Considering an Employee Welfare Fund in Baddi: What Are the Legal Implications?

Employee Welfare Fund Initiative in Baddi Manufacturing Unit

Our manufacturing unit is based in Baddi (Himachal). We have an employee base of 1,500 people, and we are involved in manufacturing auto parts. Since there are no statutory provisions for an Employee Welfare Fund in Himachal, we are considering creating our own Employee Welfare Fund within the plant.

Legal Considerations for Employee Welfare Fund Deductions

What would be the legal repercussions if we deduct a nominal amount (Rs 5 from workers and Rs 10 from staff) on a monthly basis from the salaries of employees in the name of the Employee Welfare Fund? We intend to use the collected amount to support the families of deceased employees and employees affected by accidents (partial or total disability). Although the employer already provides assistance in such circumstances, in addition to the statutory benefits from ESIC, we wish to offer extra help to the affected employees.

Please share your views and suggestions.

Thanks & Regards,
Sunil Jaglan

Payment of Wages Act, 1936

Deductions which may be made from wages

(1) Notwithstanding the provisions of sub-section (2) of section 47 of the Indian Railways Act 1890 (9 of 1890), the wages of an employed person shall be paid to him without deductions of any kind except those authorized by or under this Act.

Explanation I: Every payment made by the employed person to the employer or his agent shall, for the purposes of this Act, be deemed to be a deduction from wages.

Explanation II: Any loss of wages resulting from the imposition, for good and sufficient cause, upon a person employed of any of the following penalties, namely: (i) the withholding of increment or promotion (including the stoppage of increment at an efficiency bar); (ii) the reduction to a lower post or time scale or to a lower stage in a time scale; or (iii) suspension; shall not be deemed to be a deduction from wages in any case where the rules framed by the employer for the imposition of any such penalty are in conformity with the requirements, if any, which may be specified in this behalf by the State Government by notification in the Official Gazette.

(2) Deductions from the wages of an employed person shall be made only in accordance with the provisions of this Act and may be of the following kinds only, namely: (a) fines; (b) deductions for absence from duty; (c) deductions for damage to or loss of goods expressly entrusted to the employed person for custody or for loss of money for which he is required to account where such damage or loss is directly attributable to his neglect or default; (d) deductions for house-accommodation supplied by the employer or by the government or any housing board set up under any law for the time being in force (whether the government or the board is the employer or not) or any other authority engaged in the business of subsidizing house-accommodation which may be specified in this behalf by the State Government by notification in the Official Gazette; (e) deductions for such amenities services supplied by the employer as the State Government or any officer specified by it in this behalf may by general or special order authorize.

Explanation: The word "services" in this clause does not include the supply of tools and raw materials required for the purposes of employment; (f) deductions for recovery of advances of whatever nature (including advances for traveling allowance or conveyance allowance) and the interest due in respect thereof or for the adjustment of overpayments of wages; (ff) deductions for the recovery of loans made from any fund constituted for the welfare of labor in accordance with the rules approved by the State Government and the interest due in respect thereof; (fff) deductions for the recovery of loans granted for house-building or other purposes approved by the State Government and the interest due in respect thereof; (g) deductions of income-tax payable by the employed person; (h) deductions required to be made by order of a court or other authority competent to make such order; (i) deductions for subscriptions to and for repayment of advances from any provident fund to which the Provident Funds Act 1952 (19 of 1952) applies or any recognized provident funds as defined in section 58A of the Indian Income Tax Act 1922 (11 of 1922) or any provident fund approved in this behalf by the State Government during the continuance of such approval; (j) deductions for payments to co-operative societies approved by the State Government or any officer specified by it in this behalf or to a scheme of insurance maintained by the Indian Post Office and (k) deductions made with the written authorization of the person employed for the payment of any premium on his life insurance policy to the Life Insurance Corporation Act of India established under the Life Insurance Corporation 1956 (31 of 1956) or for the purchase of securities of the Government of India or of any State Government or for being deposited in any Post Office Saving Bank in furtherance of any savings scheme of any such government.

