PROVIDENT FUND, PROVIDENT FUND, GRATUITY AND GRATUITY AND SUPERANNUATION SUPERANNUATION FUNDFUNDFUNDFUND

CA. A.JOHN MORIS

info@ajohnmoris.com

CA. A. JOHN MORIS

LABOUR LAW LABOUR LAW -- INTRODUCTIONINTRODUCTION

�Labour law also known as employmentlaw

�Defines the rights and obligations ofworkers, union members and employersworkers, union members and employersin the workplace

�Generally, labour law covers:� Industrial relations

� Workplace health and safety;

� Employment standards

CA. A. JOHN MORIS

INTRODUCTION (INTRODUCTION (ContdContd))

� Two broad categories of labour law

�Collective labour law�Collective labour law

� Individual labour law

CA. A. JOHN MORIS

HistoryHistory ofof LabourLabour lawslaws

Labour law arose mainly due to the,

� Demands of workers for better conditionsand the right to organize

� Demands of employers to restrict thepowers of workers and to keep labourcosts low

CA. A. JOHN MORIS

Purpose of labour legislationPurpose of labour legislation

�Establishes a Legal system facilitatingproductive individual and collectiveemployment relationships

�Provides a framework within which �Provides a framework within which employers, workers and their representatives can interact with regard to work-related issues

�Provides fundamental principles and rights at work

CA. A. JOHN MORIS

Evolution of Labour law in IndiaEvolution of Labour law in India

�Also known as Industrial law in India

�Enacted by the British intended to protect the interests of the British employersemployers

�The Factories Act was first introduced in 1883

�Modification of legislation by Independent India

CA. A. JOHN MORIS

Employment AgreementEmployment Agreement

�An agreement that is entered into between two parties, i.e. the employer and employee

�Document that pacifies the responsibilities and duties expected of an employeeand duties expected of an employee

�Describes the profile of the job and the title

�Document ensures that the employee knows his place in the organisation and what is expected of him

CA. A. JOHN MORIS

Employment Agreement Employment Agreement -- ContentsContents

�Name of the parties involved �Starting date of employment �Title and description of the job �Location of work �Hours of work �Hours of work �Probationary period �Salary �Restrictive terms �Holidays �Other information like deductions, permissible expenses, notice period etc.

CA. A. JOHN MORIS

The legislations can be categorized asfollows:

�Labour laws enacted by the Central Government

�Labour laws enacted by Central Government and enforced both by Central and State GovernmentsGovernments

�Labour laws enacted by Central Government and enforced by the State Governments

�Labour laws enacted and enforced by the various State Governments which apply to respective States

CA. A. JOHN MORIS

Few Labour laws enacted by the Few Labour laws enacted by the Central GovernmentCentral Government

�The Employees’ State Insurance Act, 1948

�The Employees’ Provident Fund and Miscellaneous Provisions Act,1952

The Mines Act, 1952�The Mines Act, 1952

�The BeediWorkers Welfare Cess Act, 1976

�The Cine Workers Welfare (Cess) Act, 1981

�The BeediWorkers Welfare Fund Act, 1976

�The Cine Workers Welfare Fund Act, 1981

CA. A. JOHN MORIS

Few Labour laws enacted by Central Few Labour laws enacted by Central Government and enforced both by Central and Government and enforced both by Central and State GovernmentsState Governments

� The Child Labour (Prohibition and Regulation) Act, 1986

� The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996.

� The Contract Labour (Regulation and Abolition) Act, 1970.

� The Industrial Disputes Act, 1947.

� The Maternity Benefit Act, 1961

� The Payment of Bonus Act, 1965

� The Payment of Gratuity Act, 1972

� The Payment of Wages Act, 1936

� The Apprentices Act, 1961

� Private Security Agencies (Regulation) Act, 2005

CA. A. JOHN MORIS

Few Labour laws enacted by Central Few Labour laws enacted by Central Government and enforced by the State Government and enforced by the State GovernmentsGovernments

�The Employers’ Liability Act, 1938

�The Factories Act, 1948

�The Motor Transport Workers Act, 1961

�The Sales Promotion Employees (Conditions of �The Sales Promotion Employees (Conditions of Service) Act, 1976

�The Trade Unions Act, 1926

�The Workmen’s Compensation Act, 1923

�The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959

�The Children (Pledging of Labour) Act 1938CA. A. JOHN MORIS

Few Labour laws enacted and enforced Few Labour laws enacted and enforced by the by the TamilNaduTamilNadu State Government State Government

� The Tamilnadu Shops and Establishment Act, 1947 and Rules.

