Chapter XV - Human Resource Related Laws and Compliance

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Made publicly available in the spirit of open access by its author, Noshir Dadrawala (CEO, Centre for Advancement of Philanthropy), and collaborators CAP and Forbes Marshall.

Shops and Establishment Act

The Shops and Establishment Act in India is a state and union territory-specific laws that governs employment and labour service conditions in shops and commercial establishments, excluding factories, and requires compliance within their respective jurisdictions. In most states and union territories it is applicable to all 'establishments' employing ten or more workers.

The Maharashtra Shops and Establishment Act (as amended in 2017) has done away with the term 'commercial establishment' and instead only provides for one head i.e., 'establishment' which covers any business, trade, manufacture, establishment of any medical practitioner, architect, engineer, accountant, tax consultant or any other technical or professional consultant, a society registered under the Societies Registration Act, 1860, a charitable or other trust, shop, residential hotel, restaurant, eating house, theatre or other place of public amusement or entertainment; to whom the provisions of the Factories Act, 1948 does not apply, etc. Section 3 of the Maharashtra Shops and Establishment Act (as amended in 2017) lists thirteen specific categories of establishments and workers exempt from its provisions. NPOs are not included in this list.

However, the following establishments (including establishments registered as trust, society, or Section 8 company) would be exempt under this Act:

Maternity benefit

The Maternity Benefit Act 1961 Act regulates employment of women in certain establishments for a certain period before and after child birth and provides for maternity and other benefits. This law ensures job security, protect women's economic rights, and support their maternal duties. In 2017, the Maternity Benefit Act 1961 was amended to include various aspects, such as an increase in the maternity leave period, the option to work from home and maternity leave for mothers adopting a child.

This law provides for maternity benefit and protection for women employed in any capacity directly or through any agency (i.e., on contract) in factories, mines, plantations and every shop or establishment having ten or more employees. The law is silent on Paternity Leave. Under Section 12 of this Act, any dismissal of a woman during or on account of her maternity leave is unlawful and punishable under Section 21 of the Act.

Women employees may enjoy up to eight weeks leave before delivery, out of the stipulated twenty-six weeks maternity leave. However, for a woman who has two or more surviving children, the maternity benefit will be twelve weeks, which cannot be availed before six weeks from the date of the expected delivery.

A commissioning mother is entitled to paid maternity leave of twelve weeks from the date the child is handed over to her. A commissioning mother means, 'a biological mother who uses her egg to create an embryo implanted in any other woman.'

A woman who legally adopts a child below the age of three months would also be entitled to maternity benefit for a period of twelve weeks and the period of maternity benefit should be calculated from the date the child is handed over to the adopting mother.

After availing the maternity leave benefit, an employer may allow a woman to work from home, if the nature of work assigned to her is such that she may work from home. The terms, conditions, and duration for the 'work from home' arrangement would be according to a mutual agreement between the employer and the woman. The Union Government has also advised that employers should allow nursing mothers to work from home possibly till the baby is one year old. This means, at least six more months post maternity leave. However, the government has left the decision regarding the duration of leave in such cases to employers and employees. The ministry has also advised that states should write to employers advising them to allow more and more nursing mothers to work from home as per Section 5 of the Maternity Benefit Act, wherever nature of work allows.

Upon having fifty or more employees, every establishment is required to have the facility of crèche within such distance as may be prescribed, either separately or along with common facilities. The employer is required to allow four visits a day to the crèche by the woman, which will also include the interval for rest allowed to her. Every establishment is required to intimate in writing and electronically to every woman at the time of her initial appointment regarding every benefit available under this Act.

Employees' Provident Fund and Miscellaneous Provisions Act 1952

This law is applicable to, every establishment including NPOs employing twenty or more persons. The responsibility to comply with the Employees Provident Fund (EPF) Act lies on the employer (i.e. trustees, governing board members, or directors).

