Why Are Companies Not Compliant With The Labour Laws Act?

It is believed that out of the 12 months in a year, an Indian citizen works for the government for 5 months. This is true, even if you are a private sector employee. This is because you pay approx 35-40% of your income in direct and indirect taxes to the government. These taxes are in the form of income tax, various cess, GST, VAT on petrol, etc. Thus, many individuals end up avoiding tax payment and are caught in tax theft. This is also the issue which many employees face with their employers where the employers do not comply with the Labour Laws Act. Read on to figure out the reason for this.

Deductions under Labour Laws Act:

There is an approx 30% income tax deduction from an individual. But the deduction percentage for Labour Laws can go much higher than this. Probably this is the reason why employers are not complaint with Labour Laws Act and try to find ways to pay less labour laws funds and save more money.

The Labour Laws Act covers the following – PF, ESI, Bonus, Gratuity, Leave with wages, etc. These funds are deducted from the employee’s salary and submitted to the government either by the employer or the employee.

Case Study:

Suppose an employee receives Rs 100 as salary. We will analyze how much his employer has spend additionally behind that employee.

• Under EPF, the employee contributes 12% and the employer 13%. Thus, the employee pays Rs 12 and the employer pays Rs 13 in this case. Total EPF spend is Rs 25.
• Under ESI, the employee contributes 0.75% while the employer contributes 3.25%. This is the new ESI contribution rates as per July 1st 2019. Total ESI spend is Rs 4.
• Under Bonus, the employer has to pay a minimum of 8.33% which can go up to 20%.
• Under Gratuity, the employer has to pay 4.82% to the employee.
• Under Leave with wages, the employer has to pay around 4.82-4.83%. If this is paid under the Shop Act, then the employer has to pay 12.5% to the employee.

Thus, if the employee works for 26 days, then the employer has to pay him for 45 days. So the employer has to pay an extra half months salary to the employee to cover the extra labour laws act deductions. Under Labour Welfare & Professional Tax, the employer has to pay another 2%. Thus, in total, the employer has to pay 51% of salary under the Factory Act and 59% of salary under Shops & Establishment Act, either to the employee or the government. This high percentage is the reason why employees try to figure out ways to pay less and save more.

Implications:

To help you learn all about the labour laws act we have got an amazing book by LawSikho. You download it here. This 200 page book has been prepared by the experts at LawSikho. This book will be a great guide for all HR managers, labour law consultants and business owners to be up to date with the labour laws act.

The Government is also now realizing that the amount of pressure on employers to pay all additional labour laws is not good. Which is why the government proposed the PMRPY scheme. The ESI scheme contribution rates have also seen a recent decrease. Hence, having lower contribution rates will help increase complaince with labour laws and also help employees receive their funds.

Watch our video on this topic below.

Get the latest PMRPY news here.

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