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Everything an employer needs to know: PF, ESI, Bonus & Gratuity

Everything an employer needs to know: PF, ESI, Bonus & Gratuity

Legal & Compliance

Anil Ganga

Anil Ganga

3 Sep 2020, 14:35 — 9 min read

There are a lot of labour laws applicable to run a business organisation. Each organisation needs to understand them so that they can comply with it. Any ignorance of the regulations will not be accepted and may result in legal action towards the organisation. All corporate organisations make every effort to ensure that all labour laws as applicable to their kind of organisation are complied with.

 

The Employees Provident Funds and Miscellaneous Provisions Act, 1952

Applicable to factories engaged in any industry having 20 or more employees, and any other establishment employing 20 or more people or class of such establishments. It has also been extended upon shops, hotels, restaurants, roads, motor transport undertakings, equipment maintenance staff in the hospitals.

 

Registration can be done within one month of commencement and attaining the strength according to the act.

 

The employer and majority of employees have agreed, then from the date of such agreement or any subsequent date specified in the contract. The contribution is  12% of basic salary (EPS - 8.33% & EPF – 3.67), and 10% where less than 20 employees and losses incurred more than or equal to the net worth.

 

Wage Limit: Basic + DA (dearness allowance) less than Rs.15,000 per month. For the forms, 3CB & 3CD late payments are not allowed. In the case that if the assesses contribute to ESI( employee state insurance) & PF (Provident fund)  after the due date, but before the filing of ITR (Income tax return), it will be allowed.

 

This act takes care of the needs of its members, such as retirement, family obligations, education of children, for marriage, for treatment of illness, etc. A member of the provident fund can generally withdraw the full amount to his credit, on his retirement from service, after attaining the age of 58 years. It can be used earlier as per the regulations by the Government.

 

Employees State Insurance Act, 1948 

This act this applicable to all factories (including Government) other than seasonal factories. This was later extended to; shops, hotels, restaurants, cinemas including preview theatres, road-motor transport, newspaper establishments, a business engaged in the insurance business, non-banking financial companies, port trust, airport authorities, warehousing establishments, private medical institutions, educational institutions, and contract and casual employees of Municipal Corporation/Municipal Bodies.

 

It is applicable for any organisation employing 10 (20 in individual states) or more persons. The registration should be done within 15 days of applicability, and the wage limit is Rs 21,000/- per month or less, and Rs 25,000/- per month for people with disability.

 

The contribution rate is 4% of the gross salary or total wages. The employee’s contribution is 0.75%, and the employer’s contribution is 3.25%. The areas covered by this act are 566 districts in 34 states and union territories

 

The registration for ESI and EPF (employee provident fund), you will need to prepare your ESI application along with the list of employee’s pre-registration. Once the submission of the application is made, the concerned regional office will approve a unique employer code and also may request for more information from the employer. Lastly, online registration takes 10 to 15 days, subject to government processing time.

 

Here is the checklist for PF and ESI registration,

  • PAN, RC / COI
  • The activity of the Company / MOA (Memorandum of association) & AOA (Articles of association)
  • Factory License & Manager Details, if applicable
  • One existing license like GST, IEC (import-export code), S&E, Trade License, etc
  • ESI Code, if registered
  • Ownership / SHP details and proof
  • Own / Lease Premises details
  • Employees details like UAN, PAN, Bank, Aadhaar, EMP Code, Salary, etc
  • Number excluded employees
  • Date of employee crossing 19 numbers
  • Cancelled cheque
  • List of branches, address, and number of employees
  • Consent of majority employees and agreement entered if any (only for Voluntary coverage)
  • Specimen signature of authorized signatory
  • DSC of authorized signatory

 

Maintenance of records

The immediate employer is also required to maintain the Employee’s Register for the employees deployed to the principal employer. The employer must keep the records and books of account under the laws. An inspection book is also mandatory.

 

Returns

EPF returns

Payment

15th of following Month

Return

15th of following Month

Annual Return

25th April of every year

 

ESI returns

Payment

15th of following Month

Return

15th of following Month

 

Late payment penalty for EPF

Interest under Section 7Q- 12% pa 

The penalty under Section 14B

5%

Up to 2 months

10%

2 - 4 months

15%

4 - 6 months

25%

more than 6 months

 

Late payment penalty for ESI

Interest - 12% pa

 

The Payment of Bonus Act, 1965 

This act applies to every factory and every other establishment with 20 or more employees—employees drawing Rs. 21,000/- per month or less (basic + DA, excluding other allowances) and completed 30 working days in that financial year are eligible.

 

Records & compliance

  • Computation Register in Form-A
  • Register of set-on and set-off in Form-B
  • Bonus Register in Form-C
  • Annual Returns in Form-D every Calendar Year before 1st February 

 

The Payment of Gratuity Act, 1972 

This act applies to factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments with 10 or more employees. The employees who complete 5 years of service or passed away or disabled due to an accident or illness are eligible

 

Calculation formula:

Gratuity = Last drawn salary × 15/26 × number of years of service last drawn salary = basic salary + dearness allowance

(Years of service are rounded off to the nearest full year, 7 days salary for seasonal industries)

 

Gratuity Payment, Trust & Policy 

The payment is due within 30 days, the otherwise simple interest of long term deposits

 

Tax Exemption -  On 01.02.2019, hiked from rupees 20 lakh to Rs 30 lakh.

 

Labour law reforms

44 Central labour laws are mostly subsumed under 4 Labour Codes

  • The Code on Wages
  • The Occupational Safety, Health, and Working Conditions Code, 2019
  • The Code on Social Security, 2019
  • The Industrial Relations Code, 2019

 

Which law subsumed in to which code? 


The Code on Wages

The Occupational Safety, Health, and Working Conditions Code, 2019

The Code on Social Security, 2019

The Industrial Relations Code, 2019

Replaces 4 labour laws, like;

1.The Payment of Wages Act, 1936

2.The Minimum Wages Act, 1948

3.The Payment of Bonus Act, 1965

4.The Equal Remuneration Act, 1976.

 Replaces 13 labour laws, like;

1.Factories Act, 1948;

2.Mines Act, 1952;

3.Dock Workers Act, 1986;

4.The Contract Labour Act, 1970; 

5.Inter-State Migrant Workers Act, 1979, and more

Replaces 8 labour laws, like;

1.The  Employees Compensation Act, 1923

2.ESI

3. EPF & MP

4. Maternity Benefit Act, 1961

5. The Payment of Gratuity Act, 1972

6. Cine workers and Welfare Fund Act

7. Building and other Construction workers Cess Act

8.The Unorganized Workers Social Security Act, 2008

Replaces 3 labour laws, like;

1.The Industrial Disputes Act, 1947;

 

2.The Trade Unions Act, 1926; and

3. The Industrial Employment (Standing Orders) Act, 1946.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: Views expressed here are purely for general purpose, shall not treat as Advise. 

 

Also read: One compliance every registered company must do before 30th September

 

To explore business opportunities, link with me by clicking on the 'Connect' button on my eBiz Card.

 

Image source: shutterstock.com 

 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker

Posted by

Anil Kumar Ganga

"Ananya legal LLP" is a full service, dynamic, and trustworthy Corporate Advisory and Legal Consultancy Limited Liability Partnership (LLP) Firm that specializes in a...

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