The Legal Provisions

for Management of
Compensation

The Acts
The Employees Provident Fund And Miscellaneous
Provisions Act, 1952
The Employee State Insurance Act, 1948
The Equal Remuneration Act, 1938
The Minimum Wages Act, 1948
The Payment of Wages Act, 1936
The Payment of Bonus Act, 1965
The Payment of Gratuity Act, 1972

Legal Framework Managing Wages in India

Provident Fund Act
Gratuity Act

(Benefits for Rainy Days & Retirement)

Factories Act

(working Conditions)

Payment Of
Wages Act

Employee State
Insurance Act
(Insurance at works)

Terms of Contract

Industrial
Disputes Act

Employee

(Dispute Settling Process)

Minimum
Wages Act
(Controlling wages)

Bonus Act

(Good Performance)

Equal Remuneration Act

(Equity under Law)

Pay

Employer

Employees Provident Fund Act

Employee P F Act

Objective
The act is enacted with the objective of instituting a
compulsory contributory fund for the future of the
employee after his / her retirement or for his / her
dependents in case of his / her early death
Scope
1. Every factory or establishment employing more than 20
employees
2. Once the Act applies to any organization, it shall continue to
be governed by the Act irrespective of the fact that the no. of
employees fallen below20

The Provisions under the Act Act

1. Employee Provident Fund Scheme
Establish provident fund for the employees

2. Employees Family Pension Scheme

Provide Family pension to the employees and their
family after superannuation / death or total permanent
disablement
3. Employees Deposit Linked Insurance Scheme
Provide life insurance benefit to the employees and their
family members

Terms related to the Act

Contribution
Employers contribution to PF & Pension Fund
12% of wages, etc
Employers contribution to EDLI Fund
0.5% of wages, etc
Employees contribution to PF & Pension Fund
12% of wages, etc
C. Govts contribution to Pension Fund
1.16% of wages, etc

Interest accrued
The amount deposited in PF, Pension Funs & EDLI Fund is invested in
specified securities. The rate of interest is determined by the C. Govt.

Employee State Insurance Act

Objective:
This is the first major legislation on Social Security to provide protection to worker in contingences such as
illness, long term sickness or any other health risk due to exposure to employment injury or occupational
hazards. Under the scheme medical facilities are also made available to the legal dependents or insured
person. The scheme is extended to retired personnel as well as to permanently disabled workers and their
family.

Employee State Insurance Act

The amount of contribution for a wage period shall be as
follows:
Employers contributes equal to 4.75% of the wages
payable to an employee
Employee Contributes a sum equal to 1.75% of the wages
payable to the employees
If contribution is not paid in time, the rate of damages is
5% to 25% and the prosecution by the State Govt.

Minimum Wages Act, 1948

Under the Act, Central and State Governments are
appropriate Governments to
a. notify scheduled employment
b. fix/revise minimum wages
The Act contains list of all these employments for which
minimum wages are to be fixed by the appropriate
Governments.
There are two parts of the Schedule.
Part I has non-agricultural employments whereas
Part-II has employment in agriculture.

The minimum wage as per definition means

1. Any minimum rate of wages fixed or revised by the appropriate
government in respect of scheduled employments may consist of:
i. A basic rate of wages and a special allowance at a rate to
be adjusted at such intervals and in such manner as the
appropriate government may direct to accord as nearly
as possible with the variation of cost of living index
number applicable to such workers;
ii. A basic rate of wages with or without the cost of living
allowance, and the cash value of allowance in respect of
essential commodities at concession rate where so authorized;
iii. An all inclusive rate allowing for the basic rate, the cost
of living allowance and the cash value of concession, if
any.

Fixation/Revision of Minimum Wages Norms

The norms are set as per the recommendations of the
Indian Labour Conference in its session held in 1957 at
Nainital.
i. 3 consumption units for one earner.
ii. Minimum food requirements of 2700 calories per
average
Indian adult.
iii. Clothing requirements of 72 yards per annum per family.
iv. Rent corresponding to the minimum area provided for
under Governments Industrial Housing Scheme.
v. Fuel, lighting and other Miscellaneous items of
expenditure
to constitute 20% of the total Minimum Wages.

Procedure for Fixation/Revision

Under Section 5 of the Minimum Wages Act,1948, two
methods have been provided for fixation/revision of minimum
wages.
They are Committee method and Notification method.
Committee Method
Under this method, committees and sub-committees are set up
by the appropriate Governments to hold enquiries and make
recommendations with regard to fixation and revision of
minimum wages, as the case may be.
Notification Method
In this method, Government proposals are published in the
Official Gazette for information of the persons likely to be
affected thereby and specify a date not less than two months
from the date of the notification on which the proposals will be
taken into consideration.

