Legal Side of Compensation

Rakesh Seth
 Key Considerations
• End exploitation and provide fair
remuneration
• Fix statutory minimum wages
• Ensure equal pay for equal work
• Provide for wage differentials
• Regulate wages and salaries to eliminate
reduce disparities
• Link remuneration to productivity
PREVALENT STATUTORY LAWS
(CENTRAL & STATE)
i. THE EMPLOYEES PROVIDENT FUND
ACT 1952
ii. EMPLOYEES’ STATE INSURANCE ACT,
1948 / EMPLOYEE
COMPENSATION ACT
Iii. PAYMENT OF BONUS ACT, 1965
iv. MINIMUM WAGES ACT, 1948
PREVALENT STATUTORY LAWS
(CENTRAL & STATE) Contd…
v. PAYMENT OF WAGES ACT,
1936
vi. THE MATERNITY BENEFIT ACT, 1961
vii. EMPLOYEE COMPENSATION ACT,
1923
viii. THE INDUSTRIAL DISPUTE ACT, 1947
ix. THE FACTORIES ACT, 1948
x. SEXUAL HARASSMENT ACT,
2013
SOCIAL SECURITY AND PENSION
ISSUES
THE ACT PROVIDES THREE SCHEMES:
• THE EMPLOYEES PROVIDENT FUND
SCHEME 1952
• THE EMPLOYEES PENSION SCHEME 1995
• EMPLOYEES DEPOSIT LINKED INSURANCE
SCHEME 1976
SOCIAL SECURITY AND PENSION
ISSUES Contd…
• EMPLOYEES PROVIDENT FUNDS AND
MISCELLANEOUS PROVISIONS ACT,
1952
• EMPLOYEES STATE INSURANCE ACT,
1948
• PAYMENT OF GRATUITY ACT, 1972
 THE EMPLOYEES PROVIDENT FUNDS &
MISC. PROVISIONS ACT 1952
• THE ACT CAME INTO EXISTENCE IN 1952
TO ENSURE COMPULSORY PROVIDENT
FUND, FAMILY PENSION FUND AND
DEPOSIT LINKED INSRUANCE IN FACTORIES
AND OTHER ESTABLISHMENTS FOR THE
BENEFIT OF EMPLOYEES.
• THE WAGE CEILING FOR COVERAGE OF AN
EMPLOYEE UNDER THE ACT IS RS. 15,000
PER MONTH WEF 1.9.2014.
 CONTRIBUTION OF EPF
• CONTRIBUION : CURRENT SALARY/WAGE
LIMIT Rs 15,000
• EMPLOYEE PF SHARE 12%
• EMPLOYER PF SHARE
3.67%
• EMPLOYER SHARE PENSION FUND
8.33%
• EDLI
0.5%
 FOR EMPLOYEES – EPF RELATED LINK
https://www.epfindia.gov.in/site_en/For_E
mployees.php?id=sm2_index
THE EMPLOYEES DEPOSIT-LINKED
INSURANCE SCHEME 1976 (EDLI)
1) EDLI scheme is applicable to employees
(private organizations) who are registered
under EPF.
2) All such employees are automatically
covered under EDLI Scheme. No separate
application required.
3) EDLI Scheme covers all employees who
are members of the EPF.
THE EMPLOYEES DEPOSIT-LINKED
INSURANCE SCHEME 1976 (EDLI)
4) EDLI Scheme covers employees at all times
i.e. whether they are working or during non
working hours.
5) Life Insurance coverage would be based
on basic salary (Basic Salary + DA) of the
employee and not gender or any tenure.
6) Life Insurance coverage is applicable even
for new employees on day-1 once they are
enrolled in EPF.
 THE EMPLOYEES DEPOSIT-LINKED
INSURANCE SCHEME 1976 (EDLI)
CONTD…
7) Minimum Life Insurance coverage is Rs 2.5
Lakhs.
8) Maximum Life Insurance coverage is Rs 6
Lakhs.The calculation as per the scheme is
15000x 30=4,50,000+1,50,000=Rs.6,00,000.
9) There is no separate nomination required in
EDLI Scheme as EPF nomination is applicable to
Life Insurance nomination too.
10) One should note that the average wage
referred is basic salary + dearness Allowance
(DA) only.
 THE EMPLOYEES’ STATE INSURANCE ACT
1948
• THE SCHEME IS DEVISED SO AS TO PROVIDE
SOCIAL PROTECTION TO EMPLOYEES IN
CONTINGENCIES SUCH AS ILLNESS, LONG
TERM SICKNESS OR ANY OTHER HEALTH
RISKS DUE TO EXPOSURE TO EMPLOYMENT
INJURY OR OCCUPATIONAL HAZARDS.
• UNDER THE PROVISIONS OF THE SCEME
MEDICAL FACILITIES ARE ALSO MADE
AVAILABLE TO THE LEGAL DEPENDANTS OF
INSURED PERSONS.
 BASIC CONCEPTS
• 1. WAGE LIMIT FOR COVERAGE:
– UPTO DEC-2016 : RS 15000/-
PM
– FROM 01-01-2017 : RS.
21000/-PM
• 2. RATE OF CONTRIBUTION:
– EMPLOYEE SHARE : 1.75
%
– EMPLOYER SHARE : 4.75
%
– TOTAL PAYABLE 6.5 %
– IN NEWLY IMPLEMENTED AREAS FOR THE INITIAL
2 YEARS RATE OF CONTRIBUTION WILL BE :
– EMPLOYEE SHARE : 1%
– EMPLOYER SHARE : 3%
– TOTAL PAYABLE 4%
 (C ) EMPLOYEES’ STATE
INSURANCE CORPORATION
Employees - Benefits
Under ESI Scheme, the comprehensive and
need based package of Social Security
Benefits in Cash and kind include the
following:
1) Medical Benefit
2) Sickness Benefit
3) Maternity Benefit
4) Disablement Benefit
5) Dependent Benefit
6) Funeral Benefit
 GRATUITY PAYMENT

