A Definitive Guide to Labor Laws in India

12 of April, 2023

As an HR manager or business owner, managing your workforce requires not only skill and knowledge but also a thorough understanding of labor laws. When you set up shop in a new country, it’s essential to learn about the labor practices that are in force, that will allow compliant document management.

If you’re doing business in India, then you’ll need to know about the many labor laws that govern employment relationships. That’s why Sesame has put together this comprehensive guide to labor laws in India, to give you all the information you need to ensure your workplace is compliant.

Here, we’ll detail each of the key Indian labor laws and provide insight into important topics like minimum wages and employee benefits. By the end of this guide, you can rest assured that your HR policies are up-to-date and compliant with Indian regulations. Let’s get started!

The Employment Act of India

Indian labor law is complex, to say the least. But one of the most important pieces of legislation governing labor relations in India is The Employment Act of India, which was enacted in 1967. This act sets out certain fundamental rights for employees, including:

• The right to a fair and equal salary
• The right to a healthy and safe working environment
• The right to be informed of all rules and regulations pertaining to their job
• The right to receive timely notice when they are dismissed

Beyond these fundamental provisions, The Employment Act also establishes specific guidelines regarding wages, hours, and conditions of employment. It requires employers to establish overtime rates and set maximum weekly work hours in order to protect their employees from exploitation.

Additionally, it ensures that no employee will be subject to cruel or unusual punishment or any form of discrimination as long as they are abiding by the terms of their employment contract.

The Trade Unions Act

When it comes to labor laws in India, the Trade Unions Act of 1926 sets forth rights and duties of trade unions. The main purpose of the Act is to secure recognition of rights of workmen to form and join trade unions, regulate the activities of registered trade unions, and provide protection and safeguards to unions against any kind of interference or legal action.

Under the Act, a trade union must register with the government in order to receive certain protections. The registration process involves submitting an application that contains pertinent information such as the name, address, and aims of the union, the names of its office bearers, estimated number of members in each place where it operates and more.

The regulations set out under this Act also cover matters such as payments and contributions from members or outside parties, dissolution/amalgamation/division as well as trade disputes between employers and employees including collective bargaining negotiations.

Furthermore, all existing trade unions are required to submit an annual return statement which includes all relevant information related to their financial status.

Minimum Wages: Wages and Payment of Bonus

Minimum wages are an important labor law that you need to know about when doing business in India. The Minimum Wages Act, 1948 lays down the minimum wages for various classes of employees and the Payment of Bonus Act, 1965 mandates the payment of bonus to employees with some conditions attached.

Under this act, every employer is responsible for paying their employees minimum wages as per the applicable state government notification that’s applicable to their industry. This rate is revised at regular intervals, typically yearly.

The Payment of Bonus Act applies to employees who have completed at least one year of service and those who earn up to Rs. 21000 per month (or the basic wage limit for bonus allowances prescribed by the central or state government). Employees under this act are entitled to a bonus at 8.33% (or 10%, whichever is higher) of their annual salary earned in that year and/or production incentives if they’re employed in manufacturing firms.

It’s important as an employer to know these rules and regulations so that your business complies with Indian labor laws – failure to do so may result in hefty fines or even jail sentences! So make sure you’re using an HR management software like Sesame that can help you stay on top of these laws and other related regulations.

Laws for Maternity Benefits

Maternity benefits are one of the important labor laws in India, and you should know what’s required for compliance.

The Maternity Benefit Act, 1961 entitles women who are employed in any organization with at least 10 employees to 12 weeks of maternity leave. The amount of wages paid during this period is equal to the average of the wages paid to the women employee for the days she has worked during preceding three completed calendar months from the date she was absented from work.

In addition, employers must provide:

• A nursing break for 1 hour on each day for up to 3 years after birth of a child.
• Paid leave for additional periods if necessary due to illness arising out of pregnancy, delivery or other related medical conditions.
• Facilities including a crèche and cool/hot drinking water facilities close to the working area.
• Medical reimbursement up to Rs 7500/- per year covering expenses on health checkups which includes pre-natal and post-natal expenses.
• A complaint committee which looks into sexual harassment cases laid by female employees must be formed by employers who employ more than 10 women employees.

By understanding these rules and regulations, you’re better able to create compliant HR policies that cater to your female staff members and keep them safe while they work with you.

The Industrial Disputes Act

The Industrial Disputes Act (IDA) is one of the main labor laws in India. It was passed in 1947 and governs matters related to industrial relations, such as layoffs and dispute resolution. Here’s what you need to know about this important law.

What Does This Law Cover?

The IDA covers several topics related to labor and industrial matters, including strikes, settlements, lockouts, layoff and retrenchment of workers, and terms of employment. It also provides protection to workers against unfair dismissal or discrimination in the workplace.

Who Does The IDA Apply To?

This law applies to any industry where at least 10 employees work—informal or formal sectors and employers of any size—and registered trade unions. Any dispute between a company or union and its employees is considered an industrial dispute subject to the IDA.

What Are the Penalties for Non-Compliance?

Companies who do not comply with the IDA can face fines or imprisonment for their violations. There are also provisions for compensations for unfairly dismissed employees under this law.

Employers are advised to ensure that their labor policies comply with the various provisions of this law before taking any action affecting their workforce.

By understanding these key points about the IDA, HR managers and business owners can keep up with important labor laws in India and ensure compliance in their workplaces.

Provisions for Gratuity and Retrenchment

You’re probably familiar with the concept of gratuity in India, but did you know that it’s governed by labor laws? Yep, the Payment of Gratuity Act, 1972 provides the legal framework for payment of gratuity in India.

Eligibility

Under Indian labor law, an employee is eligible for gratuity if they have worked for 5 years or 240 days (in case of a seasonal business). Any employer who has 10 or more employees must conform to this regulation.

Calculation

The amount of gratuity payable is calculated based on a formula set out in the law. For each completed year of service, an employee is entitled to 15 days’ salary multiplied by their number of years of service. This amount will be the last drawn salary – basic pay and dearness allowance.

The law also covers retrenchment in India which provides safeguards against unfair termination and states how employers should treat workers before their employment is terminated. Under Indian labor law, employers must provide retrenched employees are given:

1. Notice period of one month or wages in lieu thereof
2. Retrenchment compensation which is equivalent to 15 days salary per completed year of service
3. They can also claim reinstatement if they challenge the retrenchment order through a court case within 6 months

Conclusion

Managing labor laws in India may seem daunting, but staying on top of current labor laws is within reach. By utilizing the right HR software, like Sesame, you can ensure your business is compliant with labor laws in India and keep up with the ever-changing landscape of regulations.

With the help of Sesame, you’ll stay ahead of the curve and be able to keep your team members safe, secure, and protected. What’s more, you’ll also be able to streamline and simplify your HR processes, giving you more time to focus on your business.