Labour laws play an important role in protecting the rights of the employees and ensuring that they are treated fairly and are protected from exploitation and unsafe working conditions. Labour laws help balance the dynamics between employers and employees. Labour laws also contribute to economic stability. A labour law audit is a comprehensive review of a company’s employment practices to ensure compliance with state and central labour laws. This audit helps identify areas where the company may be non-compliant, such as minimum wages, working hours, health and safety standards, employee benefits etc.

Key Compliance-

1. Wages and Salaries

Minimum wage compliance involves ensuring that employers pay their employees at least the minimum wage set by respective State laws. This is crucial for protecting workers’ rights and maintaining fair labour standards. Failure to pay minimum wages may result in fine being imposed on the employer and also made to pay back wages to the victims.

Overtime: is the additional compensation that employees receive for working beyond their regular working hours. In India, the Factories Act, 1948 and the Minimum Wages Act, 1948 govern overtime pay which ranges from 1.5 times to double the wages as per respective State laws.

Timely Payments: Payment of Wages Act, 1936, mandated that salary must be paid on or before the 7th of every month in case of establishments with less than 1000 employees. Those establishments with above 1000 headcount, the employers are required to make payments within 10th of the succeeding month to their employees. This ensures that the employees don’t face unnecessary delays in receiving their wages.

2. Social Security Contributions

Employees’ Provident Funds (“PF”) and Employees’ State Insurance (“ESI”): Employers are mandated to accurately calculate the rate of contribution and promptly remit PF and ESI contributions to the respective authorities. The payment must be made on or before 15th of every month.

Gratuity and bonus: Employees must promptly make gratuity payment to the employee or his/her nominee becoming eligible for gratuity and bonus payments within 8 months from the end of the financial year to their eligible employees. Labour laws and audit ensure that employer’s compliance definitely happens without fail. Gratuity should be paid within 30 days from the date it becomes payable to the employee or the nominee. If there is a delay in payment of gratuity beyond 30 days, the employer is liable to pay interest on the amount from the due date until the payment date. Bonus annual return filing must be made on or before 1st of February for the previous financial year.

3. Employee Welfare and Benefits

Maternity Benefits: It ensures that women are not discriminated due to pregnancy and childbirth and provides a safety net for their jobs. Compliance with the Maternity Benefit Act is checked during audits, to ensure that employers are adhering to the legal requirements. Non-compliance can result in legal penalties such as imprisonment of the directors/management of the establishment and damage to the company's reputation. Maternity benefits returns are annually filed as per respective State laws, for which due dates differ from state to state. For example, the due date in Karnataka is 31st January for filing Form-U while in Maharashtra it is 15th of January for filing Form-11.

4. Health and Safety Standards Ensuring compliance helps protect employees from workplace hazards, reducing the risk of accidents, injuries, and illnesses. This creates a safer and healthier work environment.

5. Working Hours, rest and Leave Management: In Karnataka, the working hours are 9 hours per day or 48 hours a week. The total number of working hours including overtime must not exceed 10 hours in any day. An employee must not work for more than 5 hours a day without Interval of rest for at least one hour. Weekly holiday must be maintained across the establishment. The Karnataka Shops and Commercial Establishments Act, 1961 also covers annual leave with wages for the employees as well as sick leaves of 12 days per calendar year.

6. Professional Tax: Professional tax is governed by the act of the respective State. In Karnataka, the Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976 governs tax on professions, under which the establishment must have obtained a registration for remittance of monthly contribution of INR 200 per employee, and monthly PT Return must be filed before 20th of the succeeding month. PT Remittance must be filed before 20th of the succeeding month.

7. POSH: Ensuring compliance under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, an establishment with more than 10 employees must form an Internal Complaints Committee, conduct awareness training & workshops and file annual report before 31st-January for year ending December 31st every year.

8. Registers: An establishment must maintain registers, some of them are:

• Form D- As per Equal Remuneration Rules, 1976 every employer must maintain up-to-date register in relation to the workers employed by him/her in Form D.
• Form T- As per Karnataka Shops and Commercial Establishments Rules, 1963 every employer must maintain a combined muster roll-cum-register of wages in Form T in respect of the employees employed in the establishment. They need not be required to maintain other muster roll or register of wages separately which contains the information already available in Form-T.
• Form F & H- As per Karnataka Shops and Commercial Establishments Rules, 1963, the employer must maintain a leave with wages register in From-F and each employee is to be issued with a book called the leave with wages book in Form-H.
• Form A- As per Karnataka Maternity Benefit Rules, 1966, the employer of every establishment in which women are employed must maintain a muster-roll in Form A to enter the particulars of women workers who have availed maternity leave.
• Form 23- As per Karnataka Factories Rules, 1969 the Manager of the Factory must maintain a register of all accidents and dangerous occurrences which occur in the factory in Form 23.

9. Displays: Establishments must prominently display summaries of various acts, including the Minimum Wages Act, 1948, the Maternity Benefit Act, 1961, and the Payment of Gratuity Act, 1972. Additionally, employers are required to post the holiday list, weekly off days, and salary disbursement dates etc, Every establishment is required to display a notice stating that child labourers are prohibited.

What is the necessity of labour law compliance?

Labour laws play a crucial role in safeguarding workers from exploitation by their employers or management. They also foster better relationships between employees and employers. These laws ensure that workers receive fair wages and job security. Additionally, labour laws guarantee fair working hours, appropriate rest periods, and breaks, preventing unfair overtime. They provide protection and compensation for employees injured in workplace accidents and help reduce conflicts and strikes.

In India, where labour laws are extensive and complex, regular labour law audits are particularly important to ensure that businesses remain compliant and foster a positive work environment Ensuring compliance helps businesses avoid legal penalties, fines, and potential lawsuits. Non-compliance can lead to significant financial and reputational damage. Overall, labour laws are essential for creating a fair, safe, and productive work environment for everyone involved.