Provident Fund Act

Applicability of PF Act

PF Act applies to factories and other notified establishments employing 20 or more persons. Once an establishment is covered, its departments and branches, wherever they are, are covered. Once establishment is covered, it continues to get covered even if employment goes below 20.

Schemes under PF Act

Employees Provident Fund, Employees’ Pension Scheme and Employees’ Deposit-Linked Insurance Scheme [EDLI] are the three schemes covered.

Partial or full exemption

Exemption can be granted to certain establishments or employees

Contribution to Provident Fund

Contributions to Fund are made by employers and employees. The fund is administered by Central Board of Trustees

Contribution equal to 125/10% of pay by employer as well as employee

Both employer and employee contribute @ 12% of ‘pay’ to Provident Fund (in some establishments like any establishment employing less than 20 persons, sick units, Jute industry, Beedi industry, Brick industry, Coir industry other than the spinning sector, Guar gum factories., contribution is 10%). 

Part of Employer’s contribution to FPF

8.33% contribution of employer goes to Family Pension Fund. Balance is credited to Employee’s PF account. Entire contribution of employee is credited to his PF account. Interest is paid on this amount. Since last 4 years, interest is 8.5%.

Employees required to join the Fund

Employee whose pay is less than Rs 6,500 per month is covered under the Act. ‘Pay’ includes basic wages, dearness allowance, retaining allowance and cash value of food concession.

Contribution limited to salary of Rs 6,500 p.m, but higher contribution permissible.

If an employee is member, he continues to be a member even if his ‘pay’ becomes more than Rs 6,500. Employer is liable to pay contribution only on salary of Rs 6,500, though employer can voluntarily contribute more (as extra employee benefit). Employee can voluntarily pay contribution on pay above Rs 6,500

Employee to become member immediately on joining

An employee becomes member of PF immediately after joining an establishment to which PF Act applies. However, he should be ‘employee’. Mere casual engagement is not ‘employment’.

Person employed through contractor covered but not apprentice

Persons employed through contractor are also covered, but apprentices under Apprentices Act are not covered

Administration charges for PF

In addition to PF contribution, the employer also has to pay administration charges at prescribed rates. Presently, it is 1.10% of wages. In case of exempted establishments, the employer has to pay 0.18% of wages / salary as inspection charges.

Contribution to be paid within 15 days

Contribution and administration charges are to be paid within 15 days from close of month. If employer delays payment, damages (interest) can be recovered from him.

Submission of details of employees joining and leaving

When a new employee joins, Employee’s details are to be submitted in form No. 5 to PF Commissioner within 15 days from close of the month in which the employee joins, along with declaration in form 2 given by employee. If an employee leaves, form No. 10 is to be filed.

Monthly return of contribution

Employer has to file a monthly contribution statement (abstract) in form 12A, within 25 days of close of month, along with copy of receipted challans regarding payment of contribution. Employer has submit only abstract every month in the prescribed form.

Annual Contribution Statement of PF

Employer has to submit consolidated Annual Contribution Statement of PF in form 6A for March paid in April to February paid in March of current year, along with contribution card of each employee for same period in form 3A by 30th April.

Withdrawal of Provident Fund by Employee

A member of provident fund gets the fund with interest at the time of retirement. Early withdrawal for housing, marriage, illness etc. is permissible

Pension under EPF scheme

Member is entitled to get pension after retirement after completion of 58 years of age. The pension depends on service of number of years and his average salary of last 12 months. No pension is available for less than ten years service. Only contribution is returned with slightly reduced interest.

EDLI

Employees Deposit Linked Insurance Scheme is to provide life insurance benefits to employees who are already covered under PF.  Employer is required to pay contribution of 0.5%. Employer is also required to pay administration charges @ 0.1% of total wages.

PF for international workers

There is PF and EPF scheme for international workers.

