COMPENSATION MANAGEMENT

Development of a Compensation Philosophy

Before an organization actually develops a compensation plan, there are several aspects that need to be addressed. This will make the process of developing and administering a compensation plan much easier and will result in the development of a compensation plan that more closely matches the organization’s goals and objectives. The aspects that need to be looked into are:

a) The goal of the organization’s compensation system.

b) Whether there is intent to reward employees for good performance, motivate good performance, and/or create or reinforce a particular type of organizational climate.

c) The communication policy of the organization and how the organization is going to communicate the compensation plan to employees once it has been developed.

d) Process of making decisions regarding pay, people involved in these decisions and the decision guidelines required to be developed.

e) The organization’s desired market position relative to pay-Whether the organization chooses to pay at the market rates, above market rates or below market rates? How does the desired market position fit with other strategic goals?

f) Analysis of competitive factors involved that will determine the pay strategy.

g) The desired mix between benefits and cash. Since benefits are an important form of compensation, how does an organization use them to maximize the effectiveness of the compensation plan?

h) What does the organization pay for? Does it pay for performance or seniority or the combination of the two?

i) The role of performance appraisal in the organization, its importance and reasons for its importance.

j) The process for the organization to manage a change to the compensation plan once it has been developed and the systems needed to be in place to implement any changes including deciding timing and authority to decide changes.

k) Synchronization of the compensation philosophy and plan with the rest of the organization and the way compensation practices reinforce other overall management philosophies and objectives.

Need for a Rational Wage Policy

Formulation of rational wage policy continues to be one of the most important and significant social demands. Earlier, it formed the basic responsibility of the employer but with the industrial progress, wage bargain has become a matter of concern for the employer, employee, and the state.

Any rational wage policy has hence to be woven into the socio-economic texture reflecting the objectives and aspirations of the people of a particular country. It cannot be dealt with, on purely economic considerations in isolation from the social policy and political culture of that particular community.

Problems of wage policy are hence of great concern to employees, management and government alike. The pressures of rising prices, the demand for higher wages and better working conditions create price, market and production problems for the management and the final burden of finding a solution to the problems of wage policy ultimately falls on the government.

Economic Objectives of Wage Policy

An important objective of any society is the achievement of maximum economic welfare. This requires the national income to be maximized. The national income should be divided equally among all the members of the economy and finally, there should be a fair amount of stability in the national income. Economic welfare gets maximized if the highest and most stable standard of living possible for each section of the community is attained. In order to secure this, it is necessary to achieve:

a) Full employment and optimum allocation of all resources.

b) The highest degree of economic stability consistent with an optimum rate of economic progress.

c) Maximum income security- for all sections of the community.

The Social Objectives of Wage Policy

A given wage policy must be instrumental in achieving the following:

a) Elimination of exceptionally low wages.

b) Establishment of ‘fair’ labour standards.

c) Protection of wage earners from the effects of rising prices.

d) Incentive for workers to improve their productive performance.

The social and economic objectives, no doubt, are closely inter-related. Measures inspired by social considerations inevitably have economic effects, and those designed to achieve specific economic results have social implications. For example, the raising of wages through fixing a statutory minimum wage will normally affect production and employment in an organization. If the organization institutes measures to keep cost of production at a competitive level, it may frustrate the aspirations of the employees.

Keeping the above facts in mind, it is essential that wage policy should be necessarily inter-related with broader economic decisions on one hand, and with the goals set for social policy on the other. Wages, being a price of labour, have to be in harmony with other prices in the system. Hence, it becomes necessary to maintain a balance

between the objectives of economic development and the principles of a democratic system in the formulation of a wage policy.

