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Employment Laws


    'Labour' is a subject falling under the concurrent list of the Constitution of India and as such both the Central Government as well as the State Government have powers to frame the Labour Laws. In the past century,India was known to be a country of stringent Labour legislation, this was so because of its historical background. However, a great effort has been made by the government to simplify labour laws in the recent years.

    The present labour reforms are quite conducive to industrial growth in the country, from the business point of view, encouraging both domestic and foreign investments in India.

Another significant aspect of Labour laws in India is that except for a few, most of the Labour enactments apply to workmen cadre employees only. These labour enactments prescribe minimum stands for terms and conditions of employment. Most of these labour laws state that contracting-out is prohibited. Whereas such is not the case with regard to Management level employees, whose terms and conditions of employment are largely governed by the Contract of employment entered into between the employer and the employee.

Following are some of the important labour enactments for starting business in India.


The Factories Act, 1948

This is a Central enactment passed by the Government of India. It applies only to the factories employing 10 or more workmen if it uses power for its manufacturing process. But if the factory does not use power for its manufacturing process, then the Act applies only if the factory employs 20 or more workmen. This Act does not apply to the commercial establishments. Its Main provisions are -

  • Compulsory approval, licensing and registration of factories.
  • Hours of work
  • Weekly holiday
  • Overtime work
  • Vacation [Leave with wages]
  • Special provisions for Employment of women and young persons
  • Health, Safety and Welfare of the Workmen
The Shops and Establishments Act

The other most important labour legislation is the Shops and Establishments Act. This Act applies mainly to the commercial establishments other than the factories. It regulates the employment in Shops, Commercial establishments, residential hotels restaurants, eating houses, theaters and other places of public amusement.

In India, there is no Central Shops and Establishments Act. Each State frames its own Shops and Establishments Act. For example the Shops and Establishments Act which applies to the State of Maharashtra is called The Bombay Shops and Establishments Act, 1948. The Shops and Establishments Act provides for almost similar provisions like the Factories Act, relating to registration of the commercial establishment, Hours of Work, Weekly holiday, Overtime work, Leave with wages etc

The Minimum Wages Act, 1948.

This Act broadly stipulates that an employer is under an obligation to pay certain amount as minimum wages in respect of the scheduled employment. This Act deals with the quantum of wages only and it does not deal with the manner of payment of wages. Under this Act the Government determines the rate of minimum wages payable to the workmen employed in any of the scheduled employments. The Government also revises the Minimum wages periodically. Generally, the rate prescribed under the Minimum Wages Act is quite low as compared to the rates prevalent in the market. Actually most of the corporate houses pay wages higher than the prescribed Minimum wages in order to attract right type of Human Resources.

The Payment of Wages Act, 1936.

This Act mainly deals with the manner of payment of wages. The object of this Act is to ensure regular and prompt payment of wages and to prevent the exploitation of a wage earner by prohibiting arbitrary fines and deductions from his wages. Its Main provisions are -

  • Wage Period
  • Time for payment of Wages
  • Permissible deductions from Wages.
  • Imposition of fines.
The Payment of Bonus Act, 1965.

In India the Bonus has been a dynamic concept. Initially it came into being with the concept of profit sharing. However gradually it has assumed the shape of deferred payment. Under the present Payment of Bonus Act, every employer is liable to pay certain amount to its employees as bonus every year irrespective of whether the employer has made any profit or not. The minimum bonus has been prescribed as 8.33% of the annual wages and maximum bonus is prescribed as 20%. The bonus has to be paid within 8 months from the close of the accounting year. Minimum criteria for being eligible to receive bonus is that the concerned employee should have worked for minimum 30 days in a year.

The Trade Union Act, 1926

This Act recognizes freedom of association. Today, Indian workers enjoy a broad range of freedom of association rights, including the rights to form and join free and democratic unions, freedom of assembly, the rights of collective bargaining and the rights of strike. One of the important provisions of the Act stipulates that any 7 or more workmen can form and register a Trade Union. This resulted in multiplicity of trade unions [affiliated to different political parties] and inter-union rivalry. The Government of India is making serious efforts to resolve this issue so as to rule out the possibility of any threat to industrial peace and harmony. In the past the trade unions were quite militant in certain industries in India. However there has been a tremendous change in approach of the trade unions in the last two decades. The unions have now cooled down, which is another positive sign for a healthy industrial growth in India. Its Main provisions are -

  • Registration of trade union
  • Cancellation and dissolution of trade unions.
  • Rights and Obligations of registered trade unions.
The Contract Labour [Regulation and Abolition] Act, 1970 -

This Act deals with employment of labour through a contractor. In certain areas, the employment of contract labour is totally prohibited. While in other areas employment of labour through a contractor is permitted subject to certain conditions. One of the important conditions prescribed under the Act is obtaining registration by the principle employer and license by the contractor. Every employer employing 20 or more workmen through a contractor is required to register himself with the prescribed authority as the Principle Employer. Similarly, every contractor who employs 20 or more workmen is required to obtain a license from the concerned prescribed authority. Generally Labour Commissioners are appointed as the competent authority for granting registration and license.