Payment of Wages Act, 1936

Object Act
The main objects of the Act are:
i. to pay the wages to the employees
ii. to pay the wages at proper times
as specified in the Act.
iii. to prevent unauthorized
deductions

Sec 2 (vi) of the Payment of Wages Act defines wages.

Wages means all remuneration (whether by way of salary, allowance or-otherwise) expressed in
terms of money or capable of being so expressed which would if the
terms of Employment express or implied, were fulfilled, be payable to a person employed in respect
of his employment or of work done in such employment and also includes.
a. any remuneration payment under any award or settlement between the parties or order of a
court;
b. any remuneration with respect to overtime work or holidays or any lease period;
c. any additional remuneration payable paid as bonus under the terms of employment
d. any sum which by reason by the termination of employment of the person employed is payable
under any law, contract or instrument which provides for the payment
of such sum but does not provide for the time within which the payment is to be made.
e. any sum to which the person employed is entitled, under any scheme framed under any law for
the time being in force. But it does not include
1. Any bonus which does not form part of the remuneration payable under the terms of employment
or which is not payable under any award or settlement between the parties or order of court;
2. The value of any house accommodation or of the supply of light, water, medical attendance or
other amenity or of any service excluded from computation
of wages by a general or special order of the State Government.
3. Any contribution paid by the employer to any pension or provident fund and the interest which
may have accrued thereon.
4. Any traveling allowance or the value of any traveling concession.
5. Any sum paid to the employed person to defray special expenses entailed on him by the nature of
his employment.
6. Any gratuity payable on the termination of employment in cases other than those specified in sub
clause(d)

Responsibility For Payment of Wages

Sec 3 of the Payment of Wages Act,
1936 provides that every employer
shall be responsible for the payment
to persons employed by him of all
wages required to be paid under this
Act.

The Payment of Bonus Act 1965

Definition, Scope, Applicability and Extent of Bonus Act

Meaning: Bonus is an Extra Payment made out of Profits.
Definition
The term Bonus has not been defined under the Payment
of Bonus Act, 1965. The Bonus Commission explained. It is
difficult to define in rigid terms the concept of bonus but it
is possible to urge that once profit exceed a certain base,
labour should legitimately have a share in them. It is proper
to construe the concept of bonus as sharing by the workers
in the prosperity of the concern in which they are
employed.

Kind of Bonus
The Supreme Court in New Maneck Chowk Spinning and
Weaving Company Vs. Textile Labour Association 1961 I
LLJ 521 at 526 suggested four types of Bonus, namely i. Production Bonus;
ii. Bonus as an implied term of contract between the
parties,
iii. Customary bonus in connection with some festival and
iv. Profit bonus

Profit Bonus
Profit bonus has been given statutory recognition in the
payment of Bonus Act, under this the quantum of bonus
depends on the extent of profit obtained in the relevant
year.
This is subject to a statutory minimum and maximum
bonus.
Production Bonus
The payment of production bonus depends upon
Production and is in addition to wages. It is an incentive
to greater effort on the part of the labour for more
production. 1976 amendment by Section 31 recognizes
production bonus.

Principles
1. Bonus is paid to employees in cash. It is not ex-gratia. If the employer
refuses to pay bonus, the employee can rise Industrial dispute.
2. Capital & labour contribute to the earning of the concern so it is fair that
labour should derive some benefit if there is surplus after meeting prior
charges.
3. Bonus is like profit sharing. It renders cash incentive to labour which
would encourage for a better efficiency and production. Where the industry
does not have the capacity to pay living wage, bonus must be looked upon as
a temporary satisfaction, wholly of partly, to meet the needs of labour.
4. The decision of the award of bonus is based on two fold objective.
i. Recognition of the fact that the labour contributed for the profit earned
by industry & so it has a right to claim a share in it.
ii. It is intended to bridge or narrow down the gap as may be reasonably
possible between the living wage to which the labour is entitled and the
actual age received.
5. Social Justice: Payment of bonus is rendering social justice to the poor and
hard working labor.

Eligibility for Bonus

Under Section 8 every employee is entitled to bonus in any
accounting year if he has worked in the establishment for
not less than 30 working days in that year.
Section 2 (13) provides that the employee shall be entitled
to get Bonus, if his salary or wages does not exceed
Rs.3500/- per men sum in any industry to do any skilled,
unskilled manual, supervisory, managerial, administrative,
technical or clerical work for hire or reward whether the
terms of employment be express or implied.