Components of Remuneration

A typical remuneration of an employee comprises of wages and salary, incentives, fringe benefits, perquisites and non-monetary benefits.

a) Wages and Salary

Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of the number of hours put in by an employee. Wages and salaries are subject to annual increments. They differ from employee to employee, and depend upon the nature of job, seniority, and merit.

b) Incentives

Also called ‘payments by results’, incentives are paid in addition to wages and salaries. Incentives depend upon productivity, sales, profit, or cost reduction efforts. There are:

(i) Individual incentive schemes

(ii) Group incentive programs

Individual incentives are applicable to specific employee performance. Where a given task demands group effort for completion, incentives are paid to the group as a whole. The amount is later divided among group members on an equitable basis.

c) Fringe Benefits

These include such employee benefits as provident fund, gratuity, medical care, hospitalization, accident relief, health and group insurance, canteen, uniform, recreation and the like.

d) Perquisites

These are allowed to executives and include company car, club membership, paid holidays, furnished house, stock option schemes and the like. Perquisites are offered to retain competent executives.

e) Non-monetary Benefits

These include challenging job responsibilities, recognition of merit, growth prospects, competent supervision, comfortable working conditions, job sharing, and flexi time.

Examples of Inputs and outputs in an organization

Inputs OutcomesAge Challenging job assignmentsAttendance Fringe benefitsInterpersonal skills Job requisitesCommunication skills Job securityJob effort (long hours) MonotonyLevel of education PromotionPast experience RecognitionPerformance ResponsibilitySeniority Seniority benefitsSocial status Status symbolsTechnical skills Working conditions

Objectives of Compensation Planning

The most important objective of any pay system is fairness or equity. The term equity has three dimensions:

a) Internal Equity: This ensures that more difficult jobs are paid more.

b) External Equity: This ensures that jobs are fairly compensated in comparison to similar jobs in the labour market.

c) Individual Equity: It ensures equal pay for equal work, i.e., each individual’s pay is fair in comparison to others doing the same/similar jobs.

In addition, there are other objectives as well. The ultimate goal of compensation administration (the process of managing a company’s compensation program) is to reward desired behaviours and encourage people to do well in their jobs. Some of the important objectives that are sought to be achieved through effective compensation management are listed below:

a) Attract Talent

Compensation needs to be high enough to attract talented people. Since many firms compete to hire the services of competent people, the salaries offered must be high enough to motivate them to apply.

b) Retain Talent

If compensation levels fall below the expectations of employees or are not competitive, employees may quit in frustration.

c) Ensure Equity

Pay should equal the worth of a job. Similar jobs should get similar pay. Likewise, more qualified people should get better wages.

d) New and Desired Behaviour

Pay should reward loyalty, commitment, experience, risk-taking, initiative and other desired behaviours. Where the company fails to reward such behaviours, employees may go in search of greener pastures outside.

e) Control costs

The cost of hiring people should not be too high. Effective compensation management ensures that workers are neither overpaid nor underpaid.

f) Comply with Legal Rules

Compensation programs must invariably satisfy governmental rules regarding minimum wages, bonus, allowances, benefits, etc.

g) Ease of Operation

The compensation management system should be easy to understand and operate. Then only will it promote understanding regarding pay-related matters between employees, unions and managers.

Principles of Remuneration Administration

The following guidelines should be followed in the administration of remuneration:

a) It should be developed keeping in view the interests of the employer, the employees, the consumers and the community.

b) Wage policy should be stated clearly in writing to ensure uniform and consistent application.

c) Remuneration plans should be consistent with the overall plans of the company. Compensation planning should be an integral part of financial planning.

d) Remuneration plans should be sufficiently flexible or responsive to changes in internal and external conditions of the organization.

e) Management should ensure that employees know and understand the wage policy of the company.

f) All remuneration decisions should be checked against the standards set in advance in the wage policy.

g) Remuneration plans should simplify and expedite administrative process.

h) An adequate database and a proper organizational set up should be developed for compensation determination and administration.

i) Wage policy and program should be reviewed and revised periodically in conformity with changing needs.