• GRATUITY SHALL BE PAYABLE TO AN

EMPLOYEE ON TERMINATION OF HIS
EMPLOYMENT AFTER HE HAS RENDERED
CONTINUOUS SERVICE FOR NOT LESS
THAN FIVE YEARS – (A) ON HIS
SUPERANNUATION, OR (B) ON HIS
RETIREMENT, RESIGNATION, OR WHERE
HIS DEATH OR TOTAL DISABLEMENT THE
CONDITION OF 5 YEARS COMPLETE
SERVICE WILL NOT BE APPLICABLE.
 THE GRATUITY ACT AMENDMENT
• ACCORDING TO THE NOTIFICATION OF 29TH MARCH
2018, THE CENTRAL GOVERNMENT HAS SPECIFIED
THAT THE AMOUNT OF GRATUITY PAYABLE TO AN
EMPLOYEE SHALL NOT EXCEED INR 2,000,000
(INDIAN RUPEES TWENTY LAC)
• EARLIER LIMIT WAS RS. 10 LAC.
• FURTHER, FOR THE PURPOSES OF CALCULATION OF
CONTINUOUS SERVICE FOR THE PAYMENT OF
GRATUITY TO EMPLOYEES WHO ARE ON MATERNITY
LEAVE, THE CENTRAL GOVERNMENT HAS SPECIFIED
THAT THE TOTAL PERIOD OF MATERNITY LEAVE SHALL
NOT EXCEED 26 (TWENTY-SIX) WEEKS.
 GRATUITY CALCULATION

THE CALCULATION OF GRATUITY FOR AN

EMPLOYEE HAVING SERVED FOR 20 YEARS
AND DRAWING SALARY OF RS. 5200 PER
MONTH WILL AS UNDER:
• RS 5200 PE MONTH LAST DRAWN SALARY
DIVIDED BY 26 DAYS
• RS. 200 PER DAY X 15 DAYS X 20 YEARS OF
SERVICE
• RS. 60,000 GRATUITY PAYABLE.
 THE FACTORIES ACT
• HOURS OF WORK AND PAYMENT OF
OVERTIME IS GOVERNED AS PER THE
FACTORIES ACT, 1948
• IT DEFINES THE HOURS OF WORK
• SPREAD OVER – TOTAL HOURS IN A
DAY
 OVERTIME LIMIT ENHANCEMENT

