaged in spraying or dusting of insecticides orpesticides in agricultural operations, mechanized harvesting and thrashing, horticultural operations anddoing other mechanical jobs.Establishments which are covered by the Employees State Insurance Act,are outside the purview of this Act.

EligibilityEvery employee (including those employed through a contractor but excluding casual employees), who isengaged for the purposes of employers business and who suffers an injury in any accident arising out ofand in the course of his employment, shall be entitled for compensation under the Act.

Dependent

The following relations of a deceased workman shall be his dependents:

a widow, a minor legitimate or adopted son, an unmarried legitimate daughter, or a widowedmother,whether or not dependent on the workman; and

a son or a daughter, aged 18 years or more who is infirm and wholly dependent on the workmanat the time of his death; and

any of the following persons wholly or partly dependent on the workman at the time of his death:-(a) a widower, (b) a parent other than a widowed mother, (c) a minor illegitimate son, anunmarried illegitimate daughter or adaughter legitimate or illegitimate or adopted if married and aminor or if widowed and a minor, (d) a minor brother or an unmarried sister or a widowed sister ifa minor, (e) a widowed daughter-in-law, (f) a minor child of a pre-deceased son, (g) a minor childof a pre-deceased daughter where no parent of the child is alive, or (h) a paternal grandparent ifno parent of the workman is alive.

DisablementInjury caused to a workman by an accident may result in the loss of the earning capacity of the workmanand this loss of earning capacity is called disablement.

Disablement can by classified as Total orPartial.It can further be classified into Permanent or Temporary.

Disablement, whether permanent or temporary is said to be total when it incapacitates a worker for allwork he was capable of doing at the time of the accident resulting in such disablement.Total Disablementis considered to be permanent if a workman, as result of an accident,suffers from the injury specified inPart I of Schedule I or suffers from such combination of injuries specified in Part II of Schedule I as wouldbe the loss of earning capacity which amountsto one hundred per cent or more.

Disablement is said to be permanent partial when it reduces for all times, the earning capacity of aworkman in every employment which he was capable of undertaking at the time of the accident. Everyinjury specified in Part II of Schedule I is deemed to result in permanent partial disablement.

Where the disablement is of a temporary nature and reduces the earning capacity of a workman in theemployment in which he was engaged at the time of the accident, it is temporary partial disablement.


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Occupational DiseaseWorkers employed in certain types of occupations are exposed to the risk of contracting certain diseaseswhich are peculiar and inherent to those occupations.

A worker contracting an occupational disease is deemed to have suffered an accident out of and in thecourse of employment and the employer is liable to pay compensation for the same.

Occupational diseases have been categorised in Parts A, B, and C of Schedule III of the Act.

Accident arising out of and in the course of employment

An accident arising out of employment implies a casual connection between the injury and the accidentand the work done in the course of employment. The three tests are:

At the time of injury, workman must have been engaged in the business of the employer andmust not be doing something for his personal benefit.

That accident occurred at the place where he was performing his duties; and

Injury must have resulted from some risk incidental to the duties of the service, or inherent in the

nature or condition of employment.

Accident Compensation, when payableThe employer of any establishment covered under this Act, is required to compensate an employee:

who has suffered an accident arising out of and in the course of his employment resulting intodeath, permanent total disablement, permanent partial disablement, or temporary disablementwhether total or partial, or

who has contracted an occupational disease.

Compensation, when not payableThe employer is not liable to pay compensation for the injury to an employee under any of the followingcircumstances:

When injury does not cause total/partial disablement for more than 3 days;

When injury, not resulting in death or permanent total disablement is directly attributable toemployees willful disobedience of the safety rules, or disregard of the safety devices, or theemployee having been under the influence of drink or drugs;

When the employee has contacted a disease which is not directly attributable to a specific injurycaused by the accident or to that occupation; or

When the employee has filed a suit for damages against the employer or any other person, in aCivil Court.


To pay compensation for an accident suffered by anemployee, in accordance with the Act.

To submit a statement to the Commissioner (within 30 days of receiving notice) in the prescribedform, giving the circumstances attending the death of a workman as result of an accident andindicating whether he is liable to deposit any compensation for the same.

To submit accident report to the Commissioner in the prescribed form within 7 days of theaccident which results in death of a workman or a serious bodily injury to a workman.

To maintain a notice book in the prescribed form at a place where it is readily accessible to theworkman.


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To submit an annual return of accidents specifying the number of injuries for which compensationhas been paid during the year, the amount of such compensation and other prescribedparticulars.