Devising a Remuneration Plan

Steps Involved in Designing a Remuneration Plan

Any remuneration plan must be understandable, workable and acceptable. The remuneration scheme must have two components—a base rate and the scope for increasing the base rate. The remuneration plan must be determined keeping in mind the requisites and the components. The following steps must be followed in designing a remuneration plan:

Remuneration Model

a) Job Analysis

This involves collecting and evaluating relevant information about jobs. Any data collected should clarify the nature of the work being performed (principal or essential tasks, duties and responsibilities), the level of the work being performed, the extent and types of knowledge, skill, mental and physical effort and requirements and responsibility required for the work being performed. There are five primary sources of data for collection of job information: questionnaires, interviews, logs or diaries, direct observation and work plans. All of these methods have advantages and disadvantages and the organization must choose the method that will provide comprehensive data with administrative efficiency and cost-effectiveness.

b) Job Documentation

There needs to be a formalized way to document job content. In most organizations, a job description is the means used to accomplish this. Job documentation is used to evaluate job content, provide objective criteria for making pay comparisons, ensure that jobs are classified according to content as opposed to individual personalities, effectively communicate the job

duties to both supervisors and employees, and help the organization defend itself against charges of discrimination. Who to write job descriptions? That will depend on the resources available to the organization, but line management should always review them.

c) Job Evaluation

A job worth hierarchy is the result of job evaluation, the overall process of comparing jobs. There are six major methods of comparing jobs in order to develop the job worth hierarchy. The first three methods are ‘whole-job’ evaluations and are non-quantitative in nature. These include ranking, classification and slotting. The second three are ‘factor’ evaluation and are quantitative in nature. These include point factor, factor comparison, and scored questionnaires.

d) External Equity- Pay Surveys

Job hierarchy being established, the next step is to establish pay differentials. Before fixing wage and salary differentials, prevailing wage and salary rates in the labour market need to be ascertained. Hence pay surveys are relevant. Wage and salary surveys ensure external equity. A wage and salary survey provides information as to what other organisations that compete for employees are paying. The survey could cover all the jobs within an organisation or limited to benchmark jobs, jobs that are used to anchor the company’s pay scale and around which other jobs are slotted based on their relative worth to the firm.

One of the major problems with these salary surveys is the comparability of jobs in the survey to jobs in the organisation. To overcome the limitations of published surveys, one must resort to conducting one’s own surveys of important jobs.

e) Pricing Jobs

Establishment of Pay Ranges and/or Rates:

In order to actually establish a pay structure, an organization needs to set rates of pay for the jobs in the job hierarchy. Before doing this, an organization needs to ask, and answer, the following questions:

· How should the organization’s pay level relate to the external market? Should the organization be a pay leader, match the market or pay less than market?

· What is the organization willing to pay for? Job content, seniority, performance, skills, cost of labor, or some combination of all of these?

· Are short term or long term incentives provided?

· What steps does the organization need to take to ensure that pay is administered in a manner free of bias and discrimination?

If an organization decides to use pay ranges (or grades), it will have to determine how many ranges to have. This will depend on the number of different levels of relative job value that are recognized by the organization and the difference in pay between the highest and lowest paid jobs in the pay structure. The focal point of a pay range is the mid-point as this is generally the ‘going’ rate for jobs assigned to that range. From the mid-point, an organization can determine the range minimum and maximum. The range minimum is the usually the lowest pay rate for any job in that range and is usually the pay rate given to people hired in that range who meet minimal qualifications only. Occasionally, an organization will pay a ‘training’ rate that is below that minimum. The maximum of a range is the highest rate an employer is willing to pay for jobs in that pay range. Other important range issues include the range width and the degree of overlap between ranges.

The end result of all of the above is a pay structure that should accomplish the organization’s objectives with regard to a pay program, and should reflect the organization’s philosophy on how it wishes to relate its pay program to the market. Also, this pay structure should demonstrate the internal job values of positions, and how the organization wishes to mix base pay, benefits and incentives.

f) Appraisals/New joinees/Pay Increases

Creating a pay structure is not the final step in the creation of a compensation plan. An organization must also decide how to administer this compensation plan. This means deciding how to pay new employees, how and when to give employees increases, including how to move existing employees from the minimum to the maximum of their assigned pay grades, how to determine the pay increase for an employee being promoted from one job to another and what influence, if any, cost of labour increases will have on the determination of pay increases for employees. In addition, an organization must develop policies and procedures that will implement the results of these decisions in a consistent manner.

