UNIT III of legal aspects of business

7/27/2019 UNIT III of legal aspects of business

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LEGAL ASPECTS OF BUSINESS

UNIT III - INDUSTRIAL LAW

FACTORIES ACT, 1948

Factory :( sec 2 (m))

A factory is a premise whereon 10 or more persons are engaged if power is used or

20 or more persons are engaged if power is not used, in manufacturing process.

Objectives:

To regulate working conditions in factories

To ensure the basic minimum requirements for the safety, health and

welfare of the factory workers are provided

To regulate the working hours, leave, holidays, overtime, employment of

children, women and young personsOccupier:

Occupier of a factory means the person who has ultimate control over the affairs of

the factory.

In case of a firm is partnership, any one of the partners or members thereof

shall be deemed to be the occupier

In case of a factory owned or controlled by the central government or any

local authority, the persons appointed to manage the affairs of the factory by

the central government or the local authority

Duties of occupier:

The provision and maintenance of plant and systems of work in the factory

that are safe and without risks to health

The arrangement in the factory for ensuring safety and absence of risks to

health in connection with the use, handling, storage and transport of articles

and substances

The provisions of such information, instruction, training and supervision asare necessary to ensure the health and safety of all workers at work

The maintenance of all places of work in the factory in a condition that is safe

and without risks to health

Prepare, revise, a written statement of this general policy with respect to the

health and safety of the workers at work


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PROVSION OF THE FACTORIES ACT, 1948, RELATING TO HEALTH, SAFETY

AND WELFARE:

HEALTH MEASURES:

To take care of the health of workers in factories, the Factories Act,

1948 has provided for certain measures which are stated below:

(i) Cleanliness of the factory premises

Every factory shall be kept clean and free from effluvia arising from

any drain, privy or other nuisance.

accumulations of dirt and refuse shall be removed daily

The floor of every room shall be cleaned. This shall be done at least once

every week by washing, or by some other effective method; floor is liable to become wet in the course of any manufacturing process

all inside wall and partitions, all ceilings or tops of rooms and all walls, sides

and tops of passages and staircases shall be painted or varnished, and

repainted and revarnished at least once in a period of five years;

(ii) Disposal of Wastes and Effluents

Effective arrangement shall be made for the disposal of wastes and effluents arising

out of manufacturing process in the factories.

(iii) Ventilation and Temperature

Effective and suitable measures shall be adopted for securing and maintaining in

every room

Adequate ventilation by the circulation of fresh air, and

such a temperature as will secure to workers reasonable conditions of comfort,

and prevent injury to health, and in particular the walls and roofs shall be of such

material and so designed that such temperature shall not exceed but kept within

reasonable limits.

(iv)Dust and Fume

In every factory, where due to manufacturing process, dust or fume or other

impurity arise which is likely to be injurious to the health of workers

employed, effective measures shall be taken to prevent its inhalation, and

accumulation in any workroom.


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If it is necessary to install exhaust appliances, it would be installed near the

point of origin of the dust, fumes, or other impurity. Measures shall be taken

to enclose such points.

(v) Artificial humidification

In the factories, where humidity of the air is artificially increased, it is provided to

make rules

prescribing standard of humidification;

regulating the methods used for artificially increasing the humidity of the air;

(vi)Overcrowding

No room in any factory shall be overcrowded to such an extent which becomes

injurious to the health of the workers employed therein. The Chief Inspector of

factories by order in writing shall fix the maximum member of workers to beemployed in each room in the factory.

(vii) Lighting

The Factories Act provides for sufficient and suitable lighting, natural or artificial

where workers are working or passing through. Provision of cleaning of inner and

outer surface is provided for all glazed windows and skylights used for the lighting

of the workrooms.

(viii) Drinking Water

In every factory, effective arrangement shall be made at suitable places for

sufficient supply of wholesome drinking water. Such places shall be legibly

marked Drinking Water in a language understood by a majority of the

workers employed in the factory.

In case of factories employing more than 250 workers, provisions shall be

made for cooling drinking water during hot weather by effective means, and

for its distribution.

(ix) Latrines and Urinals

The Factories Act requires that provision should be made for

a) Sufficient latrine and urinal accommodation conveniently situated and accessible

to workers while they are in the factory;

b) Separate enclosed accommodation for male and female workers;

c) Such accommodation being adequately lighted and ventilated;


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(x) Spittoons

Sufficient number of spittoons must be provided in every factory and maintained in

clean and hygienic condition.

