Labour Laws

1. Provident Fund (PF)

A Provident Fund is a government-managed retirement savings scheme designed to provide
financial security for employees/ citizens upon retirement or at the end of particular tenure.
Types of Provident Funds:
a) Statutory provident fund - This scheme is set up under the Provident Funds Act, 1925. It
is meant for government employees, universities, recognized educational Institutions,
railways, etc. It is also known as the General Provident Fund (GPF).

b) Recognized provident fund - The establishments covered under the scheme can join the
government-approved scheme or start their own PF scheme by forming their trust. The
establishments can join the government-approved scheme set up under the PF Act
1952, a recognized provident fund. The commissioner of income tax must approve the
trust/scheme to receive the status of the recognized provident fund.

c) Unrecognized Provident Fund – If the commissioner of income tax does not approve the
provident fund scheme created by the employer and employee (as mentioned above),
then such scheme is an unrecognised provident fund scheme.

d) Public provident fund - Any person can contribute to this scheme by opening a public
provident fund account with the authorised bank. The person can deposit an amount
starting from Rs.500 to Rs.1,50,000 per annum. There is a fixed lock-in period of 15 Years
for PPF.

Applicability to the company - When the company/ organization has employed 20 or more
employees.
An employer can voluntarily register their establishment with the Employees' Provident Fund
Organization (EPFO).
Applicability to the employee - Employees who earn a basic salary + dearness allowance of up
to ₹15,000 per month. Employees who earn more than ₹15,000 per month can also join the
EPF, but they must submit an option within six months of joining.
Contributions - The employee and employer each contribute 12% of the basic salary and
dearness allowance.
In establishments that employ fewer than 20 people, the contribution rate is 10% for both
employee and the employer.

2. Employees' State Insurance Corporation (ESIC)

It is a social security organization that provides medical care and other benefits to employees
and their families. (Medical and healthcare related benefits)
Applicability to the company - When a factory or any other establishment has employed 10 or
more employees.
An employer can voluntarily register their establishment with the Employees State Insurance
Corporation.
Applicability to the employee - Employees are covered under the ESIC scheme whose gross
salary per month does not exceed Rs.21,000 (Rs.25,000 in the case of a person with a
disability).
Contributions - The employer's contribution is 3.25% of the employee's wages, and the
employee's contribution is 0.75% of their wages.
Exemptions – Employees who earn up to Rs. 176 per day are exempted from paying their share
of the contribution. However, employers will still contribute their share for these employees.
Benefits – It covers most of the which are sickness, medical care for the worker, maternity,
unemployment, work injury, death of worker, invalidity and widowhood.

3. Employees' Deposit Linked Insurance (EDLI)

It is a life insurance plan that provides a lump sum payment to the nominee of an employee
who dies while employed. (Scheme is managed by EPFO)
Applicability to the company - Organizations with more than 20 employees are required to
subscribe to the scheme. One can take voluntary registration.
Applicability to the employee - Employees with a basic salary of up to Rs. 15,000 per month
are eligible for the scheme. In case of an employee's basic salary is more than Rs. 15,000 per
month the employee can opt for this scheme voluntarily, however, the maximum benefit is
capped at Rs. 7 lakhs.
Benefits - The scheme provides a lump-sum payment to the registered nominee if the insured
employee passes away while still employed. The claim amount is 35 times the average monthly
salary in the past 12 months, subject to a maximum of Rs 7 lakhs.
Contribution – It is only funded by employer contributions, not employee contributions. The
employer contributes 0.5% of the employee's basic salary and dearness allowance (maximum
upto Rs. 75 per employee per month).

4. Professional Tax (PT)

All self-employed, salaried individuals and organizations are liable to pay professional tax,
depending on their income.
There are mainly two types of Professional Tax:
(i) PTEC (Professional Tax Enrollment Certificate) –
(a) Every entity who is engaged in any profession (business or service) excluding that of
Partnership firm or HUF is liable to pay a profession tax of Rs. 2,500/- p.a. with the
government every year after the incorporation or commencement of business (LLP and
All Companies are covered).
(b) Every person who is Director of the company is liable to pay a professional tax of Rs.
2,500/- p.a.