• ENHANCE THE LIMIT OF OVERTIME HOURS

FROM THE PRESENT LIMIT OF FIFTY HOURS PER
QUARTER TO ONE HUNDRED HOURS PER
QUARTER UNDER SECTION 64;
• FURTHER SOME CASES INCREASE THE LIMIT OF
OVERTIME HOURS TO MAXIMUM OF ONE
HUNDRED AND TWENTY-FIVE HOURS PER
QUARTER BECAUSE OF (I) EXCESSIVE
WORKLOAD IN THE FACTORY (II) PUBLIC
INTEREST;
 EMPLOYEE COMPENSATION ACT
AMENDMENT 2017
• The Employees’ Compensation (Amendment) Act, 2017,
introduced in the Lok Sabha in August, 2016 received the
President’s approval. The amendment is to the Workmen
Compensation Act, 1923.
• The details of the amended bill are as follows:
• 1. It is the employer’s responsibility and duty to inform an
employee of his rights. According to the Act, “Every
employer shall immediately at the time of employment of
an employee, inform the employee of his rights to
compensation under this Act, in writing as well as through
electronic means, in English or Hindi or in the official
language of the area of employment, as may be
understood by the employee.
 EMPLOYEE COMPENSATION ACT
1923
• 2. Failure to do so will make the employer liable to penalty. The Bill
penalises an employer if he fails to inform his employee of his right to
compensation. As per the amendment, the penalty amount has been
increased from a maximum of Rs. 5000 to a definite penalty of Rs.
50,000 which may be further extended to Rs. 1 lakh.
• 3. As per the amended act, appeals can be made against orders
related to compensation, distribution of compensation, award of
penalty or interest, only if the amount in dispute is at least Rs 10,000.
The same has been revised from the earlier minimum amount of Rs
300.
• 4. Any dispute related to an employee’s compensation will be heard by
a commissioner who will have the powers of a civil court. Appeals
from the commissioner’s order, related to a substantial question of
law, will lie before the High Court.
• 5. In a further amendment, the Act has scrapped the rule as per which
the employer could temporarily withhold any payments towards the
employee in case the former had appealed against a commissioner’s
order.
 WAGES RELATED ISSUES

• MINIMUM WAGES ACT,

• PAYMENT OF WAGES ACT, 1936
• PAYMENT OF BONUS ACT, 1965
 THE PAYMENT OF WAGES ACT,
1936
• THIS ACT REGULATES THE PAYMENT OF WAGES TO
CERTAIN CLASSES OF PERSON EMPLOYED IN INDUSTRY.
IT WAS FORMED TO ENSURE THAT THE WAGES PAYABLE
TO EMPLOYEES COVERED BY THE ACT ARE DISBURSED BY
THE EMPLOYER WITHIN THE PRESCRIBED TIME LIMIT
AND THAT NO DEDUCTIONS OTHER THOSE AUTHORIZED
BY LAW ARE MADE BY THE EMPLOYER
• BY NOTIFICATION NO. S.O 2806(e) DATED 28TH AUGUST
2017, THE WAGE CEILING FOR COVERAGE OF AN
EMPLOYEE HAS BEEN ENHANCED FROM RS. 18,000 TO
RS. 24,000 UNDER THE ACT.
 THE MINIMUM WAGES ACT -
OBJECT AND SCOPE OF THE ACT
• THE MAIN AIM OF THE ENACTMENT IS TO
MAKE PROVISIONS FOR STATUTORY FIXATION
OF MINIMUM RATES OF WAGES IN
SCHEDULED EMPLOYMENT WHEREIN LABOUR
IS NOT ORGANISED AND SWEATED LABOUR IS
MOST PREVALENT.
• AN UNDERDEVELOPED COUNTRY LIKE INDIA
FACES THE PROBLEM OF UNEMPLOYMENT IN
A VERY LARGE SCALE.
 Minimum wage determination
• It was recognized that wage determination
can not be entirely left to market forces, i.e.
the supply o an the demand for labour.
 CONTD…..
• WORKERS MAY OFFER TO WORK EVEN ON
STARVATION WAGES. EMPLOYERS MAY BE
READY TO OFFER THEM THE WORK AT
STARVATION WAGES.
• WHAT THE ACT PURPORTS TO ACHIEVE IS
TO PREVENT THE EXPLOITATION OF
LABOUR AND FOR THAT PURPOSE,
AUTHORISES THE APPROPRIATE
GOVERNMENT TO TAKE STEPS TO
PRESCRIBE THE MINIMUM RATES OF
 CONTD…..