The Industrial Disputes Act, 1947 -

This Act has a very wide application. It applies to almost every kind of organized activity undertaken with the help of workmen. Government has been making an attempt to redefine the term Industrial Establishments However, the same has not been finalized as yet. Presently, it has a very wide coverage.

One of the most important features of this Act is that it provides mechanism for amicable resolution of industrial disputes so as to promote industrial peace and harmony. It provides for Conciliation Officers, Boards of Conciliation, Labour Courts, Industrial Tribunals, National Tribunal etc. As and when a dispute arises in any industrial establishment either the workman or the employer can take the matter with the Conciliation Officer appointed by the Government. The Conciliation Officer makes an attempt to bring about a settlement between the employer and the workmen by mediating. If the Conciliation Officer succeeds in making both the parties reach a consensus then an agreement, is made between the employer and the Workmen, called Settlement and this Settlement has a binding effect on the concerned parties. In the event the Conciliation Officer does not succeed in bringing about a settlement between the employer and the workmen after making all reasonable efforts, then he prepares a report called failure of the conciliation proceedings and sends this report to the Government. The Government, thereafter, analysis the report of the Conciliation Officer and decides whether or not the case is fit for making a reference to a Labour Court or Tribunal for adjudication. In the event the Government refers the matter to the Labour Court or the Tribunal, then the Labour Court hears both the parties and gives a verdict called as Award. The Labour Court then sends this Award to the Government who then publishes it in the Gazette Notification. Generally the Award comes into force on expiry of a period of 30 days from the date of publication. The Industrial Disputes Act also deals with other aspects such as Strike, Lockout, Lay-Off, Retrenchment, Unfair Labour Practice, etc. Besides the labour laws mentioned above there are some more labour laws which are in the nature of social security for the workmen. Some of these are as follows.

The Employees' Provident Fund and Miscellaneous Provision Act, 1952 -

This Act was enacted with the basic objective of providing old age security to the retiring employees. It provides for benefits payable to an employee in the event of termination of employment. The Act has two main schemes under it. These are -

Under this Scheme employer has an obligation to make certain deductions ranging from 10 to 12% from the wages of the employee, called Employees Contribution. The employer has also to contribute an equal amount called the Employers Contribution. Thereafter the employer is required to deposit both the contributions with the Provident Fund Commissioner. The Provident Fund Commissioner keeps on accumulating such contributions in a fund. This fund is invested and administered by the Regional Provident Fund Commissioner. On retirement or termination of the employment the Regional Provident Fund Commissioner makes one time payment to the employee of an amount equivalent to employee contribution + part of the employers contribution + interest at the prescribed rate.

Under this scheme a part of employers contribution is used for building-up a Fund called as Pension Fund. The Provident Fund Commissioner administers this Fund. On retirement or termination of the employment and on fulfilling certain conditions the Regional Provident Fund Commissioner pays a fixed amount to the employee every month by way of monthly pension.

The Payment of Gratuity Act, 1972 -

This Act also deals with the terminal benefits payable to an employee on retirement or termination of the employment on fulfilling certain conditions. Under this Act, an employer is liable to make one time payment of certain amount to the retiring/terminated employee called Gratuity. In order to be eligible to receive gratuity, the employee should have put in at least 5 years services. The quantum of gratuity is calculated at the rate of 15 days salary for each completed year of service. The Act lays down a maximum ceiling on the quantum of gratuity payable by an employer. The existing maximum ceiling of the quantum of gratuity is Rs.10/- lacs.

The Workmen's Compensation Act, 1923 -

This is one of the oldest labour legislation. It provides for payment of compensation to the workmen in the event of death or disablement arising out of an injury sustained in the course of employment. It also provides for compensation in the event of occupational diseases.

The Maternity Benefit Act, 1961

This Act mainly stipulates that an employer is required to grant 12 weeks maternity leave to the female employee. Its Main provisions are -

  • Maternity benefits to be provided on completion of certain days.
  • Not required to work during six weeks following the day of delivery or miscarriage.
  • No long hours of standing which may interfere with pregnancy.
  • Maternity benefit to be allowed on production of Medical Certificate
This publication has been written in general terms and should be seen as broad guidance only. This information should not be relied upon as a substitute for professional advice. For more information please contact us ....