(c) PTRC (Professional Tax Registration Certificate) - This certificate is to be obtain by every
person who is liable to deduct professional tax of any employee whose monthly gross salary is
above Rs. 7,500/- in Maharashtra.
Applicability for PTRC (employees) -

Exemptions - Further, a director, partner who is supposed to take enrolment certificate and pay
Rs.2500/- is required to pay only once and not for each company or firm in which he is a
director and / or partner.
Same, for employees, if an employee is paying professional tax in one company, he/she is not
supposed to pay professional tax if he/she has a separate business or profession.
 Senior citizens aged 65 years and above.
 Parents of physically challenged children.
 Individuals having more than 40% disability.
5. Maharashtra Labour Welfare Fund (MLWF)
It is a fund that provides financial assistance and welfare benefits to workers and their families.
Applicability to the company - This applies to establishments in Maharashtra that employ five
or more people.
Applicability to the employee –

All employers and employees covered under the Act must contribute half-yearly to the
Maharashtra Labour Welfare Fund. The date of deduction of the contribution amount is 30th
June and 31st December every year.
Exemptions – Employees in managerial roles, supervisory roles earning more than Rs. 3500 per
month.
Benefits - The Maharashtra Labour Welfare Fund provides welfare for workers and their
families. This includes education, health, skill development, and recreation for needy persons
and groups. The Fund's support improves the workers' and their dependents' quality of life.

Other Employee Incentives/ Benefits

1. Gratuity
Gratuity is a lump sum amount that is paid to an employee by an employer, as a token of
appreciation, on the termination of the employee's service.
It is considered part of the employee's salary and is meant to help during retirement.
Applicability to the company - The company must have 10 or more employees to be liable for
gratuity payments.
Applicability to the Employee - An employee needs to complete at least 5 years of continuous
service with the company to be eligible for gratuity.
Gratuity received at the time of retirement/ leaving job by a government employee is fully
exempt u/s 10(10)(i).
Whereas for non-government employees it is fully/ partially exempt subject to following
conditions:
Exempt amount shall be least of the following:
1. The actual amount received,
2. Ceiling limit of maximum Rs. 25 Lakhs,
3. The amount calculated as below.

If employee is covered under Payment of Gratuity Act (POGA) –

15 Days Salary x Length of service

(15 days salary = salary last drawn x 15/26)
(length of service = rounded off years)
(*salary = basic + dearness allowance)

 If employee is not covered under Payment of Gratuity Act (POGA) –

Half months avg salary x length of service

(half months avg salary = salary of 10 months immediately preceeding the month of
retirement/10*2)
(length of service = completed years)
(*salary = basic + dearness allowance)

1. Bonus
An additional financial reward paid on top of their regular salary, typically used as an incentive
to encourage good performance.
This is covered under the Payment of Bonus Act, 1965.
Applicability to the company - The Payment of Bonus Act applies to every factory and other
establishments employing 20 or more people.
Applicability to the employee - For eligibility to receive statutory bonus, an employee must
have worked for at least 30 days during the accounting year and their basic salary plus dearness
allowance should not exceed a specified limit (currently ₹21,000 per month).
Calculations - The bonus amount is usually calculated as a percentage of the employee's basic
salary, with the exact percentage depending on the company's profit levels.
Minimum and Maximum Bonus - The minimum bonus will be 8.33% of the salary (Basic plus
dearness allowance) during the year.
The maximum bonus is 20% of the salary (Basic plus dearness allowance) during the accounting
year.
Exemptions - The Payment of Bonus Act, 1965 exempts certain employees and establishments
from receiving or paying bonuses.
 Employees of Central Government or Local Authority
 Employees of certain public sector organizations
 Employees of LIC, GIC, Red Cross, and other educational institutions
 Employees who break company policy and cause financial loss.