� The Tamilnadu Catering Establishments Act, 1958 & Rules.

� The Tamilnadu Industrial Establishments (National and � The Tamilnadu Industrial Establishments (National and Festival Holidays) Act, 1958 and Rules.

� The Tamilnadu Handloom Workers (Conditions of Employment and Miscellaneous Provisions) Act, 1981.

� The Tamilnadu Manual Workers (Regulation of Employment and Conditions of Work) Act, 1982 and Rules.

CA. A. JOHN MORIS

EMPLOYEES PROVIDENT EMPLOYEES PROVIDENT FUND AND MISC. FUND AND MISC.

PROVISIONS ACT, 1952PROVISIONS ACT, 1952PROVISIONS ACT, 1952PROVISIONS ACT, 1952

CA. A. JOHN MORIS

IntroductionIntroduction

� An Act to provide for the institution of

provident funds, pension funds and

deposit linked insurance fund for the

employees in the factories and other employees in the factories and other

establishments.

�The Act extends to the whole of India

except the State of Jammu and Kashmir.

CA. A. JOHN MORIS

ObjectivesObjectives

�To provide a kind of social security to the

industrial workers. The Act mainly

provides retirement or old age benefits provides retirement or old age benefits

�The Act provides for payment of terminalbenefits in various contingencies

CA. A. JOHN MORIS

ApplicabilityApplicability

� All factories and establishments in which 20 or more are employed

� Any establishment to which the Act applies shallcontinue to be governed by the Act even if thenumber of persons employed therein at any timefalls below.falls below.

� Any other establishment employing 20 or morepersons which Central Government may, bynotification, specify in this behalf.

� Any establishment employing even less than 20persons can be covered voluntarily u/s 1(4) of theAct.

CA. A. JOHN MORIS

Schemes under the ActSchemes under the Act

Three beneficial schemes :

�Employees Provident Fund Scheme 1952

�Employees Pension Scheme 1995

�Employees Deposit Linked Insurance 1976

CA. A. JOHN MORIS

MembershipMembership

� Every employee employed in or in connection with the work of a factory or other establishment covered by the schemes other than an excluded employee is entitled and required to become a member of the fund entitled and required to become a member of the fund from the date of joining the factory or establishment.

� An employee at the time of joining the employment and getting wages up to Rs.6500/- is required to become a member.

CA. A. JOHN MORIS

REGISTRATION:REGISTRATION:

◦ Proforma for coverage

◦ Declaration form (Form 2 Revised)

◦ Form 12A for the month or up to the date ofregistration with DD

◦◦ Form 5A Declaration of ownership

◦ Form 9 Employer Registration Form

◦ Computer Sheet for Social Security Number

◦ Other Documents

CA. A. JOHN MORIS

Excluded EmployeeExcluded Employee

� An employee who, having been a member of the fund, has withdrawn the full amount of his contribution in the fund � on retirement from service after attaining the age of 55 years or

� before migration from India for permanent settlement abroad or for taking employment abroadabroad or for taking employment abroad

� An employee whose pay at the time he is otherwise entitled to become a member of the Fund, exceeds Rs. 6,500/- per month.

� A person who, is an apprentice, or who is declared to be an apprentice by the authority specified in this behalf by the appropriate Government.