Fixed vs. Variable Pay

Variable pay programs are widely followed throughout many organisations and for all levels of employees. Widespread use of various incentive plans, team bonuses, profit-sharing programs have been implemented with a view to link growth in compensation to results. Of course, while using variable pay systems, management must look into two issues carefully;

1. Should performance be measured and rewarded based on individual, group or organizational performance?

2. Should the length of time for measuring performance be short term or long term?

Characteristics of a Wage System

Wage payment is a matter of great importance to workers. It determines their standard of living, their attitude towards the company and influences their motivation to work. It is an important issue from the employer’s point of view as well, as their profit is affected by the total wage bill. Remuneration to labour, thus, is a complex problem and is often the bone of contention between workers and employers. Employers want to keep down the wage rates and employees want to see their wages rise continually. To strike a balance between the two, it is necessary to select the system of wage payment carefully. An ideal system of wage payment should have the following features:

a) Simple: The system of wage payment should be simple and easily intelligible to the worker. Above all, it must be perceived by employees as equitable.

b) Beneficial: The allocation of gains should be judiciously made among labour and management on some equitable basis.

c) Equitable: Each worker should be paid fairly, in line with his effort, abilities and training.

d) Guaranteed Minimum Wage: The system should guarantee a minimum wage (to meet bare necessities and comforts of life) to every worker. Pay should be enough to help an employee cover his basic needs.

e) Balanced: Pay, benefits and other rewards should offer a reasonable total compensation package.

f) Incentive-oriented: The wage system should be such that the workers may feel encouraged to produce more and earn more wages.

g) Quality Output: The system must encourage the worker not only to increase the quantum of output but also improve the quality of output.

h) Certainty: Wages should be paid in cash on a convenient date, time and place during working hours. The system should not have any element of uncertainty.

i) Cost-effective: Pay should not be excessive, considering what an organisation can afford to pay.

j) Flexible: The system should be flexible to allow necessary changes, which may arise from time to time.

Wage Policy in India

Pay structure in a company depends upon several factors such as wage settlement, labour market situation, company’s nature and size etc. Pay structure consists of certain grades, scale and range of pay in each scale. Each scale has a minimum and a maximum limit. Jobs placed within a particular grade carry the same value. The actual pay in a grade depends upon the length of service and/or performance of an employee.

Pay structure in India generally consists of the following components:

a) Basic wage/salary

b) Dearness Allowance (D.A.) and other allowances

c) Bonus and other incentives

d) Fringe benefits or perquisites

Components of Pay

Hard Variables Soft VariablesSalary Opportunity for advancementAugmented pay – overtime, extra pay, one-time stuff Opportunity for growthIndirect pay – fringe benefits Psychic income – doing

personally meaningful workWorks pay – things needed for work, uniform allowance, etc. Quality of life – workplace

flexibility, work-life balancePerks pay – discount on company’s products, etc. The X-factor – special individual

variables

India Income tax slabs 2010-2011 for General tax payers

Income tax slab (in Rs.) Tax

0 to 1,60,000 No tax

1,60,001 to 5,00,000 10%

5,00,001 to 8,00,000 20%

Above 8,00,000 30%

India Income tax slabs 2010-2011 for Women

Income tax slab (in Rs.) Tax

0 to 1,90,000 No tax

1,90,001 to 5,00,000 10%

5,00,001 to 8,00,000 20%

Above 8,00,000 30%

India Income tax slabs 2010-2011 for Senior citizen

Income tax slab (in Rs.) Tax

0 to 2,40,000 No tax

2,40,001 to 5,00,000 10%

5,00,001 to 8,00,000 20%

Above 8,00,000 30%

Income from Salary

Income under the head ‘salary’ comprises remuneration in any form (including perquisites) received by an employee from employer. Thus, there should be contractual employer-employee relationship. The contract may be express, oral or implied. ‘Salary’ includes:

a) Wages

b) Dearness Allowance

c) Bonus

d) Gratuity

e) Annuity or Pension

f) Advance of salary

g) Fees / Commissions perquisites/ profits received from employer in addition to salary

h) Leave encashment while in service

e) Employer’s contribution to provident fund in excess of 12% of salary of the employee

(In Karamchari Union vs. UOI 2000 AIR SCW 806 = AIR 2000 SC 1226 = (2000) 109 Taxman 1 = 2000 LLR 897 = 243 ITR 143 (SC), it has been held that CCA (City Compensatory Allowance), DA (Dearness Allowance) and HRA (House Rent Allowance) are in the nature of income forming part and parcel of salary and are taxable.)