PAYMENT OF WAGES ACT, 1936

ObjectivesThe payment of Wages Act, 1936 was introduced with the object of (a) regulating payment of wages,imposition of fines and deductions from wages, and (b) eliminating all malpractices by laying downwageperiods and time and mode of payment of wages.The Act, therefore, ensures payment of wages in aparticular form at regular intervals without unauthorized deductions.

ApplicabilityThe Act applies to any factory, any railway establishment and any industrial or other establishment liketramway service, motor transport service, air transport service, dock, wharf, jetty, inland vessel, mine,quarry, oilfield, plantation, workshop or other establishment producing, adapting or manufacturing anyarticle, establishments engaged in construction, developmentand maintenance of buildings, roads,

bridges or canals, navigation, irrigation or supply of water, generation, transmission and distribution ofelectricity/power and any other establishment notified by the Central or a State Government.

EligibilityThe Act is applicable to the employees receiving wages below Rs. 1,600/- per month.Persons employedin a railway establishment, either directly or through a contractor, are also covered under the Act.

WagesWages means allemoluments expressible in terms of money and payable to an employee including anysum payable for termination of service, wages in lieu of holidays or leave, overtime wages and bonuspayable under the Bonus Act or under the terms of employment.However, wages does not include valueof any house accommodation, supply of light, water, medical attendance or any other amenity,contribution to any pension or provident fund, travelling allowance, reimbursement of any special expense

and gratuity.

Nor does it include suspension/subsistence allowance given during suspension period of an employee.

Obligations of Employers

Every employer is primarily responsible for payment of wages to his employees.

Every employer should fix the wage-period, which may be per day, per week or per month, etc.,but in no case it should exceed one month.

Employer should make timely payment of wages. If the number of employees is less than 1000,then wages must be paid within 7 days of the expiry of the wage period, and in other case within10 days of the expiry of the wage period. Besides, all payments of wages should be made only on

a working day. Wages should be paid in cashor by cheque or by crediting in employees bank account, after

obtaining his written consent.

The employer should not make any unauthorized deductions from wages.Employer can makepermissible deductions such as for income tax, recovery of loans and advances, employeessubscription to provident fund, and with his written consent for payment of life insurance premium,purchase of Government securities, deposits in any Post Office Savings Bank, contributions toany labor welfare fund and fees for membership of any trade union, etc. etc.


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In case of death of an employee, all amounts payable to him as wages should be paid to hisnominee or legal heir.

MINIMUM WAGES ACT, 1948

Objectives

The Minimum Wages Act, 1948 envisages to provide minimum statutory wages for scheduledemployments with a view to obviate the chances of exploitation of labor through payment of very low andsweating wages. The Act also provides for the maximum daily working hours, weekly rest day andovertime.Rates fixed under Minimum Wages Act prevail over the rates fixed under award/agreement.

ApplicabilityThe Act applies to all establishments employing one or more persons and engaged in any Scheduledemployment.

WagesWages means all remuneration expressible in money terms and payable to an employee including houserent allowance but excluding value of any house accommodation, supply of light, water, medicalattendance or any other amenity, contribution to any pension or provident fund, travelling allowance,

reimbursement of any special expense and gratuity.

If the commission on turnover is being paid as per terms and conditions of employment, then it wouldconstitute part of the wages even under the Minimum Wages Act.However, an employee should not bepaid wages including the commission, which are less than the prescribed minimum wages.

Fixation of Minimum Rates of WagesThe State Governments have been empowered to fix rates of wages for different classes of employees-skilled, unskilled, clerical, supervisory, etc. employed in any Scheduled employment and to review andrevise the same from time to time, the interval between two revisions not to exceedfive years, consideringthe change in price index and dearness allowance.

Fixation of Working Hours, etc.In regard to any scheduled employment in respect of which minimum rates of wages have been fixed, theGovernment may-

fix the number of working hours constituting a normal working day, inclusive of one or moreintervals;

provide for a rest day with wages, in every period of 7 days; and

provide for payment for work on a rest day at a rate not less than the overtime rate.

Wages for two or more classes of workWhere an employee does two or more classes of work,to each of which a different minimum rate ofwages is applicable, the employer shall pay to such employee in respect of the time respectively occupiedin each such class of work, wages at not less than the minimum rate in force in respect of each such

class.


The employer is bound to pay to every employee engaged in a Scheduled employment under himwages at a rate fixed for that class of employees in that employment, without making anydeduction therefrom except those permitted under the Payment of Wages Act.


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As a rule, the wages payable under the Act should be paid in cash.The appropriate Governmentmay, however, permit the payment of wages wholly or partly in kind, keeping in view theprevailing custom, and also allow the supply of essential commodities at concessional rates.