• FOR THIS PURPOSE, THE CAPACITY OF

EMPLOYER SHALL NOT BE CONSIDERED.
• THE STATE ASSUMES THAT EVERY
EMPLOYER MUST PAY THE MINIMUM
WAGES TO THE LABOUR ENGAGED BY
HIM.
 CONTD…..

• THE ACT CONTEMPLATES THE MINIMUM

WAGE RATES MUST ENSURE NOT MERELY
THE MERE PHYSICAL NEEDS OF A WORKER
WHICH WOULD KEEP THEM JUST ABOVE
STARVATION LEVEL, BUT MUST ENSURE FOR
HIM NOT ONLY HIS AND HIS FAMILY’S
SUBSISTENCE, BUT ALSO TO PRESERVE HIS
EFFICIENCY AS A WORKER.
• IT SHOULD THEREFORE PROVIDE
SOMETHING ABOVE THE BARE SUBSISTENCE
LEVEL.
 THE PAYMENT OF BONUS ACT 1965

• THIS ACT APPLIES TO EVERY FACTORY AND

EVERY ESTABLISHMENT IN WHICH 20 OR
MORE PERSONS ARE EMPLOYED ON ANY
DAY DURING AN ACCOUNTING YEAR.
BY AMENDING SECTION SECTIONS 2(13) AND
21, IT HAS WIDENED THE SCOPE OF EMPLOYEE
AS ELIGIBLE FOR PAYMENT FROM THOSE
DRAWING SALARY OF RS. 10,00O PER MONTH
TO RS. 21,000.
 THE PAYMENT OF BONUS ACT 1965..
CONTD.

• EVERY EMPLOYEE NOT DRAWING

SALARY/WAGES BEYOND 21,000 PER
MONTH WHO HAS WORKED FOR NOT
LESS THAN 30 DAYS IN AN ACCOUNTING
YEAR, SHALL BE ELIGIBLE OR BONUS FOR A
MINIMUM OF 8.33% OF THE
SALARY/WAGES, WHEREAS MAXIMUM OF
20% IS PAYBLE AS BONUS IN AN
ACCOUNTING YEAR.
 CONTD….

• HOWEVER IN CASE OF THE EMPLOYEES’

SALARY/WAGES RANGE OF RS. 7,000 TO
21,000 PER MONTH FOR THE PURPOSE
OF PAYMENT OF BONUS, THEIR
SALARY/WAGES WOULD BE DEEMED TO
BE RS. 7,000 OR MINIMUM WAGE FOR
THE SCHEDULED EMPLOYMENT AS
FIXED BY THE APPROPRIATE
GOVERNMENT, WHICHEVER IS HIGHER
 TIME LIMIT FOR PAYMENT OF BONUS
• AS PER ACT BONUS TO BE PAID WITHIN 8
MONTHS FROM THE CLOSE OF THE
ACCOUNTING YEAR.
 THE MATERNITY BENEFIT ACT, 1961
Contd…
• ELIGIBLE FOR 26 WEEKS MATERNITY
BENEFIT OF WHICH NOT MORE THAN
EIGHT WEEKS SHALL PRECEDE THE DATE
OF HER EXPECTED DELIVERY AND
EIGHTEEN WEEKS POST DELIVERY.
• PROHIBITION FROM DISMISSAL FOR
ABSENCE DURING PREGNANCY.
HOWEVER, FOR MISCONDUCTS,
FORFEITING OF MATERNITY BENEFIT AND
MEDICAL BONUS PERMISSIBLE
 ESOS
• Employee stock option schemeSEBI has issued
guidelines in 1999.
• These guidelines apply to any company whose
share listed on any recognised stock
exchanges of India.
 Wage Boards
• Wage boards have a long history of industrial
relations system

• Collective Bargaining
• Pay commisions are designed for
recommendations of pay structure for Govt.
Employees.
 Dearness Allowance

• The words dearness allowances primarily suggest

and refer to allowance paid to employees in
order to enable to them to face the increasing
dearness of essential commodities.
• City compensatory allowance now form integral
part of most wage structures. The general
perinciple is to neutralize at least a portion of the
increase in the cost of living.
Income Tax