Valuation of Perquisites

The employer often gives some perquisites to the employees. Value of these perquisites is added to the income of employees. The valuation of perquisites is done as follows: -

a) Perquisite of Rent-free Accommodation is valued according to the following rules:

i) In case of private sector employees, value of perquisite of rent-free unfurnished accommodation is taken as 10% of salary of employee, if accommodation is in city with population exceeding 4 lakh as per 1991 census. Otherwise, it will be 7.5%.

ii) In case of Government Employees, value will be the ‘licence fee’ determined by Central / State Government. If some rent is recovered from the employee, the value of perquisite will be reduced to that extent. This is not applicable for accommodation in remote area like mining site, onshore oil exploration site, etc.

iii) If temporary accommodation up to 15 days on transfer is provided, it will also be valued @ 24% of salary paid for the period or actual hotel charges, whichever is lower.

iv) If accommodation is furnished, in addition to the above, 10% of cost of furniture (including TV, radio, refrigerator, AC, etc.) will be treated as perquisite. If the furniture is hired from third party, actual hire charges less any amount recovered from employee will be the perquisite.

(b) If motor car is provided by employer, valuation is done depending on HP of motor car, whether chauffeur is provided and whether car is for exclusive private use or partly for official use and partly for personal purposes.

c) If a sweeper, watchman or gardener is provided by employer, the perquisite will be valued at the actual cost to the employer.

d) Some benefits like gas, electricity, water are valued at actual cost to employer. Cost of education of employee’s children is also valued at cost incurred.

e) If amenities like interest-free or concessional interest loan, travelling expenses for holiday to employee or his relatives, free meals, gifts over Rs. 5,000 per annum, payment of credit card expenses of employees for personal expenses, club memberships, etc. are provided, these will be valued at cost and treated as perquisites.

f) If some movable asset is provided to employee, perquisite will be @ 10% of the actual cost of perquisite (In case of computer, depreciation @ 50% and in case of car, depreciation @ 20% is allowed to find ‘actual cost’).

g) Reimbursement of medical expenses for medical treatment of employee or member of family of employee is exempt up to Rs.15,000 per year. In case of treatment in Government or approved hospital, or expenditure on medical treatment outside India, reimbursement of medical expenses is exempt without any ceiling.

h) House Rent Allowance (HRA) is partly exempt as provided in the rules. It should be noted that if the employee stays in his own house or if he incurs no expenditure on house rent, the whole HRA is taxable. The rules for granting exemption from HRA are quite complicated, but broadly, these can be summarised as follows –

(i) If employee does not pay any house rent, whole of HRA received is treated as perquisite.

(ii) If the actual amount of rent paid by him is less than 10% of salary of the employee, in that case also, whole of HRA is taxable and there is no exemption.

(iii) If the actual amount of rent paid by him is more than 10% of salary of the employee, the HRA received in excess of 10% of salary is exempt. In other words, HRA received to the extent of only 10% of salary is taxable and balance is exempt.

However, maximum HRA that can be eligible for exemption under this clause is 50% of salary in case of accommodation in four metropolitan cities and 40% of salary in other cities. For purpose of calculating amount exempt from HRA, the term ‘salary’ includes only basic and DA but does not include any other allowance or perquisite.

(i) Leave Travel Allowance to any place in India is available only two times in a block of four years. It is for self, family and up to two children. The allowance is limited to economy airfare or AC first class rail fare by the shortest route. The allowance is exempt subject to amount of expenses actually incurred by the employee for such travel. The employee will have to keep account of actual expenses incurred. It appears that actual travel by air or AC is not required, but the overall ceiling on expenses is subject to limit of air fare / rail fare.

(j) If shares of a company are issued to employees at price lower than the price at which the shares are offered to other shareholders / public, the difference will be treated as a perquisite. If the shares are offered only to employees, difference between market price and the price at which shares are offered to the employee will be treated as perquisite. (However, in case of ESOP of listed companies, it is not treated as perquisite. Capital gains are payable only when the shares are sold).