WELFARE MEASURES:

(i) Washing facilities: The Factories Act provides for

a) Adequate and suitable facilities for washing for the use of workers in the

factories.

b) Separate and adequately screened washing facilities for the use of male and

female workers.

c) Such facilities being conveniently accessible, and being kept clean.

(ii) Facilities for storing and drying clothes:

A suitable place for keeping clothes not worn during working hours shall be

provided in every factory. Facilities shall also be provided for the drying of wet

clothes.

(iii) Facilities for sitting:

For workers who are to work in a standing position, suitable arrangement for sitting

shall be provided in the factories. This is to enable workers to take advantage of

any opportunity for rest which may occur in the course of their work.

(iv First-aid appliances:

First-aid boxes or cupboards equipped with the required contents should be

provided for workers in every factory. This should be readily accessible to them

during all working hours.

The number of such first aid boxes shall not be less than one for every 150 workers

employed in the factory.

In factories employing more than 500 workers, there shall be an ambulance room.

It should contain the prescribed equipments, and be in the charge of such medical

and nursing staff as may be prescribed.

(v) Canteens:

In factories employing more than 250 workers, there shall be a canteen for the use

of workers.


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(vi)Shelter, restrooms and lunch rooms:

Adequate and suitable shelters, rest rooms, and lunch rooms with drinking water

facility shall be made in factories employing 150 workers or more.

(vii) Crches:

In every factory, where more than 50 women workers are employed,

provision shall be made for suitable and adequate room for the use of

children under the age of six years of such women. Such a room shall be

adequately lighted and ventilated.

It shall be maintained in clean and sanitary conditions under the charge of a

woman trained in the care of children and infants.

(Viii) Welfare Officer:

The factories Act also provides for employment of welfare officers with prescribedqualification to look into the implementation of various facilities provided for. Such

a provision exists in every factory employing more than 500 workers.

SAFETY MEASURES:

1. Fencing of Machinery

In every factory, measures should be taken for secured fencing of machinery.

Every moving part of a prime mover;

Headrace and tailrace of every water-wheel and water turbine;

Every part of an electric generator, a motor or a rotary convertor;

Every part of transmission machinery; and every dangerous part of any other

machinery.

2. Work on or near Machinery in Motion

While the machinery is in motion, such examination shall be carried out only

by specially trained adult male workers.

Such workers shall wear tight fitting clothing and their names shall be

recorded in the register prescribed in this connection.

No woman or young person shall be allowed to clean, lubricate or adjust any

part of a prime mover or transmission machinery, while the machinery is in

motion.


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3. Employment of Young Persons on Dangerous Machines

The Factories Act prohibits employment of young persons on certain types of

machines. They can work only after they have been fully instructed as to the

dangers arising in connection with the machines and the precautions to be

observed. They should be under adequate supervision by a person who has a

thorough knowledge and experience of the machines.

4. Striking Gear and Devices for cutting off Power

In every factory

i) Suitable striking gear or other efficient mechanical appliances shall be provided

and maintained, and used to move driving belts to and from fast and loose pulleys

which form part of transmission machinery.

ii) In every factory, suitable devices for cutting off power in emergencies from

running machinery shall be provided and maintained in every workroom.

5. Self-acting Machine

No traversing part of a self-acting machine in any factory, and no material carried

thereon shall, if the space over which it runs, is a space cover which any person is

liable to pass, whether in the course of his employment or otherwise, be allowed to

run on its outward or inward traverse within a distance of eighteen inches from

any fixed structure which is not a part of the machine.

6. Prohibition of Employment of Women and Children near

Cotton openers

No women or child shall be employed in any part of a factory where pressing a

cottonopener is at work.

7. Hoists and Lifts

In every factory

i) Hoists and lifts shall be of good mechanical construction, sound material and of

adequate strength;

ii) They shall be properly maintained, and shall be thoroughly examined by a

competent person at least once in every period of six months. A register shall be

kept containing the prescribed particulars of each such examination;


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8. Lifting Machines, Chains, Ropes and Lifting Tackles

a) All parts including the working gear of every lifting machine and every chain,

rope or lifting tackle shall be of good construction, sound material and adequate

strength, and free from defect; properly maintained ; and thoroughly

examined by a competent person at least once in every period of twelve months.

9. Revolving Machinery

A notice indicating the maximum safe working peripheral speed of revolving

machinery shall be put up in every room in a factory in which the process of

grinding is carried on.

10. Floors, Stairs, and Means of Access

In every factory all floors, steps, stairs and passages shall be of sound

construction and properly maintained, and where it is necessary to ensure safety,

steps, stairs, and passages shall be provided with substantial hand rails;

11. Pits, Sumps, openings in floor etc. which may be a source of danger shall

be either securely covered or securely fenced.

