Legally required compensation & benefits

Legally Required Compensation & Benefits

Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)

Professor

Introduction• Labour is one of the principal factors of

production in an establishment, whether - big or small - organized or un-organized - industrial or commercial• Several legislations made concerning labour: - to ensure job security and satisfaction of

labour- to give them their due wages along with

certain employment benefits and - to prevent exploitation of labour

Labour Legislations on Compensation & Benefits

The Employee’s Provident Fund and Miscellaneous Provisions Act, 1952

The Employee State Insurance Act, 1948The Equal Remuneration Act, 1938The Industrial Disputes Act, 1947The Factory’s Act, 1948The Minimum Wages Act, 1948The Payment of Wages Act, 1936The Payment of Bonus Act, 1965The Payment of Gratuity Act, 1972

Employees Provident Fund Act

Objective

• For instituting a compulsory contributory fund for future of the employee:

- Retirement of employee- Dependents in case of early death

Scope

1. Every establishment employing more than 20 employees2. Once an organization covered under act, it will be

applicable whether employees are 20 or less

1. A newly established organization for the initial period of 3 years from the date of its set up

2. Cooperative society employing less than 50 employees

Exemption from the Act

1. Every employee receiving wages upto Rs 5000/- pm, will be eligible to be a member of Family Pension scheme

2. In case wage is more than Rs 5000/-, employee will continue as member of Family pension scheme

3. Family pension will be limited to the amount payable on monthly wage Rs. 5000/-

4. Employee will become member of the scheme from the date of joining

5. Employee will cease to be member after attaining age of 60 years

Eligibility of Employees

The Schemes under the Act

1. Employee Provident Fund Scheme Establish provident fund for the employees

2. Employees Pension/Family Pension SchemeProvide Pension/Family pension to employees & their family after superannuation/death/permanent disablement

3. Employees Deposit Linked Insurance Scheme Provide life insurance benefit to the employees and their

family members

Terms related to Act

Contribution

- Employer’s contribution to PF & Pension Fund -12% of wages- Employer’s contribution to EDLI Fund - 0.5% of wages - Employee’s contribution to PF & Pension Fund -12% of wages - Central Govt’s contribution to Pension Fund -1.16% of wages

Interest

- Accrued on PF, Pension Fund & EDLI Fund invested in specified securities

- Rate of interest determined by the Central Govt. which is 9% p.a. at present

Employees State Insurance ActObjective:First major legislation on Social SecurityProvides protection to worker in contingences :- illness,- long term sickness - any other health risk due to exposure to employment injury or

occupational hazardsMedical facilities are also made available to legal dependents

or insured personScheme extended to retired /permanently disabled employee

and their family

-

Employee State Insurance ActThe act applies to an organization - employing 20 or more persons in non-seasonal

organisation- organization using power & employing 10 or more

persons

Employees covered with earnings up to Rs. 6,500/- pm

Every eligible organization has to get registered under ESI

Eligible employee has to fill up declaration form

Employee State Insurance Act

Employer contributes 4.75% of wages, payable to employee

Employee Contributes 1.75% of wages payable to him

If contribution is not paid in time, the rate of damages is 5% to 25% and prosecution by State Govt.

Equal Remuneration Act Objective:

• Payment of equal remuneration to men & women for the same work of regular nature

• Prevention of discrimination on the ground of sex against women in employment and matters connected with it

Equal Remuneration Act No discrimination for wages or for recruitment &

selection process

Employer required maintain register in terms of equal remuneration act

There are penalties ranging from Rs. 500/- to Rs. 5,000/-

Factory’s ActObjective:Factory’s act provides safety measures and

promotes health and welfare of workers, employed in factories

Applicability:Act applies to those industries which qualify the

definition of Factory under the act

Factory’s ActTo safeguard health and safety of workers To provide adequate safety measures in plant,

machinery and appliances, To provide healthy and safe environment, proper

system of working and training to workers on safety

Penalties are ranging from Rs 5000/- to Rs. 35,000/- and

Prosecution by State/Central Govt. for non-compliance

Factory’s ActAct concerns - Health- Safety - Hazardous processes - Welfare - Working hours of Adults - Prohibition of employment of young

persons - Annual leave with wages

Industrial Disputes ActObjective:To provide amicable settlement of conflicts

between employer and employeeTo make provision to solve other problems arising

in an industrial or commercial undertaking To minimise industrial tensions To provide mechanism for dispute resolutions To ensure that energies of employer & employees

not wasted in counter productive battles To ensure Industrial justice for creating congenial

climate

Industrial Disputes ActThe Act makes provision for:- Works committee - Board of Conciliation- Industrial courts/tribunals - Arbitration- Prohibition of lockouts and strikes- Lay offs - Retrenchment - Transfer of undertakings - Unfair labour practices & - Closure of establishment