(k) Club fees paid on behalf of employee, insurance premiums paid on behalf of employee, income tax paid on behalf of employee are all treated as perquisites and the cost is added to the income of the employee.

Certificate from employer – Employer is required to issue certificate in form 12BA, giving details of value of each perquisite provided to the employee, if the value of perquisites exceeds Rs.1.5 lakh. If the value of perquisites is less than Rs.1.5 lakh, the relevant details should be given in From 16 itself, which every employer is required to issue to the employee.

Exemptions from Salary Income

Following are exempt from income tax:

a) Transport allowance up to Rs.800 per month granted to an employee to meet his expenditure for the purpose of commuting between place of residence and the place of his duty (w.e.f. 1.8.1997).

b) Conveyance and transport allowance granted to employee to meet cost of travel on tour are exempt. Allowance granted to meet expenditure incurred on conveyance in performance of duties of an office or employment are exempt. In LIC Officers vs. LIC of India (2000) 112 Taxman 227 (Bom HC DB), it was held that conveyance allowance is exempt only if expended for meeting expenses wholly and necessarily incurred or to be incurred in performance of duties

of office. Conveyance allowance at flat rate irrespective of place of residence, work and posting will not be exempt from income tax.

c) Conveyance and transport allowance granted to employee to meet cost of travel on transfer are exempt. Expenses granted to meet cost of travel on transfer and cost of packing and transportation of personal effects on such transfer are exempt.

d) Gratuity received under Payment of Gratuity Act is exempt up to 15 days of wages for each completed year of service or part of year in excess of six months, on the basis of wages last drawn by employee. The exemption is subject to ceiling of Rs.10 lakhs. Death-cum- Retirement Gratuity received by employees of Central Government, State Government, Public Sector employees and members of Defence Services are totally exempt without any limit.

e) Voluntary retirement amount received by an employee up to Rs. 5 lakh is exempt. The Voluntary Retirement Scheme should be as per Income Tax Rules.

f) Payment received from approved superannuation fund is exempt.

g) Leave encashment at the time of retirement is exempt up to 30 days for every year of completed service. Earned leave so encashed should not be for more than 8 months. Maximum eligible amount for exemption is Rs.1, 35,360. In case of Central or State Government employees, it is fully exempt without any ceiling.

h) Use of employer’s vehicle or transport provided for journey of employee from residence to his place of work and back is not treated as perquisite and its cost is not treated as income.

i) Refreshments during office hours to employees and recreational facilities provided to group of employees are not treated as perquisites.

FRINGE BENEFITS

Fringe benefits form an important part of the compensation of an employee.

Different terms are used to denote fringe benefits. They are welfare measures, social charges, social security measures, supplements, sub-wages, employee benefits etc. The International Labour Organisation (ILO) observed: “Wages are often augmented by special cash benefits, by the provision of medical and other services or by payments in kind, that forms part of the wage for expenditure on the goods and services.” In addition, workers commonly receive such benefits as holiday with pay, low cost meals, low-rent housing etc. Such additions to the wage proper are sometimes referred to as ‘fringe benefits’. Benefits that have no relation to employment or wages

should not be regarded as fringe benefits even though they may constitute a significant part of the worker’s total income.

Thus, fringe benefits are those monetary and non-monetary benefits given to the employees during and post–employment period which are connected with employment but not to the employees’ contributions to the organization.

The term ‘fringe benefits’ refer to various extra benefits provided to the employees, in addition to the compensation paid in the form of wage or salary. These benefits can be defined as any wage cost not directly connected with the employees’ productive effort, performance, service or sacrifice. It is also defined as those benefits which are provided by an employer to or for the benefit of an employee and which are not in the form of wages, salaries and time-related payments.

The term ‘fringe benefits’ covers bonus, social security measures, retirement benefits like provident fund, gratuity, pension, workmen’s compensation, housing, medical, canteen, co-operative credit, consumer stores, educational facilities, recreational facilities, financial advice and so on. Thus, fringe benefits cover a number of employee services and facilities provided by an employer to his employees and in some cases to their family members as well. Welfare of employee and his family members is an effective advertising and also a method of buying the gratitude and loyalty of employees. But, while some employers provide these services over and above the legal requirements to make effective use of their work force, some restrict themselves to those benefits, which are legally required.

