Labour Laws summary

CA shanky pahoja , Last updated: 08 October 2020  
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S. No. Head EPF ESI Bonus
1 Applicability The section 1 of the Act states that it is applicable in whole India except J&K. It is applicable on factories employing more than 20 persons during the year and on any other establishment, as specified by Central Government in this behalf, in official Gazette employing more than 20 employees during the year.

Section 2A of the Act states that Establishment includes its branches also. So for the purpose of the applicability and payment of contributions employees employed at various branches shall also be included.		 Applies to whole India (Even in J&K) . Applicable on all factories however definition of Factory given in section 2(12) of ESI Act 1948, states, factory" means any premises including the precincts thereof-

(a) whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months.

(b) whereon twenty or more persons are employed or were employed for wages on a ny day of the preceding twelve months , and in any part of which a manufacturing process is being carried on without the aid of power or is ordinarily so carried on.		 It extends to the whole of India (Even J&K) , it shall apply to –

(a) every factory; and

(b) every other establishment in which twenty or more persons are employed on any day during an accounting year.
2 Definition of employee Section 2(f) states any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer and includes any person employed by or through a contractor, engaged as an apprentice.

Note: Apprentice here does not include an apprentice engaged under the Apprentices Act, 1961 (52 of 1961).

As per section 6, The contribution which shall be paid by the employer to the fund shall be payable for each of the employees.

Non eligible employee are those who are drawing basic wages less than prescribed amount (15,000), apprentices as per certified standing orders or under apprentices Act, casual employees. 		 'employee' means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies but does not include

(a) any member of naval, military or air forces; or  any person so employed whose wages (excluding remuneration for overtime work) exceed 21,000.

As per section 38, Subject to the provisions of this Act, all employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act.		 'employee' means any person (other than an apprentice) employed on a salary or wage not exceeding 21,000 per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied.
3 How long employee should work to be eligible for the scheme?  There is no condition as to a minimum number of days for which employee should be in employment to be considered for calculation number of employees for applicability. The section 26 (2) of the Act says the employee not already member shall be entitled to become a member on joining the organization so it reasonable to deem that definition of employee covers all employees who join the organization and work even if for one day.   As per section 8, Every employee shall be entitled to be paid by his
employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.
4 Definition of Salary/wage 'basic wages' means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-

(i) the cash value of any food concession;

(ii) any dearness allowance that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living, house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;

(iii) any presents made by the employee		 wages means all remuneration paid or payable, in cash to an employee, if the paid at intervals not exceeding two months], but does not include-

(a) any contribution paid by the employer to any pension fund or provident fund, or
under this Act;

(b) any travelling allowance or the value of any travelling concession;

(c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(d) any gratuity payable on discharge.

Note: for eligibility of employee, overtime payment will not be included but for calculation of contribution, the same will be considered.		 'salary or wage' means all remuneration (other than remuneration in respect of over-time work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include-

(I) any other allowance which the employee is for the time being entitled to;

(ii) the value of any house accommodation or supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles;

(iii) any travelling concession;

(iv) any bonus (including incentive, production and attendance bonus);

(v) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;

(vi) any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;

(vii) any commission payable to the employee.
5 Calculation of contribution As per section 6, The contribution which shall be paid by the employer to the Fund shall be 12%. Of the basic wages, dearness allowance and retaining allowance, defined as ‘pay’ as per explanation to para 2(f)(ii) of EPF Scheme, for the time being payable to each of the employees Contribution is calculated on Wages (as per the definition of wages in the Act) C alculation of bonus is complex than EPF and ESI. Separate sheet is prepared for Bonus calculation.
6 Is once applicable always applicable? As per section 1, an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below twenty. A factory or an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under this Act or the manufacturing process therein ceases to be carried on with the aid of power. As per section 1(5), an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of person employed therein falls below twenty 2[or, as the case may be, the number specified in the notification issued under the proviso to sub-section.
7 What if salary of employee increases As per section 26 A (2), employees whose basic salary while joining the organization is less then Rs 15001/- but after some period of time their basic increases above Rs 15001/- have to compulsorily continue to be member of provident Fund As per definition of employee in the Act, an employee whose wages (excluding remuneration for overtime work) exceed 21,000 at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that contribution period.
As per Rule 2 (2A), Contribution period ' means the period not exceeding six consecutive months.		  
8 In case of new employees Employee who while joining the organisation has a basic salary above Rs 15001/- have an option to either become or avoid becoming member of Provident fund but employees whose basic salary while joining the organisation is less then Rs 15001/- but after some period of time their basic increases above Rs 15001/- have to compulsorily continue to be member of provident Fund    
9 Employees recruited through contract Persons employed by or through a contractor are included in the definition of 'employee '.

As per section 30 (3) of the Act, "It shall be the responsibility of the principal employer to pay both the contribution payable by himself in respect of employees directly employed by him and also in respect of the employees employed by or through the contractor and also administrative charges."		 As per section 40 of the Act, the principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employee's contribution.

As per section 41, principal employer, who has paid contribution in respect of an employee employed by or through an immediate employer, shall be entitled to recover the amount of the contribution so paid (that is to say the employer's contribution as well as the employee's contribution, if any) from the immediate employer, either by deduction from any amount payable to him by the principal employer under any contract, or as a debt payable by the immediate employer.		 Previously, employees through contractor were specifically excluded under clause (vi) of section 32 of the Act. This clause was omitted in 1980.

As per section 8, every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.

So, the act is applicable on employees engaged through contractor.
10 Contribution on Arrears of salary Arrears are considered to be emoluments earned by the employee and PF is to be deducted from such arrears.    
11 Whether applicable to government controlled entities? As per section 16 (1) of the Act, provisions of the Act are not applicable to any other establishment belonging to or under the control of the Central Government or a State Government and whose employees are entitled to the benefit of contributory provident fund or old age pension in accordance with any Scheme or rule framed by the Central Government or the State Government governing such benefits; As per proviso to Section 1(4) of the Act, nothing contained in this sub-section shall apply to a factory or establishment belonging to or under the control of the government whose employees are
otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act.		 A s per section 32 of the Act, employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or a Local authority;
12 PMRPY benefit Benefit available Benefit not available Benefit not available
13 Whether casual labour included? Casual labour are not specifically excluded from the definition of employees. Casual labour are not specifically excluded. There are supreme court rulings allowing casual labour for ESIC benefit.  
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CA shanky pahoja
(accountant)
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