Securely fencing a pit means covering or fencing it in such a way that it ceases to

be a source of danger.

12. Excessive Weights

No person shall be employed in any factory to lift, carry or move any load so heavy

as to be likely to cause him an injury.

13. Protection of Eyes

Effective screens or suitable goggles shall be provided for the protection of persons

employed on, or in the immediate nearness of, the process.

14. Precautions against Dangerous Fumes and use of Portable

Light

No person shall enter any chamber, tank, vat, pit, pipe or other confined space in a

factory in which dangerous fumes are likely to be present to such an extent as to

cause risk of persons being overcome thereby;


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15. Precautions in case of fire

Every door, window or other exit affording a means to escape in case of fire

shall be distinctively marked in a language understood by the majority of the

workers. Such marking should be in red letters of adequate size or by some other

effective and clearly understood sign.

Effective measures shall be taken to ensure that in every factory all workers

are familiar with the means of escape in case of fire and have been adequately

trained in the routine to be followed in such a case.

16. Safety of Building and Machinery

In case it appears that any building, machinery or plant in a factory is in such a

condition that it is dangerous to human life or safety, the manager of the factory

may be served an order specifying measures to be adopted as prescribed.

PROVISIONS OF THE FACTORIES ACT REGARDING THE EMPLOYMENT OF

YOUNG PERSONS AND WOMEN

Employment of young person:

Prohibition of employment of young children:

No child who has not completed his 14 th year shall be required or allowed to work in

a factory

Non-adult workers to carry tokens:

A child who has completed his 14 th year on the adolescent may be allowed to work

in a factory provided a certificate of fitness is in the custody of the occupier and

such child carries a token giving a reference to such certificate

Certificate of fitness:

It is a certificate granted to a young person by a certifying surgeon after examining

him and ascertaining his fitness for work in a factory. The certificate is valid for 12

months from the date of issue and can be renewed

Time of work:

No female adolescent or a male adolescent who has not attained the age of 17

years but who has been granted a certificate of fitness to work as an adult shall be

required or allowed to work except between 6a.m and 7p.m


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Working hours and notice of periods of work for children:

No child shall be employed or permitted to work in a any factory for more

than 4.5 years in any day during the night

The period of work of all children employed in a factory shall be limited to 2

shifts, which shall not overlap or spread over more than 5 hours each.

The provisions of weekly holidays shall applicable to child workers also

No child shall be required or allowed to work in any factory on any day on

which he has already been working in another factory

No female child shall be required or allowed to work in any factory exceptbetween 8a.m and 7p.m

A notice shall be displayed and maintained in every factory showing clearly

for every day the periods during which children may be required to work

Register of child workers:

The occupier or manager of every factory in which children are employed shall

maintain a register of child workers showing

The name of each child worker

The nature of his work

The group in which he is included

Where his group works on shifts

The number of his certificate of fitness

Power to require medical examination:

An inspector may direct the manager of a factory to have a person or young person

medically examined by certifying surgeon if he is working without a certificate

fitness

Safety provisions for young person:

No young persons shall work or near machinery in motion, on dangerous

machines and near cotton openers.


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No young persons shall be employed on any operation carried on in a factory

which exposes the young person to a serious risk of bodily injury, poisoning

or disease

Employment of women:

No women or young person shall be allowed to clean, lubricate or adjust any

part of machinery in motion if it would expose the woman to risk of any

injury from any moving part.

No woman or child shall be employed in any part of a factory for pressing

cotton in which a cotton-opener is at work. However, they may be employed

if the cotton-opener I separated and the feed-end is partitioned.

In every factory wherein more than 30 women workers are ordinarily

employed, there shall be provided and maintained a suitable room or roomsfor use of children under the age of 6 years of such women.

Working hours:

A woman shall not be required or allowed to work in a factory for more than 48

hours in any week or 9 hours in any day.

Restriction on employment of women:

A woman shall be required to work in a factory only between the hours of 6 am and

7 pm and no woman is allowed to work between the hours of 10 pm and 8 am.

Certificate of fitness:

No female adolescent who has not attained the age of 17 years but who has been

granted a certificate of fitness to work in a factory as an adult shall be required to

work in any factory except between 6 am and 7 pm.

Dangerous operations:

Where the state government is of opinion that any operation carried on in a factory

exposes any person employed in it to a serious risk of bodily injury, poisoning or

disease, it may make rules prohibiting the employment of women in that operation.