Penalties ranges from Rs. 1000/- to Rs. 5000/- and imprisonment up to 6 months for violation of rules

Minimum Wages ActWages are remuneration to workers for work

performedEmployers want to decrease employee/production

costsWorkers want wages for better livelihood,

housing, children’s education, medical requirements, minimum recreations, provision for old age, marriage ,etc

Govt. Wants to regulate wages through Minimum Wages Act to protect the interest of workers

Minimum Wage ActMinimum WageFor sustenance of life Preservation of efficiency of workers and Providing some measure of :- education, - medical requirements and - amenities  

Minimum Wages ActObjectivesTo fix minimum wages in certain employment To achieve objective of social justice to workersTo prevents exploitation of labour Authorities are empowered to fix minimum wages

from based on market inflation and cost of living index

Minimum Wages Act

Act prescribes minimum wages of different categories of employees

It provides basic rates of wages and special allowance , i.e. cost of living allowance

Cash value of compensation for essential commodities

An all inclusive rates

Minimum Wages ActWages must be paid in cash Manner & procedure of fixing and revising

minimum rates of wages, Hours of work and holidaysExtra wages for overtime, Rest day Employer’s obligations and maintenance of

recordsPenalties & prosecution for any violation of

provision under the act.

Calculation of Minimum Wages

Worker’s family with 3 members

- Earnings of women, children & adolescents disregarded

Minimum food requirements - 2,700 calories/adultClothing requirements- 18 yards per annum/personHousing - minimum rent charged by Govt for

houses under subsidized housing schemeFuel, lighting and other miscellaneous items - 20 %

total minimum wage

Payment of Bonus ActAct applies to employee of an establishment

employing not less than 20 person during an accounting year

Employee under the act means any person engaged for hire/reward , including supervisory & managerial staff

Drawing salary/wages not exceeding Rs.3,500/- per month

For employee with salary/wages Rs, 2,500/- to Rs 3,500/- pm, bonus will be paid on wages /salary of Rs. 2,500/- pm

Payment of Bonus ActOrganization covered under the act required to pay

minimum Bonus of 8.33% and maximum of 20%

Infancy benefit for new establishment is for first 5 accounting years in which the employer sells goods/services

The overtime is not wages as such no bonus on overtime

The commission paid to employee is not remuneration as such no bonus on Commissions

The Dearness Allowance is part of wages and attract Bonus

Payment of Bonus ActBonus is calculated based on available surplus in

the accounting year as per Balance Sheet & Profit & Loss Account

Bonus can be forfeited if employee is sacked for fraud, riotous or violent behavior in the establishment or for theft

Act provides penalties & prosecution for employer for any violations of provisions/rules

Payment of Gratuity ActAct applies to every establishment in which 10 or

more person are employed or were employed on any day of preceding 12 months

Once covered will continue to be under coverage even if the employee number goes down

Gratuity is payable to an employee on - termination of his employment after he has rendered

continuous service for not less than 5 years - reaching age of superannuation - retirement/resignation or - death or disablement due to accident or disease

Payment of Gratuity Act

Gratuity is calculated on Basic Rate plus Dearness Allowance

Does not include any bonus, commission, house rent allowance, overtime wages and any other allowance

15 days wages for each year of service7 days wages per season for seasonal occupationMaximum limit Rs 10,00,000.00Employee with monthly wage, 15 days wages

calculated by dividing monthly wages with 26 and multiplying by 15

Payment of Gratuity ActForfeiture of Gratuity can be done • If service of employee is terminated for riotous or

disorderly conduct • Violence on his part • Act of moral turpitude • Such act is conducted during course of

employment

Payment mode must be by Cheque or Bank Draft in favour of employee or his legal heirs

Act provides penalties to employer for violation of provisions with right to appeal

Time limit for claiming gratuity is 12 months and 60 days for filling an appeal

Payment of Wages Act

Regulates payment of wages to certain class of employees

Guarantees payment of wages in time and without any deduction except those authorized under the act

Provides responsibility for - payment of wages - fixation of wage period - time and mode of payment of wages - permissible deductions - seeking approval & permission for any fine imposed

Payment of Wages ActWage means all remuneration in term of money,

including over time, bonus, holiday or any other leave

Payment to be made before expiry of 7th day after last day of wages period where less than 1000 workmen employed

In other case on the 10th day

Payment to made on working day and in cash and by cheque where employee has given consent in writing

Payment of Wages ActThe deduction allowed for:- Fines, fine should not exceed 3%- deduction for actual period of absence - willful damages to goods & property - house accommodation- amentias provided. - all deduction to be made within 60 days - total deduction not exceed 50% of total wage- total deduction for Cooperative society not exceed

75%. Employer to maintain register for record/evidence &

required to deposit unpaid wages/bonus with labour department