Employees drawing wages (basic plus dearness allowance) of less than or equal to Rs 15,000 per month, or employees who were previously covered under the EPF Act are eligible for benefits under the EPF Act. An employee with a basic salary of over Rs 15,000 and who has never been a member of EPF can opt out of the scheme. However, if he/she is a member or once he/she becomes a member, he/she cannot opt out of the scheme.

Employer can choose to limit contribution towards EPF to twelve per cent of Rs 15,000 (Rs 1,800) under Section 26A of EPF Act for those employees earning more than Rs 15,000 per month as basic wages. Professional consultants are not covered under the EPF Act, unless they are deemed to be employees of the NPO. Persons employed by or through a contractor (contract workers) also fall under the definition of employee under the EPF Act. EPF Act is a social security legislation and applies to charitable organisations having twenty or more employees.

Employees' State Insurance Scheme (ESIS)

This law is applicable to any non-seasonal factory or company having more than ten employees (in some states, it is twenty employees) who have a maximum salary of Rs 21,000.

The Employees' State Insurance Scheme (ESIS) is a comprehensive Social Security Scheme designed to accomplish the task of socially protecting the 'employees' in the organised sector against the events of sickness, maternity, disablement, and death due to employment injury and to provide medical care to the insured employees and their families.

The scheme provides full medical care to the employee registered under the scheme during the period of his/her incapacity for restoration of his health and working capacity. It provides financial assistance to compensate the loss of his/her wages during the period of his abstention from work due to sickness, maternity, and employment injury. The scheme provides medical care to his/her family members also.

The ESI Act 1948 aims at ensuring that employees drawing wages which are less than or equivalent to Rs 21,000 are provided with certain basic benefits at low and accessible rates. For employees with disabilities, the wage ceiling for eligibility for benefits under the Act is Rs 25,000.

Currently, the employer's contribution is equivalent to 4.75% and the employee's contribution is equivalent to 1.75% of the basic wage. The employees' contribution is made by deducting the specific amount from his basic wage each month and the employer may now make his contribution online through State Bank of India or any other bank authorised by the ESIC.

Employees who draw wages of less than Rs 137 per day are not required to make any contribution to ESIC.

If the wages of an employee (excluding remuneration for overtime work) exceed the wage limit (currently Rs 21,000 p.m.) prescribed by the Central Government after start of contribution period, he continues to be an employee till the end of that contribution period and hence contribution is to be deducted and paid on the total wages earned by him.

Applicability of ESIS to NPOS

Under Section 1(5) of the Act, the following establishments employing ten or more persons attracts ESI coverage:

Thus, this law would be applicable to charitable trusts and societies which are medical or educational institutions employing ten or more persons.

Once an establishment is covered under the Act, it continues to be covered notwithstanding the fact that the number of persons/ coverable employees employed therein at any time falls below the required limit or there is a change in activity.

An employer, who fails to pay the contribution within the limit prescribed under Regulation 31, shall be liable to pay simple interest at the rate of 12% per annum in respect of each day of the default or delay in payment of contribution.

Minimum wages

The Minimum Wages Act 1948 does not make any specific reference to NPOs or charitable institutions under any of the 'scheduled employments.' However, besides industries and factories, it is applicable to 'establishments' registered under the Shops and Establishments Act and factories under the Factories Act 1948, irrespective to the strength of employment. In other words, establishments, including NPOs registered under the Shops and Establishments Act must pay minimum wage to its employees. Since labour is a concurrent subject under the Indian Constitution, minimum wage rates are determined both by the Central Government and the Provincial Governments. Minimum wage rates in India are declared at the national, state, sector, and skill/occupational levels. Minimum wage rates may be established for any region, occupation, and sector. Additionally, minimum wage is established for trainees, youth, and piece-rate workers.

Minimum rate of wages may consist of a basic rate of wages and a cost- of-living allowance, or a basic rate of wages, with or without the cost-of-living allowance, and the cash value of concessions in respect of the supply of essential commodities at concession rates (if authorised); or an all-inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of the concessions (if any). The term 'minimum wage' includes the basic wage plus special allowance, as prescribed and published by the Labour Department from time to time for a given schedule of employment. The employer is obliged to pay wages on regular and timely basis at least once a month. Wage period may be fixed on hourly, daily, weekly, or monthly basis. If the employment of a worker is terminated by or on behalf of the employer, the outstanding wages should be paid within two days of employment termination. Wage periods cannot be fixed for duration longer than one month.