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INDUSTRIAL DISPUTE ACT, 1947

Industry:

Industry means any business, trade, undertaking, manufacture or calling of

employers and includes any calling, service, employment of workmen.

Industrial dispute:

An industrial dispute means any dispute or difference between employers and

employers, or between employers and workmen, or between workmen and

workmen, which is connected with the employment or non-employment or the

terms and conditions of employment of any person

An industrial dispute has three ingredients,

There should be real and substantial dispute

The dispute must be between employers and workmen The dispute must be connected with the employment or non-employment or

terms of employment.

Objective of industrial dispute Act:

To prevent and settle industrial disputes between the employers and

workmen

To secure and preserve amity and good relations between the employers and

workmen through internal machinery called works committee.

To provide job security

Modes of settlement of disputes under the Act:

The Act provides elaborate and effective machinery for bringing about industrial

peace by setting up various authorities for the investigation and settlement of

industrial disputes.

Voluntary settlement and conciliation:

Works committee

Conciliation officers Boards of conciliation

Arbitration

Courts of enquiry


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Adjudication machinery

Labour courts

Industrial tribunals

National tribunals

VOLUNTARY SETTLEMENT AND CONCILIATION:

Conciliation is a process by which representatives of workers and

employers are brought together before a third person or a group of

persons with a view to persuading them to arrive at an agreement by

mutual discussion between them.

WORKS COMMITTEES:

If the establishment has 100 or more workmen are employed to constitute a

works committee consist of representatives of employers and workmen of theestablishment.

The number of employers representatives and workers representatives

should be equal and it should not exceed 20.

Employers representatives are nominated by other employers or the person

who has close relation to the establishment. Workers representatives are

selected by election.

Powers:

Promote measures for securing and preserving amity and good relations

between the employers and workmen

Comment upon matters of their common interest and concern

Supervision of such matters like welfare of workers, supervision of

recreational facilities and crches and hospitals, their training, wages, hours

or work, bonus, gratuity, holidays and working conditions.

Conciliation officers:

The appropriate government may, by notification in the official gazette, appointsuch number of persons as it thinks fit to be conciliation officers to mediate in and

promote the settlement of industrial disputes.


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Duties:

To hold conciliation proceedings in the following manner,

Conciliators opening statement

Parties opening statement

Joint exploratory session

Private meetings

Conclusion

To investigate the dispute and all matters affecting the merits and the right

settlement thereof

To send a report and memorandum of settlement to appropriate government

To send a full report to the appropriate government setting forth steps taken

by him in case no settlement is arrived at

The conciliation officer may for the purposes of inquiry into the industrial dispute

have power to enter premises and to call for and inspect documents of the

industrial establishment.

Board of conciliation:

The appropriate government by notification in the official gazette constitutes a

board of conciliation for promoting the settlement of an industrial dispute.

The board shall consist of a chairman an independent person and 2 or 4 other

members appointed in equal number to represent the parties to the dispute.

Duties: To bring about a settlement of the dispute

To send a report and memorandum of settlement to the appropriate

government setting forth the steps taken by the board incase no settlement

is arrived at.

To communicate reasons to the parties if no further reference made


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To report within 2 months of the date on which the dispute was referred to it

The board may for the purpose of inquiry into the industrial dispute have the power

to enter premises of the establishment and shall have the same powers as are

vested in civil court.

ARBITRATION:

Arbitration is a process in which a dispute is submitted to a impartial

outsider who makes a decision which is usually binding on both the

parties. It means securing an award on a conflict issue by reference to a

third party.

Before an industrial dispute is referred to a labour court or tribunal the

employer and workmen may refer the dispute to arbitration of any person or

persons of their choice, by means of a written arbitration agreement. A copy of arbitration agreement, signed by representatives of both the

parties representing majority of each party, should be forwarded to

government and the conciliation officer.

The arbitrators shall investigate into the dispute and submit the arbitration

award to the government, who shall within one month of the receipt thereof,

publish the same in official gazette.

Courts of inquiry:

A court may consist of one independent person and if it consists of 2 or more

persons, one of them shall be appointed as the chairman.

Duties:

To inquire into the matters referred to it

To send the report of inquiry to the appropriate government ordinarily within

a period of 6 months from the commencement of this inquiry

A member of a court may for the purpose of inquiry into the dispute has the

power to enter premises after giving reasonable notice to the establishment.ADJUDICATION MACHINERY:

Adjudication involves intervention in the dispute by a third party appointed

by the government for the purpose of deciding the nature of final

settlement.