Payment of Bonus Act

Reward for hard work and share of profit

Bonus is a reward for hard work or share of profit of the unit where employee is working [practically, it is not so]

Applicability of Act

The Act applies to factory employing 10 or more persons where processing is carried out with aid of power and other establishment established for purpose of profits employing 20 or more persons

Employees eligible for Bonus

Employee whose salary and wages are upto Rs 10,000 per month and who has worked for at least 30 days in a year is entitled to get bonus

Salary for calculating bonus

Salary above Rs 3,500 per month is not considered for purpose of bonus.

Quantum of bonus

Quantum of bonus is ‘allocable surplus’, which is equal to 60% of ‘available surplus’. ‘Available surplus’ is equal to gross profit less prior charges allowable as deduction plus amount equal to income tax on bonus portion.

Minimum and maximum bonus

Minimum bonus is 8.33% and maximum is 20%. Provisions of set off and set on are made to take care of shortfalls and excess in ‘allocable surplus’.

Time limit for payment

Bonus should be paid within eight months from close of accounting year

Bonus based on productivity

Alternate mode of payment of bonus based on productivity is permissible

Audited accounts for bonus

Audited accounts of employer cannot be challenged before Arbitrator or Tribunal, but clarifications can be asked

Employees State Insurance Act (ESI)

Applicability to factories and shops

ESI Act applies to factories. It can be made applicable to shops also. The Act is administered by Employees State Insurance Corporation [ESIC].

Meaning of ‘factory’ for ESI Coverage

The ‘Factory’ means any premises where manufacturing process is carried out and persons employed are at least 10 (Till 1-6-2010, if factory was not using power, the limit was 20. Now that distinction has been abolished). Once a factory or establishment is covered, it continues to be covered even if number of employees reduce.

Employee covered under ESI

Employees include * persons employed through contractor * Apprentices other than those covered under ‘Apprentices Act’ * Persons employed in administration office, department or branch for purchase or sale of products. * Casual workers engaged in work incidental to or connected with work of factory or establishment * Employees working at head office when factory is located at different place * Canteen staff, watch and ward staff are employees * Staff in hospital attached to factory are employees (Apprentices appointed under standing orders will also get covered w.e.f. 1-6-2010)

Employer’s and Employee’s contribution to ESI

The contribution has to be paid within 21 days from close of the month.  If the contribution is not paid in time, interest @ 12% is payable.

Wages for purpose of ESI

‘Wages’ means all remuneration paid or payable in cash to employee according to terms of contract of employment and includes any payment made to an employee in respect of period of authorised leave, lock-out, lay-off, strike which is not illegal and other additional remuneration paid at interval not exceeding two months. It does not include * contribution paid by employer to any pension fund or provident fund * Travelling allowance * Reimbursement of expenses made by nature of employment of the employee * gratuity. Thus, wages include basic pay, dearness allowance, city compensatory allowance, payment of day of rest, overtime wages, house rent allowance, incentive allowance, attendance bonus, meal allowance and incentive bonus.

Contribution period and benefit period

Contribution period is (a) 1st October to 31st March - corresponding benefit period is following 1st July to 31st December (b) 1st April to 30th September - corresponding benefit period is following 1st January to 30th June. Thus, ‘benefit period’ starts three months after the ‘contribution period’ is over. The relevance of this definition is that sickness benefit and maternity benefit is available only during ‘benefit period’. However, other benefits e.g. medical benefit, disablement benefit, dependant’s benefit and funeral expenses are available during contribution period also.

Unemployment benefit under ESI

Unemployment Benefit scheme known as ‘Rajiv Gandhi Shramik Kalyan Yojana’ is introduced. Under the scheme, an insured person going out of insured employment involuntarily on account of closure of a factory or establishment, retrenchment or permanent invalidity arising out of non-employment is entitled to get unemployment allowance for a maximum period of 12 months in his entire period of service. Spell of unemployment shall not be less than one month. Employees who have completed three years of insurable employment are eligible under the scheme.

Report to ESIC by employer when employee joins

Employee and his family members should obtain ‘Smart card’ identity from ESIC which will enable them to get ESI benefit anywhere in India.