If an employee works on any day in excess of the normal working hours, the employer shall payto him overtime wages for every hour or part of an hour, so worked in excess, at the rateprescribed under this Act or under any other law, whichever is higher. As per Factories Act,

overtime wages are to be paid at twice the normal rate of wages. If any amount payable to an employee as wages or otherwise under this Act, remains

undisbursed on account of death or his whereabouts not being known, then the same shall bedeposited by the employer with the prescribed authority.

Provident Fund : The Employees Provident Funds and miscellaneous provisions Act, 1952

ObjectivesThe Employees Provident Funds and Miscellaneous Provisions Act, 1952 aims to provide for theinstitution of provident funds, family pension fund and deposit linked insurance fund for employees infactories and other establishments.

Applicability

The Act applies to:

every establishment which is a factory engaged in any industry specified in Schedule I and inwhich 20 or more persons are employed, and

anyother establishment employing 20 or more persons or class of such establishments which theCentral Government may, by notification, specify in this behalf.

The Central Government may, by notification, apply the provisions of this Act to any establishmentemploying such number of persons less than 20 as may be specified in the notification.

An establishment to which this Act applies shall continue to be governed by the Act, even if the number ofemployees therein at any time falls below 20.

ExemptionThe Act, however, does not apply to:

a co-operative society employing less than 50 persons and working without the aid of power;

a newly set-up establishment for an initial period of 3 years from the date on which suchestablishment is, or has been set up, and

any Central/State Government establishment having its own scheme of provident fund orpension.

The appropriate Government is empowered to exempt from the operation of all or any of the provisions ofany Scheme:

any establishment to which this Act applies if-o the rules of its provident fund with respect to the rates of contribution are not less

favourable than those specified in section, ando the employees are also in enjoyment of other provident fund benefits which on the whole

are not less favourable to the employee than the benefits provided under the Act or theschemes.

any establishment the employees of which are not in enjoyment of provident fund, pension orgratuity benefits that are, separately or jointly, not favourable than the benefits provided under theAct or the schemes.


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Voluntary CoverageThe employer and majority of employees of an establishment may agree for the voluntary application ofthe provisions of the Act in relation to that establishment. For this purpose, they should make anapplication to the Central Provident Fund Commissioner, who may by notification, extend the provisionsof the Act to that establishment with effect from the date of such agreement or any subsequent datespecified in such agreement.

The establishment covered on voluntary basis is required to comply with the provisions of the Act at parwith other covered establishments and cannot opt out of coverage on a subsequent date.

EligibilityEvery employee, including the one employed through a contractor who is in receipt of wages up toRs.6,500 p.m. shall be eligible to becoming a member of the funds.If the pay of a member-employee increases beyond Rs. 6,500 p.m. after his having become a member,he shall continue to be a member but the contribution payable in respect of him shall be limited to theamount payable on monthly pay of Rs.6,500.An employee ceases to be a member of the EmployeesFamily Pension Fund at the age of 60 years.

Administrative Authority

The Act is administeredboth by the Central Government and the State Governments in their respectivespheres. The Central Government constitutes a Central Board of Trustees and in consultation with theState Government, a State Board of Trustees.

The Central Government appointsa Central Provident Fund Commissioner, Deputy/Regional ProvidentFund Commissioners and other officers.The State Board, with the approval of the State Government,appoints the necessary staff, for enforcement of the provisions of the Act.

The Schemes

The Central Government has framed three schemes under the Act:

The Employees Provident Fund Scheme, 1952, for establishment of provident funds for theemployees.

The Employees Family Pension Scheme, 1971 which has now been merged into the EmployeesPension Scheme, 1995, for providing family pension and life assurance benefit to the employees.

The Employees Deposit Linked Insurance Scheme, 1976, for providing life insurance benefit toemployees.

Employees Provident Fund Scheme, 1952The Employees Provident Fund Scheme takes care of the following needs of the members: retirement,medical care, housing, marriages, education of children, financing of insurance policy, etc.

Employees Pension Scheme, 1995The Government introduced the Employees Pension Scheme, 1995 with effect from 16.11.1995. The

then existing Employees Family Pension Scheme has been merged under the new scheme.The newscheme envisages to provide monthly pension to employees on superannuation, pension to widows ondeath after superannuation, monthly pension for children of the subscribers, monthly pension to memberson account of permanent total disablement during service, etc.

Employees Deposit Linked Scheme, 1976The scheme is for providing life insurance benefit to employees. It is applicable to all the members of theEmployees Provident Fund Scheme.