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If a dispute is not settled by negotiations or conciliation, and the parties do not

agree to refer the dispute to arbitration, the government may, on its own

discretion, or on an application by the parties to the dispute representing the

majority, separately or jointly.

The authorities under the adjudication machinery are

Labour courts

Industrial tribunals and

National tribunals

Labour courts:

The appropriate government may, by notification in the official gazette,

constitute one or more labour court for adjudication of industrial disputes.

A judge of a high court may be appointed as presiding officer of a labour

court

Duties:

To adjudicate upon industrial disputes

To give award within the specified period

The award should be signed by its presiding officer and be published in such

manner as the appropriate government thinks fit

Powers:

The presiding officer after giving a prior reasonable notice may enter the

premises occupied by any establishment to which the dispute relates

A labour court shall have the same powers as are rested in a civil court

Industrial tribunals:

The appropriate government may by notification, constitute one or more

industrial dispute relating to any matter specified in the second and third

schedule and for performing such other functions as may be assigned to

them under this Act.

A person of the rand of a judge of high court may be appointed as a

presiding officer of the tribunal.


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Duties:

The tribunal shall hold its proceedings expeditiously of the referred dispute

and submit its award to the appropriate government within a specified period

The award shall be in writing and signed by its presiding officer and be

published

Powers:

The presiding officer may after giving reasonable notice enter the premises

occupied by any establishment to which the dispute relates

A tribunal shall have the same powers as are rested in a civil court

The tribunal may, if it so thinks fit, appoint one or more persons having

special knowledge of the matter under the consideration as assessors toadvise it in the proceeding before it.

The cost of any proceedings before a tribunal shall be determined at the

discretion of the tribunal

National tribunals:

The central government may, by notification, constitutes one or more

national industrial tribunals for the adjudication of industrial disputes which

involves questions of national importance or of such a nature that industrial

establishments situated in more than one state are likely to be interest in, or

affected by, such disputes

A judge of high court shall be appoint as one person to a national tribunal by

the central government

Duties:

The tribunal shall hold its proceedings expeditiously of the referred dispute

and submit its award to the appropriate government within a specified period

The award shall be in writing and signed by its presiding officer and be

published

Powers:

The presiding officer may after giving reasonable notice enter the premises

occupied by any establishment to which the dispute relates

A tribunal shall have the same powers as are rested in a civil court


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The tribunal may, if it so thinks fit, appoint one or more persons having

special knowledge of the matter under the consideration as assessors to

advise it in the proceeding before it.

The cost of any proceedings before a tribunal shall be determined at the

discretion of the tribunal

STRIKES AND LOCKOUTS:

Strike and lock-out are two coercive measures resorted to by the employees and

the employers, respectively, for compelling the employers or employees to accept

their demands or conditions of service.

Strike:

Strike means cessation of work by a group of employees employed in any industry,

acting in combination.Lock-out:

There is a temporary closing of the place of employment, or suspension or

withholding of the work by the employer in some form

Circumstances on which strikes and lock-outs are prohibited:

No person employed in a public utility service shall go on strike in breach

of contract-

Without giving to the employer notice of strike, within 6 weeks before

striking

Before the expiry of the date of strike specified in any such notice as

aforesaid

During the pendency of any conciliation proceedings and 7 days after the

conclusion of such proceedings

No employer carrying on any public utility service shall lock-out any of his

workmen-

Without giving them notice of lock-out, within 6 weeks before locking-out

During the pendency of any conciliation proceedings and 7 days after the

conclusion of such proceedings


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No workmen who is employed in any industrial establishment shall go on

strike and no employer of any such workman shall declare a lock-out

During the pendency of conciliation proceedings before a board of conciliation

of 7 days after the conclusion of such proceedings

During the pendency of arbitration proceedings before an arbitrator and 2

months after the conclusion of such proceedings

During any period in which a settlement or award is in operation in respect of

any of the matters covered by the settlement or award.