Return of contribution to ESIC

Return of Contribution of employees (employed through Principal as well as Immediate Employer) shall be submitted in form 5. The return is to be certified by Chartered Accountant if the number of employees are 40 or more. If number of employees are less than 40, self declaration is to be made by employer regarding maintenance of records and registers, submission of declaration forms, distribution of TIC/PIC received/distributed to employees engaged directly or through immediate employer and wages paid. Due dates are 12th May and 11th November.

Annual declaration to ESIC

Every employer has to submit annual declaration by 31st January in form 01(A)

Payment of Gratuity Act

Applicability of Gratuity Act

The Payment of Gratuity Act applies to every factory, mine, oilfield, plantation, port. The Act also applies to every ‘shop and establishment’ where 10 or more persons are employed or were employed on any day in preceding 12 months. Once the Act becomes applicable to any shop or establishment, the Act will continue to be applicable even if later number of employees falls below ten [section 1(3A) of Payment of Gratuity Act]

Employees covered under Gratuity Act

Payment of Gratuity Act is applicable to all employees - workers as well as persons employed in administrative and managerial capacity. The Act is applicable to all employees, irrespective of the salary.

When gratuity is payable

Normally, gratuity is payable only after an employee leaves after completing five years of continuous service. In case of death and disablement, the condition of minimum 5 years’ service is not applicable.

Insurance of gratuity liability not mandatory

Insurance of gratuity liability by employer is optional. It is not compulsory.

Quantum of gratuity

Gratuity is payable @ 15 days wages for every year of completed service in case of regular employees. In the last year of service, if the employee has completed more than 6 months, it will be treated as full year for purpose of gratuity, i.e. 15 days gratuity will be payable.  In case of seasonal establishment, gratuity is payable @ 7 days wages for each season.

Wages for calculating gratuity

Wages for gratuity means all emoluments which are earned by an employee while on duty or on leave in accordance with terms and conditions of his employment and which are payable to the employee in cash. It includes dearness allowance. However, allowances like bonus, commission, House Rent allowance (HRA), overtime and other allowances are not to be considered as ‘wages’ for purpose of Payment of Gratuity Act.

Employees getting pay on monthly basis

In case of employees paid on monthly wages basis, fifteen days wages will be calculated by dividing monthly salary by 26 days and multiplying by 15 days. For example, if last drawn salary of a person (basic plus DA) is Rs. 2,600 per month, his salary per day will be Rs. 100 (2,600 divided by 100). Thus, the employee is entitled to get Rs. 1,500 [15 days multiplied by Rs. 100 daily salary] for every year of completed service.

Ceiling of gratuity

Income tax exemption is available upto Rs 10 lakhs w.e.f. 24-5-2010.

Payment of gratuity within 30 days

Employer is under obligation to pay the gratuity within 30 days from the date it becomes payable. Otherwise, interest @ 15% is payable.

Industrial Disputes Act

Object of IDA

The object of the Industrial Disputes Act is to make provisions for investigation and settlement of industrial disputes. However, it makes other provisions in respect of lay off, retrenchment, closure etc. The purpose is to bring the conflicts between employer and employees to an amicable settlement. [The Act is achieving exactly opposite]. The Act provides machinery for settlement of disputes, if dispute cannot be solved through collective bargaining.

Wide definition of ‘industry’

In Bangalore Water Supply & Sewerage Board v. Rajappa (1978) 2 SCC 213 = 36 FLR 266 = 1978(1) LLN 657 = 1978(2) SCR 213 = 1978(1) LLJ 349 = AIR 1978 SC 548 (SC 7 member bench 5 v 2 judgment), a very wide interpretation to the term 'industry' was given. It was held that profit motive or a desire to generate income is not necessary. Any systematic activity organized by cooperation between employer and employees for the production and/or distribution  of goods and services calculated to satisfy human wants and wishes is ‘industry’.