Bonus

The Payment of Bonus Act applies to every factory wherein ten or more persons are employed with the aid of power or an establishment in which twenty or more persons are employed without the aid of power on any day during an accounting year. The threshold wage limit is Rs 21,000. Under Section 32 (v) of the Payment of Bonus Act 1965: Nothing in this Act shall apply to employees employed by:

Thus NPOs (which are social welfare institutions) are exempt from payment of bonus. However, as goodwill gesture ex-gratia payment may be made, depending on availability of funds and performance of the NPOs staff.

Gratuity

The Payment of Gratuity Act, 1972 provides for payment of gratuity to employees upon cessation of their services on the completion of five years (calculated at 4 years and 190 days in relation to establishments that work less than 6 days a week and 4 years and 240 days in other cases) of continuous service. The Gratuity Act allows for payment of gratuity, as an expression of the gratitude of any employer for five or more years of continuous service, upon the retirement, superannuation, or resignation of an employee after the completion of the said five-year period. In the event of death of an employee or disablement due to work, because of which the employee is unable to return to work, gratuity must still be paid, irrespective of the number of years of service, and may be paid to the nominee of the employee. Gratuity should be paid for each year of continuous service or part thereof which exceeds six months. The formula to calculate the gratuity of an employee is as follows: Gratuity = Last drawn salary x (15/26) x Number of years of service. Here 26 relates to the projected number of working days in a month, and the gratuity calculation is accounted at the rate of 15 days wages. Gratuity is tax free in the hands of the employee up to a sum of Rs 20 lakhs.

Applicability of Gratuity Act to NPOs

The Act extends to the whole of India and is applicable to any establishment having ten or more employees. Thus, it includes any NPO which is covered by the Shops and Establishments Act.

Also, under Section 1(3)(c) of the Payment of Gratuity Act, 1972, if any establishment wherein ten or more persons are employed, if notified by the Central Government, then to such establishments, the Act applies. The Central Government by a statutory order No. 2218 dated 22.8.1997 u/s 1(3)(c) of the Payment of Gratuity Act had issued the following notification:

"S.O.2218. In exercise of the powers conferred by clause (c) of sub- section (3) of section 1 of the Payment of Gratuity Act, 1972 (39 of 1972), the Central Government hereby specifies the trusts or societies, registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law with respect of societies for the time being in force in any State, in which ten or more persons are employed or were employed for wages on any day of the preceding 12 months as a class of establishments to which the said Act shall apply with effect from the date of publication of this notification in the Official Gazette."

Thus, the contention that a particular institution is a charitable institution is not relevant for the purpose of determining the coverage under the Act. The Act applies if any institution is covered by the provisions of the Act, notwithstanding the nature of activities or the philanthropic/charitable services rendered by them. It was also held in Management of Good Samaritan Rural Development Project Vs. T. A. Ramaiah and others reported in (2003) 1 LLN 378 that charitable institutions are covered by the provisions of the Act.

Professional tax

Professional tax is a tax on all kinds of professions, trades, and employment and is levied based on the income of such profession, trade, and employment. It is levied on employees, a person carrying on the business, including freelancers, professionals, etc., subject to income exceeding the monetary threshold if any.

Professional tax being levied by the state government is different in different states. Every state has its own laws and regulations to govern the professional tax of that state. All states follow a slab system based on income to levy professional tax. Not all states in the country choose to levy professional tax. Under the Professional Tax in Maharashtra Act, every person engaged actively in any profession in Maharashtra is liable to pay this tax. It may be noted that professional tax is a deductible amount for the purpose of the Income Tax Act 1961 and can be deducted from taxable income of the employee. Employer is a person responsible for deducting and paying professional tax to the state government subject to the monetary threshold, if any, provided by the respective state's legislation.