ILLEGAL STRIKE AND ILLEGAL LOCK-OUTS:

Any strike or lock-out commenced or declared or continued, in contravention

of any of the above restrictions or any prohibitory order of the government

shall be illegal No person should knowingly finance any illegal strike or lock-out

A strike is also said to be illegal if it is commenced or declared in

contravention

LAY-OFF AND RETRENCHMENT:

Lay-off:

Lay-off means the failure, refusal or inability of an employee to give employment to

workman whose name is borne on the muster rolls of his industrial establishment

and who has not been retrenched. It may be due to,

Shortage of coal, power or raw materials

The accumulation of stocks

The breakdown of machinery

Natural calamity or for any other connected reasons

Retrenchment

Retrenchment means termination by the employer, of the service of a workman for

any reason whatsoever, but excludes:

Dismissal inflicted by way of disciplinary action

Voluntary retirement of the workmen

Termination as a result of non-renewal of contract of employment

Termination due to continued ill-health of the workman


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PAYMENT OF WAGES ACT, 1936

Purpose of payment of wages Act:

The main purpose of the Payment of Wages Act, 1936 is to ensure regular and

timely payment of wages to the employed persons and to prevent unauthorized

deductions being made from wages and arbitrary fines being imposed on the

employed persons.

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, be

payable to a person employed in respect of his employment or work done in such

employment. It does not include,

Any bonus

Contribution to any pension and provident fund

Any travelling allowance

Any gratuity payable on the termination of employment

Objectives:

To ensure regular and timely payment of wages to the employed persons

To prevent the evils of withholding wages

To avoid delays in paying wages

To prevent unauthorized deductions from wages

To prevent arbitrary fines being imposed on the employed persons

To regulate the payment of wages to certain classes of persons employed in

industry

To ensure every employer responsible for the payment of wages to persons

employed by him.

Time of payments of wages:


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Wages to be paid before 7th day of the following month if less than 1000

persons are employed

Wages to be paid before 10th day of the following month if more than 1000

persons are employed

If any person is terminated from his employment, his wages to be paid

before the expiry of the 2nd working day from the day on which his

employment is terminated

All wages shall be paid on a working day

Medium of payment of wages:

All wages shall be paid in current coin or currency notes or both

The employer may after obtaining the written authorization of the employed

person, pay him the wages either by cheque or by crediting the wages in his

bank account

Deductions:

Every payment made by the employed person to the employer is known as

deductions. There are three kinds of deductions

Mandatory deduction

Recommendatory deduction

Deduction under court of authority

DEDUCTIONS UNDER THE PAYMENT OF WAGES ACT, 1936:

Fines (sec 7 (2) a)

Fine is imposed by the employer to the employee for their default activities which is

related to their job. The provisions of fines are,

Any fine that is imposed on an employee by an employer for any act of

default on his part from discharging his duty must have the sanction and

approval of the state government or prescribed authority

An employee on whom a fine is imposed must be given an opportunity of

showing cause as to why such fine may not be recovered


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A fine can be imposed only on a person who has completed the age of 15

The total amount of fine imposed on the employee shall not exceed 3% of

the wages payable to him in respect of the wage period

Such fines shall not be recovered from the employee after the expiry of 60days from the day on which it was imposed

All fines , that are realized from out of the salary of the employee shall be

duly recorded in a register by such authority

The amount shall be applied only for the welfare of the employees in the

factory.

Deduction for absence from duty (sec 7 (2) b)

Normal dictum is no work no pay. Wages may be cut for work not done

proportionately. So the employer is entitles to deduct full days wages and

this will not be considered as illegal

If 10 or more persons acting in combination without due notice and without

any reasonable cause abstain themselves from attending the work, then the

employer is entitled to impose a fine by way of penalty for such amount not

exceeding their wages for 8 days in addition to the actual working days on

which they were absent.

Absence of employee on the account of dismissal or suspension is not said to

be a voluntary act of absence and hence no deduction could be made.

Deduction for damage or loss (sec 7 (2) c)

If the machine may be mishandled on account of negligence of the employee

resulting in damage to the property, the employer is entitled to deduct such

sums from out of the wages of the employee, not exceeding the loss

occasioned to the employer.

Before imposing any such deductions against damages caused to the

employer, reasonable opportunity must be given to the employee to explain

his position

The total amount of deductions under this head should not exceed the actual

amount of damage.

Deductions for house-accommodation (sec 7 (2) d)


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Deduction is allowed in respect of house-accommodation provided by any of the

following

Employer

Government

Any other authority engaged in the business of subsidizing house-

accommodation with the permission of state government

Deduction for other amenities and services (sec 7 (2) e)

The employed person may be provided with various amenities and services like

transport, supply of electricity, water etc. The deductions can be made for such

facilities with the following provisions

The amenity has been accepted by the employed person as term of

employment

The state government or any officer should authorize the supply of such

facilities

The amount of deduction should not exceed an amount equivalent to the

value of such amenities

Deductions for recovery of advances (sec 7 (2) f)

It is very often that money may be advanced to the employed person to meet out

various types of expenses in respect of marriage, death, religious functions, etc.

hence the authorities have rights to deduct

The recovery of advance

The interest due on such advance

Deductions for the recovery of loans (sec 7 (2) ff)

If a loan is made from any fund constitute for the welfare of the labour,

deductions from wages can be made for the recovery of such loan together

with the interest due in respect thereof.