CA. A. JOHN MORIS

RETURNS:RETURNS:

◦ MONTHLY RETURNS� FORM 12A - Contribution details for all schemes

� Form 5 - new member joining

� Form 10 - member leaving

◦ ANNUAL RETURNS� Form 3A - Individual employees contribution card

� Form 6A - Annual Return with reconciliation Statement

� Annual Statement for each employee will be issued from EPFO

CA. A. JOHN MORIS

International WorkerInternational Worker

� An International worker may be an Indiancitizen or a Foreign national,

◦ Any Indian employee working or having worked abroad in a country with which India has entered into a Social Security Agreement (SSA); entered into a Social Security Agreement (SSA);

OR

◦ Any foreigner who works in Indianestablishment where the Employees‟ ProvidentFunds & Miscellaneous Provisions Act isapplicable

CA. A. JOHN MORIS

International Worker International Worker –– ContdContd……

� Contribution :◦ PF for International Workers to be calculatedon TotalWages instead of Basic and DA

◦ No cap on the monthly pay up to which the◦ No cap on the monthly pay up to which theProvident Fund contribution has to be made byboth the employer as well as an employee

� A statement in form IW-1 is to be sentwhile an international worker takes upemployment.

CA. A. JOHN MORIS

Form IW-1

Other important Provisions...Other important Provisions...

� Employee can contribute more behind Rs.6500 similarly employer also at his discretion can do so but not mandatory

� Casual/Temporary workers/ Probationary, are taken into account

� Apprentices/ Trainees are excluded from the � Apprentices/ Trainees are excluded from the definition of employees

� Salary includes Basic + DA , but does not include HRA, CCA, Incentive, Bonus, Washing allowance etc

� The contributions could be remitted in a consolidated challan (in quadruplicate) by the employer

CA. A. JOHN MORIS

Rate of Contribution and Other Rate of Contribution and Other Charges payable every monthCharges payable every month

Ra

te o

f C

on

trib

uti

on

Use Single Challan to

remit dues

Contribution

Administrative

Charges (Payable by

Employer only)

Inspection

Charges (For

exempted

Establishments

only)

Employees

Share Employers Share

EPF (A/c No. 1) 12%*3.67%

12%-8.33%

1.1%

Ra

te o

f C

on

trib

uti

on

EPF (A/c No. 2)

1.1%

(Subject to a

minimum of Rs. 5/-)

0.18%

EPF (A/c No. 10) 8.33%

EDLI (A/c No. 21) 0.50%

EDLI (A/c No. 22) 0.01%

0.005%

(Subject to a

minimum of

Re.1)

*10% rate of Contribution is applicable only to specified industries / class of establishments.

CA. A. JOHN MORIS

Recognised Provident FundRecognised Provident Fund

� A provident fund which has been and continues to be recognised by the Chief Commissioner or Commissioner

In accordance with the rules contained in Part � In accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Fund Act, 1952

CA. A. JOHN MORIS

Provisions under Income Tax ActProvisions under Income Tax Act� Employer's contribution to a Recognised Provident Fund or Approved Superannuation [Section 36(1)(iv) read with Section 43B]

� Employees' contribution to Provident Fund [Section 36(1)(va)]

� Payment to Provident Fund NOT eligible for deduction, � Payment to Provident Fund NOT eligible for deduction, unless effective arrangements to secure or deduct tax at source are made [Section 40(a)(iv)]

� Section 10(11) and 10(12) of the Act deal with exemption on payments from provident funds

� Section 80C of the act deals with allowance of deductions on contributions to provident funds.

� Contribution made by employer will be disallowed if payment of PF was made after due date.

CA. A. JOHN MORIS

Summarized table showing tax Summarized table showing tax treatment of provident fundstreatment of provident funds

Statutory Provident Fund

Recognised Provident Fund

UnrecognisedProvident Fund

Public Provident Fund

Employer’s contribution to provident fund

Exempt from tax

Exempt up to 12 per cent of salary. Excess of emplyer’s contribution over 12 per cent of salary is taxable

Exempt from tax

Employer does not contribute

Deduction u/s 80C

Available Available NA Available80C employee’s contribution

Available Available NA Available

Interest credited to provident fund

Exempt from tax

Exempt from tax if rate of interest does not exceed the notified rate of interest (i.e. 9.5%). Excess of interest over the notified rate is, however, taxable

Exempt from tax

Exempt from Tax

Lump sum payment at the time of retirement or termination of service

Exempt from tax

Exempt from tax in some cases when not exempt total income of employee will be computed as if provident fund is an unrecognized fund from the beginning

Paymentreceived from Employee’s Own contribution is exempt from tax.