Eligible Employees: Employees drawing wages upto

Rs.10000/- per month or less.
For calculation purposes Rs.6500 per month maximum will
be taken even if an employee is drawing upto Rs.6500 per
month

Disqualification for Bonus

Under Section 9 an employee is disqualified from
receiving the bonus if he is dismissed from service
for fraud, riotous or violent behavior while on the
premises of the establishment or for committing
theft, miss-appropriation or sabotage of any
property of the establishment.

Minimum & Maximum Bonus

Sec-10: 8.33%
Sec-11: 20%
Salary or wages includes dearness allowance but no other
allowances e.g. over-time, house rent, incentive. or commissions.

Individual resident aged below 60 years (i.e. born on or after 1st

April 1955) or any NRI / HUF / AOP / BOI / AJP*
Income Slabs

Tax Rates

i.

Where the total income does not

exceed Rs. 2,50,000/-.

NIL

ii.

Where the total income exceeds

Rs. 2,50,000/- but does not
exceed Rs. 5,00,000/-.

10% of amount by which the total

income exceeds Rs. 2,50,000/-.
Less ( in case of Resident
Individuals only ) : Tax Credit u/s
87A - 10% of taxable income upto
a maximum of Rs. 2000/-.

iii.

Where the total income exceeds

Rs. 5,00,000/- but does not
exceed Rs. 10,00,000/-.

Rs. 25,000/- + 20% of the amount

by which the total income exceeds
Rs. 5,00,000/-.

iv.

Where the total income exceeds

Rs. 10,00,000/-.

Rs. 125,000/- + 30% of the

amount by which the total income
exceeds Rs. 10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than
Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge.

Individual resident who is of the age of 60 years or more but below the age of 80 years at
any time during the previous year (i.e. born on or after 1st April 1934 but before 1st April
1954)
Income Slabs

Tax Rates

i.

Where the total income does

not exceed Rs. 3,00,000/-.

NIL

ii.

Where the total income

10% of the amount by which
exceeds Rs. 3,00,000/- but does the total income exceeds Rs.
not exceed Rs. 5,00,000/3,00,000/-.
Less : Tax Credit u/s 87A - 10%
of taxable income upto a
maximum of Rs. 2000/-.

iii.

Where the total income

Rs. 20,000/- + 20% of the
exceeds Rs. 5,00,000/- but does amount by which the total
not exceed Rs. 10,00,000/income exceeds Rs. 5,00,000/-.

iv.

Where the total income

exceeds Rs. 10,00,000/-

Rs. 120,000/- + 30% of the

amount by which the total
income exceeds Rs. 10,00,000/.

Surcharge : 10% of the Income Tax, where total taxable income is more than
Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge.

Individual resident who is of the age of 80 years or more at any time during
the previous year (i.e. born before 1st April 1934)

Income Slabs

Tax Rates

i.

Where the total income

does not exceed Rs.
5,00,000/-.

NIL

ii.

Where the total income

exceeds Rs. 5,00,000/- but
does not exceed Rs.
10,00,000/-

20% of the amount by

which the total income
exceeds Rs. 5,00,000/-.

iii.

Where the total income

exceeds Rs. 10,00,000/-

Rs. 100,000/- + 30% of the

amount by which the total
income exceeds Rs.
10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than
Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge.

Co-operative Society

Income Slabs

Tax Rates

i.

Where the total income

does not exceed Rs.
10,000/-.

10% of the income.

ii.

Where the total income

exceeds Rs. 10,000/- but
does not exceed Rs.
20,000/-.

Rs. 1,000/- + 20% of income

in excess of Rs. 10,000/-.

iii.

Where the total income

exceeds Rs. 20,000/-

Rs. 3.000/- + 30% of the

amount by which the total
income exceeds Rs.
20,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than
Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge.

Income Range

Women (Below 60 years of

Senior Citizens
age)
General (non(Men and Women
(This category is abolished
senior citizens)
above 60 years of
from this year and is thus
Category
age), but below 80
is same as that of General
years
Category

Very Senior
Citizens (Men
and Women
above 80
years of age)

Upto Rs. 2,00,000

Nil

Nil

Nil

Nil

Rs. 2,00,001 to Rs. 2,50,000

10% *

10% *

Nil

Nil

Rs. 2,50,001 to Rs. 5,00,000

10% *

10% *

10% *

Nil

Rs. 5,00,001 to Rs. 10,00,000

20%

20%

20%

20%

Above Rs. 10,00,000

30% **

30% **

30% **

30%**

Thanks