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Where the loans have been granted for house or other purposes approved by

the State government, deductions can be made for the recovery of such loan

together with interest due thereon

Deductions for income-tax (sec 7 (2) g)

It is the responsibility of the employer to see that deductions on account of income-

tax are made before the wages are paid to any employed person

Deductions under the order of a court of authority (sec 7 (2) h)

Deduction from wages can be made under the order of a court

Deductions in respect of PF (sec 7 (2) i)

An employed person may contribute to a scheme of provident fund. He may also

be granted advances from such provident fund.

Deductions for payment to co-operative societies (sec 7 (2) j)

Deduction for any payment to co-operative societies is allowed under the following

conditions

The co-operative society is approved by the state government

The deductions are in conformity with rules laid down by the state

government in this respect

Deductions for payment to a scheme of insurance of Post Office (sec 7 (2) j)

Deductions for payments to a scheme of insurance maintained by the Indian Post Office, is

allowed

Deductions for payment of Life Insurance Premium (sec 7 (2) k)

Deductions can be made for payment of any premium to the Life Insurance Corporation of

India, on the life insurance policy of the employed person. But the deduction is subject to

following condition,

Deductions should be made with written authorization of the employed person

Deductions for the purchase of government securities (sec 7 (2) k)

Deductions are allowed for the purchase of securities of

The government of India or any State Government


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Such deductions are subject to similar conditions specified in case of deductions for

payment of life insurance premium

Deductions for payment of Post Office Saving Bank (sec 7 (2) k)

These deductions are subject to

The written authorization of the employed person

Such conditions as may be imposed by the state government

Deductions for payment of contributions to certain funds (sec 7 (2) kk)

Deductions can be made with the written authorization of the employed person, for the

payment of his contribution to any fund constituted by the employer or a trade union

registered under the trade unions Act, 1926 for the welfare of employed persons of the

members of their families or both, and approved by State government.

Deduction for payment of certain fees (sec 7 (2) kkk)

Deduction can be made, with the written authorization of the employed person, for payment

of the fees payable by him for the membership of any trade union registered under the

Trade Union Act 1926.

Limit on deductions (sec 7 (3))

The total amount of all categories of deductions from the wages of any employed person, in

any wage-period, should not exceed the following limits,

75% of the wages payable in case where such deductions of wholly or partly made

for payments to Co-operative societies

50% of the wages payable in any other case

PAYMENT OF BONUS ACT, 1965

Definition:

Bonus means an obligatory annual payment on the employers to employees

on the basis of profits or on the basis of production.

Bonus was regarded as an ex gratia payment (payment as an act of grace)

made by an employer to his workers to provide a stimulus for extra effort by

them in the production process.

Objectives:


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The objective of the Payment of Bonus Act is to maintain peace and harmony

between labour and capital by allowing the employees, in recognition of their

right, to share in the prosperity of the establishment reflected by the

contributions made by capital, management and labour.

To provide for the payment of bonus to persons employed in certainestablishment and for matters connected therewith.

Applicability:

It applies to every factory in which 20 more persons are employed on any

day during any accounting year.

Persons drawing up to Rs. 3500 are eligible to get bonus and such employee

should have worked in that establishment for a period not less than 30 days

in that year.

Disqualification:

An employee shall be disqualified from receiving bonus under this Act if his service

has been terminated for fraud, for violent behavior, for theft, misappropriation of

any property of the establishment.

BONUS FORMULA:

The following schematic view gives the simple bonus formula

Compute the Gross Profit

Calculate the Available Surplus

Determine the Allocable Surplus


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Compute the Gross Profit (non-banking establishment):

The starting point in the computation of the gross profits in such cases is the net

profit as shown in the Profit and Loss Account after making usual and necessary

provisions.

