Module 5 of 7 — Indian Employment Law (Non-Lawyer)

Statutory Protections: PF, Gratuity, Bonus, Leave

Reading module · approx 13 min

Indian employment law imposes minimum statutory protections that apply regardless of what the contract says. An employment contract cannot reduce statutory rights below the statutory floor. Employers must build compliance into their standard employment terms.

Employees' Provident Fund (EPF)

The EPF Act, 1952 requires establishments employing 20 or more people to contribute to the EPF for employees earning up to Rs. 15,000 per month (statutory ceiling). Contribution: 12% of basic wages by employer, 12% by employee. Employers may contribute at a higher rate on gross wages by mutual agreement.

The employer must register with EPFO, deduct the employee's PF, contribute the employer's share, and remit both by the 15th of the following month. Non-compliance attracts interest, damages, and prosecution.

Payment of Gratuity Act, 1972

Entitles an employee to gratuity on termination (resignation, retirement, or discharge) after 5 or more years of continuous service. Formula: 15 days' wages × completed years. For monthly-rated employees: (last drawn basic + DA) × 15/26 × years of service.

Statutory ceiling: Rs. 20 lakh (updated by notification). Gratuity above the ceiling is ex gratia, not statutory. Payment must be made within 30 days of the entitlement crystallising.

Payment of Bonus Act, 1965

Mandates statutory bonus for employees earning up to Rs. 21,000 per month in establishments with 20+ employees in existence for at least 5 accounting years. Minimum 8.33%, maximum 20%. Payable within 8 months of the end of the financial year.

Leave entitlements

Governed primarily by state-specific Shops and Establishments Acts (commercial establishments) and the Factories Act, 1948 (factories). Typical statutory leave categories:

Earned/privilege leave: approximately 15 to 20 days per year, generally carried forward and encashable
Sick leave: typically 7 to 12 days per year
Casual leave: typically 7 to 12 days per year
Maternity leave: 26 weeks under the Maternity Benefit Act, 1961 (as amended), with additional provisions for adoption and creche facilities

State variation Shops and Establishments Acts are state-specific. Leave entitlements, working hours, holidays, and closure requirements vary. An employer with offices in multiple states must comply with the applicable state Act for each office. There is no uniform national statute — a common compliance gap for multi-state employers.

Health, safety and welfare

The OSH and Working Conditions Code, 2020 (when operational) consolidates health, safety, and welfare obligations across multiple sectors. Until the Code is operationalised, sector-specific statutes continue — Factories Act for factories, BOCW Act for construction, etc. All establishments must comply with fire safety, sanitation, and basic welfare obligations.

Module 6 covers special protections that apply to female employees.