(kk) deductions 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 Union Act 1926 (16 of 1926) for the welfare of the employed persons or the members of their families or both and approved by the State Government or any officer specified by it in this behalf during the continuance of such approval; (kkk) deductions made with the written authorization of the employed person for the payment of the fees payable by him for the membership of any trade union registered under the Trade Union Act 1926 (16 of 1926); (l) deductions for payment of insurance premiums on Fidelity Guarantee Bonds; (m) deductions for recovery of losses sustained by a railway administration on account of acceptance by the employed person of counterfeit or base coins or mutilated or forged currency notes; (n) deductions for recovery of losses sustained by a railway administration on account of the failure of the employed person to invoice, to bill, to collect, or to account for the appropriate charges due to that administration whether in respect of fares, freight, demurrage, wharfage, and carnage or in respect of the sale of food in catering establishments or in respect of the sale of commodities in grain shops or otherwise; (o) deductions for recovery of losses sustained by a railway administration on account of any rebates or refunds incorrectly granted by the employed person where such loss is directly attributable to his neglect or default; (p) deductions made with the written authorization of the employed person for a contribution to the Prime Minister's National Relief Fund or to such other Fund as the Central Government may by notification in the Official Gazette specify; (q) deductions for contributions to any insurance scheme framed by the Central Government for the benefit of its employees.

(3) Notwithstanding anything contained in this Act, the total amount of deductions which may be made under sub-section (2) in any wage-period from the wages of any employed person shall not exceed (i) in cases where such deductions are wholly or partly made for payments to co-operative societies under clause (j) of sub-section (2) seventy-five per cent of such wages and (ii) in any other case fifty per cent of such wages: Provided that where the total deductions authorized under sub-section (2) exceed seventy-five per cent or as the case may be, fifty per cent of the wages the excess may be recovered in such manner as may be prescribed.

(4) Nothing contained in this section shall be construed as precluding the employer from recovering from the wages of the employed person or otherwise any amount payable by such person under any law for the time being in force other than the Indian Railways Act 1890 (9 of 1890).

Comment: The list given in this section is exhaustive, and no other deduction from the wages is permissible. AIR 1956 Madras 79

Advice you to read the above and then decide.

Employee's Family Benefit Scheme

The Employee's Family Benefit Scheme to support bereaved families can be effective and serve its purpose well. After consulting with prospective members, the employer/management, and finalizing membership eligibility, beneficiary eligibility, regular membership-contributory sum, and the methods to administer the scheme, including launch formalities and documentation, you need to apply for and obtain necessary permissions from government authorities, including the Income Tax Department. Your idea to be there in times of acute need is commendable.

Kritarth Team,
7th July 2018

Employee Welfare Fund Initiative in HP

There are 13 states where the Employee Welfare Fund Act is not applicable, and Himachal Pradesh (HP) is one of them. Your idea to establish an Employee Welfare Fund for your manufacturing unit is a commendable decision. With a strong workforce of 1500 employees and likely a workers' union, it is advisable to involve the union in the process of forming an "Employee Welfare Fund." You need to establish a trust body and create bye-laws to govern its operations.

The appointed body should reach a decision through a resolution to establish an "Employee Welfare Fund," funded by contributions from employees and a matching grant from the employer on a monthly basis. The company must formalize this decision in a board meeting and pass a resolution allowing the formation of such a "Welfare Fund." This approach will address potential objections that may arise in the future.

Consider seeking assistance from a consultant to draft the bye-laws/constitution and learn from existing successful models in operation.

Thank you.

Appreciation for Welfare Initiatives

Your good gesture to extend welfare facilities to your employees is highly appreciable. The employer is always at liberty to extend any additional facilities for their employees apart from what has been prescribed under different labor laws.

Legal Deductions from Wages

However, you cannot deduct any contribution from the workers' or employees' wages/salaries on this score, as it is illegal. The deductions that an employer can legally make from wages/salaries are clearly spelled out in The Payment of Wages Act. I appreciate our friend Prabhat Ranjanji for his elaborate posting in this forum, particularly regarding the heads of deductions under The Payment of Wages Act.

States Without Welfare Fund Act

As rightly pointed out by Prabhatji, there are 13 states, including Himachal Pradesh, which have not enacted any Welfare Fund Act. The following are the 13 states: Assam, Bihar, Himachal Pradesh, Jammu & Kashmir, Jharkhand, Meghalaya, Orissa, Pondicherry, Rajasthan, Sikkim, Tripura, UT of Chandigarh, and Uttarakhand.

In the state of Uttar Pradesh, even though The Uttar Pradesh Labour Welfare Fund Act, 1965 is in existence, as of now, no contribution is payable either by the employer or employees. The government takes care of the welfare activities.

Forming a Welfare Fund Trust

The remaining states have their own Labour Welfare Fund Act, and the rate of contribution payable differs from state to state. You can form a Welfare Fund Trust as per law and proceed.

Regards,
P.S. Lakshmanan
S. G. Management Services
(PAN INDIA Consultant – Labour Law Compliance, PF, ESI, P Tax, Benefit Management & POSH COMPLIANCE) - KOLKATA