Exempt from tax

CA. A. JOHN MORIS

PENALTIES:PENALTIES:

� If any person knowingly makes any falsestatement makes any false representation,

• Imprisonment for a term up to one year OR

• With a fine Rs. 5,000 OR

• Both• Both

� In case of default to payment to theemployees,

• Imprisonment for a term up to one year and a fineof Rs.10,000/-

CA. A. JOHN MORIS

Auditor’s DutyAuditor’s Duty

�Disclosure as per Accounting Standard 15 on Employee Benefits

�Clause - 4(ix)(a)(b)(c) of CARO, 2003

Disclosure

�Clause - 4(ix)(a)(b)(c) of CARO, 2003

�Clause 16(b) in Form 3CD – Statement of Fact under Tax Audit

CA. A. JOHN MORIS

Employees State Insurance Employees State Insurance Act, 1948Act, 1948

Applicability :Applicability :

• All Factories• Shops Employing 10 or more persons• Such establishments specified by the Govt.

Not applicable to :Not applicable to :

CA. A. JOHN MORIS

Not applicable to :Not applicable to :

• Seasonal Factories• Factories exempted as seasonal• Mines• Railway running sheds• Govt factories or establishments, Indian Naval, Military, or Air Force.• Other Govt notified exempted establishments.

Employees State Insurance Act, Employees State Insurance Act, 19481948

Cap on Wage :Cap on Wage :

• Within the ambit of coverage, and • Earning wages not exceeding Rs. 15,000/- per month are covered

under the ESI Scheme (wef 1st May 2010).

Responsibility :

CA. A. JOHN MORIS

Responsibility :

• Principal Employer’s Responsibility to deposit in ESI A/c.• Non-Availability of funds should not be a ground for non payment.• Can not be waived the provisions w.r.t. Contribution, Damages &

Interest.

Rate :• Employer : 4.75% • Employee : 1.75%

Employees State Insurance Act, Employees State Insurance Act, 19481948

Benefits under the Act :Benefits under the Act :

• Section provided : Section 46

• Sickness Benefit• Maternity benefit• Disablement Benefit• Dependents benefit

CA. A. JOHN MORIS

• Dependents benefit• Medical benefit• Funeral Expenses

Exemptions :Exemptions :

• It should be notified in the Official Gezette.• Maximum period 1Year• Appr. Govt can renew upto 1 Year.

Employees State Insurance Act, Employees State Insurance Act, 19481948

Offences & Penalties :

Punishment for False Statement :

• punishable with imprisonment, a fine upto Rs. 2,000/- or both

CA. A. JOHN MORIS

Punishment for False Statement :

• he is liable to imprisonment up to a period of 3 years.

Punishment for Other Contraventions:

• with imprisonment up to one year , with Fine up to Rs. 4,000/- or with both.

THE PAYMENT OF THE PAYMENT OF

GRATUITY ACT, 1972GRATUITY ACT, 1972GRATUITY ACT, 1972GRATUITY ACT, 1972

CA. A. JOHN MORIS

MeaningMeaning

� Gratuity is a lump sum payment to employee when he retires or leaves service.

� It is retirement benefit to an employee � It is retirement benefit to an employee

CA. A. JOHN MORIS

ObjectivesObjectives

� The Payment of Gratuity Act, 1972 envisages to provide a retirement benefit to the workmen who have rendered long and meritorious services to the rendered long and meritorious services to the employer.

CA. A. JOHN MORIS

ApplicabilityApplicability

� Every factory (as defined in Factories Act), mine, oilfield, plantation, port and railway.

� Every shop or establishment to which Shops & Establishment Act of a State applies in which 10 or more persons are employed on any day of the preceding twelve months.any day of the preceding twelve months.

� Any establishment employing 10 or more persons on any day of the preceding twelve months as may be notified by the Central Government.

