In the contemporary and ever-evolving business environment, it is important for organisations to accord the highest priority to upholding legal compliance, particularly with regard to Human Resources (HR) and Employment Laws. India, known for its diverse and intricate legal framework, presents distinct challenges for businesses operating within its jurisdiction. Acquiring a profound understanding of and abiding by the intricate network of HR and Employment Laws assumes critical significance in sustaining a harmonious work environment, safeguarding employees' rights, and mitigating legal vulnerabilities.
This article aims to offer an overview on HR and Employment Laws in India, equipping organisations and HR professionals with the requisite knowledge to navigate the legal landscape. By adhering to the below-mentioned checklist on labour laws, businesses can minimize legal risks and foster an equitable and inclusive work environment.
The Payment of Bonus Act, 1965
The Payment of Bonus Act, 1956 ("PB Act") encompasses provisions for the disbursement of bonus to individuals employed in specific establishments, either based on profits or on production or productivity, alongside related matters. Its jurisdiction extends to the whole of India and applies to all establishments where a minimum of 20 employees are employed on any given day within an accounting year.
Eligibility for bonus: Every employee is eligible to receive a bonus from their employer during an accounting year given that they have rendered services in the establishment for not less than 30 working days within that year.
Payment of minimum and maximum bonus:
- Minimum bonus: An employer is obligated to provide a minimum bonus payment, notwithstanding any financial losses incurred during the accounting year or the absence of an allocable surplus. This minimum bonus amount equates to 8.33% of the salary earned by employees throughout the accounting year.
- Maximum bonus: If, during an accounting year, the employer has surplus funds available for distribution after considering any predetermined or excluded amounts, and this surplus is greater than the minimum bonus requirement, the employer should pay a bonus to the employee in proportion to their salary or wages earned in that year. However, the bonus amount should not exceed 20% of the employee's salary or wages for that year.
Disqualifications for bonus: An employee shall be rendered ineligible for receiving a bonus under the PB Act if the employee's service is terminated due to engaging in fraudulent activities, displaying unruly or aggressive conduct within the premises of the establishment, or committing theft, misappropriation, or sabotage involving any property owned by the establishment. Interestingly, the Code on Wages which is yet to come in force prescribes conviction for sexual harassment as an additional ground for disqualification of bonus.
Time limit for payment of bonus: The bonus money should be given in cash within 8 months after the accounting year ends, or within one month after a decision or agreement is made about the bonus. However, if there's a good reason, the employer can request more time for paying the bonus.
The Payment of Gratuity Act, 1972
The Payment of Gratuity Act, 1972 ("Gratuity Act") establishes a gratuity payment scheme and extends to all establishments employing more than 10 employees. It mandates the provision of gratuity, a form of recognition for extended service. Irrespective of an employee's wage level, they are entitled to receive gratuity after completing a continuous service period of five years* (*4 years and 240 days minimum) or more.
Eligibility for the payment of gratuity: This gratuity payment can be claimed by the employee in the following scenarios: when they reach the age of superannuation and retire, when they decide to resign from their position, or in the unfortunate event of their death or disability resulting from work-related injuries or illnesses.
Forfeiture of gratuity payment: The payment of gratuity may be forfeited in two instances: first, if the employee causes damage or loss to the employer's property, the gratuity amount will be reduced by an equivalent amount to cover the incurred damage or loss; second, if the employee's service is terminated due to misconduct, the entire gratuity payment will be forfeited.
The Gratuity Act also elucidates the rate of gratuity and the obligations of the employer.
The Maternity Benefit Act, 1961
The objective of the Maternity Benefit Act, 1961 ("MB Act") is to govern the employment of women during specific periods before and after childbirth, while also ensuring the provision of maternity benefits and other related benefits. This MB Act is applicable to every factory, mine or plantation, or establishments wherein persons are employed for the exhibition of equestrian, acrobatic and other performances, or any other class of establishments as notified by the government from time to time.
Duration of leave: As per the Maternity Benefit Amended Act, 2017 ("Amended Act"), a woman is entitled to 26 weeks of maternity leave and can avail of the benefits of maternity leave 8 weeks prior to the estimated due date and the remaining weeks post the birth of a child.
Creche facility: The Amended Act imposes a mandatory obligation on all establishments employing 50 or more employees to establish and maintain a creche facility within such distance as may be prescribed. In compliance with this provision, female employees are entitled to avail themselves of creche services four times per day, including rest intervals.
The MB Act also encompasses provisions pertaining to maternity benefits in the event of death, miscarriage, illness during pregnancy or delivery or payment of medical bonus.
The Sexual Harassment (Prevention, Prohibition and Redressal) Act, 2013
The Sexual Harassment (Prevention, Prohibition and Redressal) Act, 2013 ("POSH Act") is applicable to various types of workplaces in India, encompassing government organizations, private sectors, hospitality or nursing homes, sports institutes/facilities, as well as residential premises. The primary objective of this legislation is to establish a conducive and protected working environment for women, while also ensuring the efficient handling of sexual harassment complaints through appropriate redressal mechanisms
Formation of Internal Committee or Local Committee: In accordance with the provisions outlined in the POSH Act, it is mandatory for any workplace employing 10 or more employees to establish an Internal Committee ("Internal Committee"). The Internal Committee's primary responsibility is to address complaints related to sexual harassment and facilitate a thorough inquiry into each complaint. However, if a workplace employs fewer than 10 employees, all complaints pertaining to sexual harassment will be handled by the local committee established under the POSH Act, overseen by district officers.