Items to be added to net profit:

Provision for bonus to employees and bonus paid in respect of previous

accounting years

Provision for depreciation

Provision for direct taxes for previous accounting year

Provision for development rebate

Provision for any other reserves, to the extent charged to profit and loss

account

The amount debited in respect of gratuity paid

Donation in excess of the amount admissible for income tax

Any annuity due or commuted value of any annuity due

Capital expenditure (other than capital expenditure on scientific research)

and capital losses (other than losses on sale of capital assts on which

depreciation has been allowed for income-tax)

Losses related to, any business situated outside India

Income, profits or gains credited directly to reserves other than

1. Capital receipts and capital profit (including profits on the sale of capital assets

on which depreciation has not been allowed for income-tax)

2. Profits of, and receipts relating to, any business situated outside India

Distribute the allocable surplus as

bonus


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3. Income from foreign investments

Items to be deducted:

Capital receipts and capital profits (other than profits on the sale of assets on

which depreciation has been allowed for income tax)

Profits of and receipts relating to, any business situated outside India, to the

extent credited to profit and loss account

Income of foreign concerns from investments outside India, to the extent

credited to profit and loss account

Foreign concerns overhead expenses

Refund of any direct tax paid for previous accounting years

Cash subsidy if any given by the government

The resultant figure is the gross profit for the purposes of bonus

Determination of available surplus:

After determination of gross profits in the manner discussed above, is the

determination of available surplus. The available surplus in respect of any

accounting year shall be the gross profits for that year after deducting there from.

Sums deductible from gross profit

Any amount by the way of depreciation

Any amount by way of development rebate

Any direct tax which the employer is liable to pay for the accounting year in

respect of his income, profits during that year.

The dividends payable on its preference share capital for the accounting year

calculated at the actual rate at which such dividends are payable

8.5 percent of its paid-up equity share capital as at the commencement of

the accounting year

6 percent of its reserves shown in its balance sheet as at the commencement

of accounting year


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Determination of allocable surplus:

After determining the available surplus the employees share known as allocable

surplus.

In case of a company other than a banking company, allocable surplus means 67%

of the available surplus in an accounting yearof the company which has not made

the arrangements prescribed under the Income-tax Act. In all other cases 60% of

such available surplus

Distribution of bonus:

Minimum bonus:

Every employer shall be bound to pay every employee in respect of

accounting year a minimum bonus which shall be 8.33% of the salary orwage earned by the employee or Rs. 100 whichever is higher

In case of employees below 15 years of age Rs. 60 should be paid

Whether employer has not any allocable surplus in the accounting year,

minimum bonus is payable compulsorily. Even if an employer suffers losses

during an accounting year, he is bound to pay minimum bonus

Maximum Bonus:

Where the allocable surplus exceeds minimum bonus, the employer is bound to payto every employee proportionately on the basis of the salary earned by an

employee. This is of course subject of maximum of20% of such annual salary.

Calculation of bonus with regard to employees:

Whose salary is more than Rs.3500, this Act is not applicable. Here, salary

here means Basic pay plus Dearness Allowance.

Such of persons who are drawing a salary of Rs.3500, their salary for

calculation of bonus will be treated as Rs.2500. In other words, even though

an employee may be drawing more than Rs.2500, bonus for such employeewould be calculated, treating his salary Rs.2500.

Set on and set off allocable surplus:

It may happen that in some years, the allocable surplus is more than the

amount paid to employees as bonus calculating it @20%. Such excess


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allocable surplus is carried forward to next year for calculation purposes.

This is called set on.

Similarly, in a particular year, there may be lesser allocable surplus or no

allocable surplus at all even for payment of 8.33% bonuses. Such short fall

is also carried forward to next year. This is called set off.

Thus in every year allocable surplus is calculated. To this amount, set on

from previous year is added. Similarly, set off, if any, from previous years is

deducted. This process gives amount continuously which is available for

distribution as bonus.

The set off, set on provisions are subject to following:

The amount set on is carried forward only up to and inclusive of the fourth

accounting year. If the amount carried forward is not utilized in that period,

it lapses.

Similarly, amount set off is carried forward only up to fourth accounting year

In respect of newly set up establishment, set off and set on provisions do not

apply for first five years.

Deductions of certain amounts from bonus

Wherein any accounting year, an employee is found guilty of misconduct causing

financial loss to the employer, then, it shall be lawful for the employer to deduct the

amount of loss from the amount of bonus payable by him to the employee underthis Act.

Time limit for payment of bonus:

Bonus amount must be paid within a period of 8 months from the close of the

accounting year i.e. within November. The government can extend this

period beyond 8 months for sufficient reasons upon the application made to

it by the employer

Delayed payment of bonus would attract interest at the rate of 9 per cent per

annum on such arrears till such date of payment.

Penalty:

For violating any other provisions of the Act or failure to comply with the direction

or requisition made under this Act shall be punishable with imprisonment for a term

which may extend to 6 months or fine which may exceed to Rs.1000 or with both.


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UNIT III of legal aspects of business

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Transcript of UNIT III of legal aspects of business