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Allotment of Account NumberEvery employee who becomes a member of the Provident Fund/Pension Fund, shall be allotted anaccount number by the employer.

Employers ContributionsThe employer is required to contribute the following amounts:

Towards Employees Provident Fund and Pension Fund:o (a)10% of the basic wages, dearness allowance and retaining allowance if any, in case of

establishments employing less than 20 persons or a sick industrial (BIFR) companyorsick establishments, or any establishment in the jute, beedi, brick, coir or gaur gumindustry;

o (b)12% of the wages, D.A. etc. in case of all other establishments employing 20 or more

persons.o Out of the contributions payable by the employer each month, a part of the contribution

representing 8.33 per cent of the Employees pay shall be remitted to the EmployeesPension Fund and the balancepartshallcontinue to remain in the Provident Fund account.

o Where the pay of an employee exceeds Rs.6,500 p.m., the contribution payable to

Pension Fund shall be limited to the amount payable on his pay of Rs. 6,500 only.

Towards Deposit-Linked Insurance Fund:o 0.5% of the wages, D.A. etc.

EmployeeEmployeemeans any person who is employed for wages in any kind of work, manual or otherwise, in orin connection with the work of an establishmentand who gets wages directly or indirectly from theemployer and includes any person employed by or through a contractor in or in connection with the workof the establishment.

Basic WagesBasic Wages means all emoluments which are earned by an employee while on duty or on leave or onholidays with wages in either case in accordance with the terms of the contract of employment and whichare paid or payable in cash, but does not include-

the cash value of any food concession;

any dearness allowance; house rent allowance, overtime allowance, bonus, commission or anyother similar allowance;

any presents made by the employer.

Dearness AllowanceDearness Allowance shall include the cash value of any food concession allowed to the employee.

Retaining AllowanceRetaining Allowance means an allowance payable to an employee, in respect of any period during whichthe establishment is not working, for retaining his services.

Employees ContributionThe employees contribution shall be equal to the contribution payable by the employer in respect of him,i.e. 10% or12% as the case may be.The employee is not required to contribute towards Deposit LinkedInsurance Fund.If an employee so desires, he may opt to make contribution to the fund at a higher ratealso.The employer shall not be, however, underan obligation to contribute at such higher rate.

The employer is required to deduct the employees contribution from his wages and deposit the same intothe provident fund account along with his own contribution.


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Central Governments ContributionThe Central Government shall also contribute @ 1.16% of the pay of the members of the EmployeesPension Scheme to the Pension Fund.Where, however, the pay of the member exceeds Rs. 6,500 p.m.,the contribution payable shall be limited to the amount payable on his pay of Rs. 6,500 only.

Administrative Charges

An employer is required to pay the following administrative charges also:

1.10% of the employees wages subject to a minimum of Rs.5 every month, for administration ofProvident Fund.

0.01% of the employees wages subject to a minimum of Rs.2 every month, for administration ofDeposit Linked Insurance Fund.

Time and Mode of DepositThe employer shall within 15 days of the close of every month deposit the total amount of the employersand employee contributions and administrative charges with P.F. Commissioner into the respectiveaccounts maintained at the State Bank of India.Separate cheques should be used for contributions andadministrative charges.

Investment of Funds and InterestThe amounts deposited into the Provident Fund Account are invested in specified securities and underSpecial Deposits Scheme.The Commissioner shall credit to the provident fund account of each member,interest at such rate as the Central Government may determine, on the balance standing to his credit onfirst day of April each year.The rate of interest notified for the year 2001-02 is 9.5%.Interest is also earnedon the Pension Fund and Deposit Linked Fund Accounts.

Protection of Provident FundThe amount standing to the credit of any member of the fund cannot be in any way assigned or charged,nor it is liable to attachment under any decree order of the court in respect of any debt or liability incurredby the member.

Employers ObligationsThe obligations of the employers under the three schemes have been summarised below:

To pay the employers and employees contributions and administrative charges as requiredunder the Act/schemes.

To furnish to the Provident Fund Commissioner, returns in the prescribed forms, such as returnsof ownership/management, of membership of employees, of employees leaving the serviceduring the month, monthly and annual returns of contributions made by employer and employees.

To maintain records/registers such as: Contribution Cards, Eligibility Register, Provident FundRegister, Provident Fund Ledger, Inspection Book, etc.

To allow the employees to avail of temporary/permanent withdraws out of their contributions,pension, life insurance benefit, insurance benefit, etc. permissible under the schemes.

To transfer within the specified time, the accumulated balance in the account of an employee

leaving the service and obtaining re-employment in another establishment

Documents

Labour Laws Summary