Complaint mechanism: The POSH Act outlines the complaint mechanism and inquiry procedure, including the provision for conciliation. The Internal Committee is responsible for conducting fair inquiries and submitting a report within 90 days. The Internal Committee has a responsibility to provide the employer with a comprehensive investigation report within 10 (Ten) days after the conclusion of the inquiry.
The Employees' Provident Funds and Miscellaneous Provisions Act, 1952
The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 ("EPF Act") is an important social security legislation in India that aims to provide retirement benefits and financial security to employees. The Act applies to establishments that employ 20 or more employees.
Provident Fund, Pension Scheme and Deposit-Linked Insurance Scheme: The EPF Act establishes a mandatory provident fund and pension scheme for employees, wherein both the employee and the employer from their own funds contribute an amount equal to a certain percentage of the employee's salary to the fund, and wherein employees and employers contribute towards a pension fund respectively. Separately, under the Deposit-Linked Insurance Scheme, a life insurance benefit is provided to employees who are active members of the provident fund scheme.
In furtherance, since the Employee Pension Fund Organisation is responsible for administering and implementing the provisions of the EPF Act, employers are required to register with the EPFO. The EPF Act also lays down provisions relating to inspection and penalties as well.
Equal Remuneration Act, 1976
Equal pay for equal work: As per the Equal Remuneration Act, 1976 ("ER Act"), employers are prohibited from paying workers, regardless of their gender, lower remuneration for performing the same work of a similar nature in an establishment or employment.
Prohibition of discrimination: Employers are prohibited from discriminating against women during recruitment for the same work or work of a similar nature, as well as in any subsequent conditions of service such as promotions, training, or transfer. However, this restriction does not apply in cases where the employment of women in such work is prohibited or restricted by existing laws.
The ER Act also lays down provisions relating to the constitution of an advisory committee and provisions relating to the powers of the appropriate government to appoint authorities for hearing and deciding complaints.
The Minimum Wages Act, 1948
The Minimum Wages Act ("MW Act") authorises the State and Central Governments to determine the minimum wages that must be paid to employees in specific industries or occupations. The government can set different minimum rates for different types of work, regions, and age groups within a period of five years. It can also determine the wage period, such as hourly, daily, monthly, or as prescribed by law.
Minimum rate of wages: The minimum wage rates set by the government for certain jobs can include:
- A basic wage rate and an additional allowance that can be adjusted periodically to match changes in the cost of living.
- A basic wage rate with or without a cost of living allowance, along with the value of any discounted essential supplies provided to workers.
- An all-inclusive rate that considers the basic wage, cost of living allowance, and the value of any provided concessions.
The calculation of the cost of living allowance and the value of concessions for essential supplies is done by the relevant authority according to the government's instructions and at regular intervals.
The Act also addresses the appointment of inspectors responsible for assessing working conditions and enforcing adherence to the regulations. Furthermore, there are provisions in place that specify the consequences for failing to comply with minimum wage regulations. These consequences may involve monetary penalties and potential imprisonment for individuals found guilty of non-compliance.
There are other laws as well that govern the working hours, conditions of service and health and safety.
The Factories Act, 1948 ("Factories Act"): The Factories Act focuses on the health, safety, welfare, working conditions, leave, overtime pay, etc. of workers in factories. It applies to factories with a workforce of more than 10 individuals with power assistance or 20 individuals without power assistance. The Factories Act covers all workers involved in manufacturing activities, whether they are directly employed in the factory or through agencies or contractors.
The Industrial Disputes Act, 1947: ("ID Act"): The ID Act contains the provisions for resolving industrial disputes, addressing unfair labour practices, managing layoffs and retrenchment (termination), regulating strikes, lockouts, and closure of establishments, among other matters.
The Employees' State Insurance Act, 1948 ("ESI Act"): The ESI Act provides medical benefits and insurance coverage to employees working in factories registered under the ESI Corporation. This act establishes a formal social security program for the working class, ensuring financial support during various medical circumstances such as sickness, maternity leave, disorders (mental or physical), temporary or permanent disability, and death.
The Employee's Compensation Act, 1923 ("EC Act"):This Act is intended to provide compensation to employees and their dependents in the event of accidents occurring during the course of employment, resulting in either death or disablement of the employee.
The Payment of Wages Act, 1936: The legislation governs the payment of wages to employees and encompasses provisions pertaining to time and manner of payment of wages as well as permissible wage deductions.
The Child Labour (Prohibition and Regulation) Act, 1986: The law governs the engagement of children in certain occupations.
Shops and Establishments Act: The Shops and Establishment Act, enacted by each state, provides legal protection and a framework for employees and employers, specifically in shops and establishments. It covers various regulations such as working hours, rest intervals, opening and closing hours, holidays, overtime work, as well as provisions for leaves and termination of service.
Navigating HR and Employment Laws in India requires a thorough understanding of the legal landscape and a commitment to compliance. By following the checklist outlined in this article, organisations can ensure they are legally compliant, protect employee rights, and minimize the risk of legal disputes. Proactive adherence to HR and Employment Laws not only establishes a positive work environment but also promotes a culture of fairness, equality, and employee well-being.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.