� Once Act applies, it continues to apply even if employment strength falls below 10.

CA. A. JOHN MORIS

Applicability Applicability -- ExemptionExemption

� The Appropriate Government has power to exempt the

Employer or any Employee or class of Employees from

applicability of this Act,

� If in its opinion, the employee is in receipt of

gratuity or pensionary benefits not less favourable gratuity or pensionary benefits not less favourable

than the benefits conferred under this Act.

� Such exemption may be issued retrospectively

CA. A. JOHN MORIS

EligibilityEligibility

� Any person employed on wages/salary

� Should have rendered continuous service of not less

than five years,

� Gratuity is payable at the time of,

� Retirement or Resignation, or � Retirement or Resignation, or

� On superannuation, or

� In case of death or disablement, the gratuity is payable,

even if he has not completed 5 years of service.

CA. A. JOHN MORIS

To whom is Gratuity Payable?To whom is Gratuity Payable?

� Gratuity is normally payable to the employee himself,

� In the case of death of the employee,

� it shall be paid to his nominee or if nomination has

not been made, to his legal heirs.not been made, to his legal heirs.

� In case the nominee/heir is a minor, his share shall

be deposited with the controlling authority who

shall invest the same for benefit of the minor, until

he/she attains majority.

CA. A. JOHN MORIS

BenefitsBenefits

� For every completed year of service or part thereof in

excess of Six Months,

� The employer shall pay gratuity to an Employee

at the rate of 15 Days Wages based on the rate of wagesat the rate of 15 Days Wages based on the rate of wages

last drawn by the Employee concerned.

CA. A. JOHN MORIS

Benefits Cont… Benefits Cont… -- Piece Rate EmployeePiece Rate Employee

� Daily wages shall be computed,

� On the average of Total Wages received by him

for the period of Three Monthsfor the period of Three Months

� Immediately preceding the termination of his

employment.

� For this Purpose, overtime work shall not be taken into

account.

CA. A. JOHN MORIS

Benefits Cont… Benefits Cont… -- Seasonal EmployeeSeasonal Employee

� The employer shall pay gratuity at the rate of Seven

Days Wages for each Season.

CA. A. JOHN MORIS

Calculation of Gratuity Calculation of Gratuity

� Amount of Gratuity for Monthly rated Employee,

=15 Days’ Wage x Number of years of

Service Service

� Wage = (Basic + DA) as per Last drawn Salary

� 15 Days’ Wage = Last drawn Monthly Wage x 15

26

CA. A. JOHN MORIS

Maximum Amount of GratuityMaximum Amount of Gratuity

� The amount of Gratuity payable to an employee shall

not exceed Ten Lakh Rupees.

� In case where higher benefit of gratuity is available � In case where higher benefit of gratuity is available

under any gratuity scheme of the Company, the

employee will be entitled to such higher benefit

CA. A. JOHN MORIS

Gratuity TrustGratuity Trust

� Not mandatory to create a Gratuity Trust.

� However to get benefit of Tax exemption and also to start a Gratuity Insurance, the Trust is mandatory.

� Gratuity Trust is not a public trust. � Gratuity Trust is not a public trust.

� It has to be approved by Income Tax Commisioner of your circle under whose jurisdiction it falls.

� The Company should nominate 3 trustees who should not be directors of the company or its family members.

CA. A. JOHN MORIS

Gratuity Gratuity Trust Trust –– ContdContd……

� Privately ManagedTrust:

◦ Investment of funds will have to be done as perIncome-TaxAct by the trustees and

◦ Entire administration of the Trust including ActuarialValuation will be the responsibility of theTrustees.Valuation will be the responsibility of theTrustees.

� Trust managed by Insurance Company:

◦ Investment and actuarial valuation are taken over bythe Insurance Company free of charge and

◦ In addition, interest is paid by the Corporation on theaccumulated funds.