Who is ‘workman’

‘Workman’ means any person (including apprentice) employed in any industry to do any manual, clerical or supervisory work for hire or reward. It includes dismissed, discharged or retrenched person also. However, it does not include (i) Armed Forces i.e. those subject to Air Force Act, Army Act or Navy Act (ii) Police or employees of prison (iii) Employed in mainly managerial or administrative capacity or (iv) person in supervisory capacity drawing wages exceeding Rs 1,600 per month or functions are is mainly of managerial nature.

21 days notice for change in condition of service

Section 9A provides that an employer cannot effect any change in the conditions of service applicable to any workman without giving 21 days notice.

Adjudication of Industrial Disputes

The Industrial Disputes Act provides for ‘Works Committee’ in factories employing 100 or more workers. The committee will consist of equal number of representatives of employer and employees. Representatives of employees will be selected in consultation with Registered Trade Union. The Works Committee will first try to settle disputes. If dispute is not solved, it will be referred to ‘Conciliation Officer’. He is appointed by Government. The matter may also be referred to ‘Board of Conciliation’. He will try to arrive at fair and amicable settlement acceptable to both parties. If he is unable to do so, he will send report to appropriate Government. The Government may then refer the industrial dispute to Board of conciliation, Labour Court or Industrial Tribunal.

Compensation for layoff

A factory employing 50 or more but less than 100 employees on an average per working day can lay off the workmen, who have completed one year of service, by paying compensation equal to 50% of salary (basic plus DA)

Retrenchment

‘Retrenchment’ means discharge of surplus labour or staff by employer. It is not by way of punishment. The retrenchment should be on basis of ‘last in first out’ basis in respect of each category, i.e. junior-most employee in the category (where there is excess) should be retrenched first. If employer wants to re-employ persons, first preference should be given to retrenched workmen.

Protection to employee completing 240 days

Once an employee completes 240 days, he is deemed to be permanent employee under Industrial Disputes Act. He cannot be termed as ‘contingent workman’

Restrictions on large industry in layoff, retrenchment or closure

Large industries employing 100 or more workmen on an average for preceding 12 months cannot lay-off, retrench or close down the undertaking without permission from Government (sections 25M to 25-O of Industrial Disputes Act).

Public Utility

.In case of public utility, employees have to give at least 14 days notice for strike. The notice is valid only if strike commences within 6 weeks. Otherwise, fresh notice is required. - - Similarly, an employer cannot declare lock out without giving 14 days notice.

Disciplinary action against employee

The workman is issued with a ‘Show Cause Notice’ giving details of charges of misconduct against him. He has to give his reply. Then, enquiry into charges is conducted by an ‘Enquiry Officer’ appointed by Management. Such ‘Enquiry Officer’ can be an employee of the company or an outsider. The workman can defend himself before the Enquiry Officer or he can be defended by his co-worker or a Union Representative. The workman is not allowed to engage a lawyer to defend his case. After enquiry, the ‘Enquiry Officer’ has to give his findings and state whether he finds the workman ‘guilty’ or ‘not guilty’. He should give reasons for his views. However, the ‘Enquiry Officer’ should not give his opinion about the punishment that should be imposed on the workman. Copy of the report of Enquiry Officer has to be given to the workman. The workman has right to state his case on the basis of ‘Enquiry Report’ After the reply of workman, the authorised Manager will go through enquiry papers, report of Enquiry Officer and observations/reply of workman on the report of Enquiry Officer. The Authorised Manager will then issue suitable order.

Employees’ Compensation Act

Compensation if injury/death occurs out of and during the course of employment or for occupational disease

Occupational disease – Employer is liable if a employee contracts any specified occupational disease, while he is in service of employer for at least 6 months. [section 3(2)].

No compensation if employee covered under ESI

Since an employee  is entitled to get compensation from ESIC, an employee covered under ESI Act is not entitled to get compensation under Employee’s Compensation Act, as per section 53 of ESIC.

Applicability of Act

Coverage of employees

Employment through contractor

Person employed through contractor is also eligible for compensation. Principal employer is liable though he can recover the amount from contractor.

No fault liability

Employer is liable even if the employee was negligent or careless or was at fault.

Computation of liability

Interest is payable in case of default.

Compensation only through Commissioner in case of death or total disablement