CA. A. JOHN MORIS

Gratuity Trust Gratuity Trust –– Procedures for Procedures for FormationFormation� Board resolution to be passed� Appoint theTrustees� To Draft and execute the trust deed and rules inconsultation with the Insurance company

� Create a FundApply to Commissioner of Income tax for� Apply to Commissioner of Income tax forapproval

� To forward to the Insurance Company, a copy oftrust deed and rules

� Approval from concerned income taxcommissioner is required for every changes in thetrust deed.

CA. A. JOHN MORIS

Gratuity Gratuity –– Few Important Forms Few Important Forms FormatFormat

Notice of

Opening

Notice of Closure Nomination

Application for

CA. A. JOHN MORIS

Application for

Gratuity by an Employee

Notice for

Payment of Gratuity

Application for

Direction

Notice for

Payment of Gratuity

Insurance of Gratuity liabilityInsurance of Gratuity liability

� Section 4A provides that every employer must obtain

insurance of his gratuity liability with LIC

� However this section is not in force as the date from

which this section comes into effect has not yet been which this section comes into effect has not yet been

notified.

CA. A. JOHN MORIS

Forfeiture of GratuityForfeiture of Gratuity

� When service has been terminated for any act or willful

omission or negligence causing,

� Any damage or loss to, or

� Destruction of, property belonging to the employer,

� Gratuity shall be forfeited to the extent of the � Gratuity shall be forfeited to the extent of the

damage or loss caused.

CA. A. JOHN MORIS

Gratuity shall be wholly or partially Gratuity shall be wholly or partially forfeited:forfeited:� If the services of such employee have been terminated

� for his riotous or disorderly conduct, or

� any other act of violence on his part, or

� If the service of such employee have been

terminated for any act which constitutes an offense

involving moral turpitude committed by him in the

course of his Employment.

CA. A. JOHN MORIS

Other important provisions…Other important provisions…

� Section 8

� If Gratuity is not paid within the prescribed time,

the aggrieved person may apply to Controlling

Authority.

� He shall after giving opportunity of being heard to

the Employer, authorise the Collector to recover

the same together with compound interest as

arrears of land revenue

CA. A. JOHN MORIS

Other important provisions…Other important provisions…

� Sec13 - Gratuity payable cannot be attached in

execution of any decree or order of any civil, revenue

or criminal court.

� Sec 14 –This Act or any rule made there under

overrides any enactment other than this Act or in any

Instrument or Contract having effect by virtue of any

enactment other than this Act.

CA. A. JOHN MORIS

SUPERANNUATION FUNDSUPERANNUATION FUNDSUPERANNUATION FUNDSUPERANNUATION FUND

CA. A. JOHN MORIS

MeaningMeaning

� Superannuation Fund is a retirement benefit given to employees by the Company.

� Normally the Company has a link with � Normally the Company has a link with agencies like LIC Superannuation Fund, where their contributions are paid.

CA. A. JOHN MORIS

Contributions to the FundContributions to the Fund

� The Company pays 15% of basic wages as superannuation contribution.

� There is no contribution from the employee.employee.

� Interest on contributions is credited to the members account. Normally the rate of interest is equivalent to the PF interest rate.

CA. A. JOHN MORIS

Payment of Fund Payment of Fund

� On attaining the retirement age, the member is eligible to take 25% of the balance available in his/her account as a tax free benefit.

� The balance 75% is put in a annuity fund, � The balance 75% is put in a annuity fund, and the agency (LIC) will pay the member a monthly/quarterly/periodic annuity returns depending on the option exercised by the member. This payment received regularly is taxable.

CA. A. JOHN MORIS

In case of resignation of employeeIn case of resignation of employee

� In the case of resignation of the employee, the employee has the option to transfer his amount to the new employer.

� If the new employer does not have a Superannuation scheme, then the Superannuation scheme, then the employee can withdraw the amount in the account, subject to deduction of tax and approval of IT department, or retain the amount in the Fund, till the superannuation age.

CA. A. JOHN MORIS

Cont.…..Cont.…..

� Normally Companies do not extend the Superannuation benefits to all employees-but only to a specific category of employees – like for example Level-1 of employees – like for example Level-1 of Managers onwards..

CA. A. JOHN MORIS

CA. A. JOHN MORIS

info@ajohnmoris.com