Reasons for Fringe Benefits

Most of the organizations have been extending the fringe benefits to their employees, year after year, for the following reasons:

a) Employee Demands

b) Trade Union Demands

c) Employer’s Preference

d) As a Social Security

e) To Improve Human Relations

Objectives of Fringe Benefits

The viewpoint of employers is that fringe benefits form an important part of employee incentives to obtain their loyalty and retain them. The important objectives of fringe benefits are:

a) To create and improve sound industrial relations.

b) To boost up employee morale.

c) To motivate the employees by identifying and satisfying their unsatisfied needs.

d) To provide qualitative work environment and work life.

e) To provide security to the employees against social risks like old age benefits and maternity benefits.

f) To protect the health of the employees and to provide safety to the employees against accidents.

g) To promote employee’s welfare by providing welfare measures like recreation facilities.

h) To create a sense of belongingness among employees and to retain them. Hence, fringe benefits are called ‘golden handcuffs’.

i) To meet requirements of various legislations relating to fringe benefits.

Types of Fringe Benefits

The fringe benefits offered may be broadly classified into the following categories:

1. Payment for time not worked

2. Employee Security

3. Safety and Health

4. Workmen’s Compensation

5. Health Benefits including voluntary arrangements

6. Welfare and recreational facilities

7. Old age retirement benefits

INCENTIVES

Incentive wages refer to performance-linked compensation paid to improve motivation and productivity of the employees. It implies monetary inducements offered to employees to perform beyond accepted standards. It is related directly or indirectly to productivity and profitability of the enterprise. Wage incentives include all the plans that provide extra pay for extra performance in addition to regular wages for the job. It is a formal system under which the earnings of a worker, a small group or a plant workforce are related partially or wholly to some measure of output. The National Commission on Labour defines wage incentives as “the extra financial motivation”. Wage incentives are designed to stimulate human effort by rewarding the person, over and above the time rated remuneration, for improvements in the present or targeted results. Thus, wage incentive plans are designed to improve productivity and to secure better utilisation of human and material resources of the enterprise.

Advantages of Incentive Plans

Wage incentive schemes are considered beneficial to both employers and employees in the following ways:

a) Before introducing an incentive plan, scientific work-study is carried out. It helps to make improvements in workflow, work methods and man – machine relationship.

b) Wage incentive plans provide an opportunity for hard-working and ambitious workers to earn more.

c) Employees are encouraged to become innovative. They think and involve more efficient ways of doing work. Moreover, they bring to the notice of management wasteful practices and problems that retard productivity.

d) Incentive plans help to improve discipline and industrial relations. These plans are useful in minimising absenteeism, accidents, and go-slow. This is because workers have an interest in increasing productivity.

e) The costs of supervision are reduced, as workers themselves are motivated to work hard and improve performance so as to earn monetary rewards.

f) A spirit of mutual co-operation and team-work is created among workers. As their activities are interdependent, any obstruction on the part of a worker can affect output and rewards.

g) Wage incentives are a sound technique of improving productivity. Workers are likely to work at their best when they are offered monetary rewards for good performance.

Limitations of Incentive Plans

Wage incentive schemes suffer from the following limitations: -

(a) In the absence of a ceiling on incentive earnings, some workers may overwork and thereby spoil their health.

(b) In order to maximise output, workers may sacrifice quality unless strict check or inspection is maintained.

(c) Once an incentive plan is introduced, management may face resistance while revising standards and rates due to changes in technology, methods, machinery and materials.

(d) Strict vigilance becomes necessary to ensure that workers do not disregard safety regulations.

(e) Introduction and administration of incentive plans increase the cost and time of clerical work.

(f) Whenever production flow is disrupted due to the fault of management, workers insist on compensation.

(g) Jealousy and conflicts among workers may arise when some workers earn more than others.

Types of Incentive Plans

1. Time-based Individual Incentive Schemes2. Output based Individual Incentive Schemes

Merits and Limitations of Individual Incentive Plans

One important advantage of incentive plans is that they motivate employees to show superior performance. Employees are induced to produce more and earn more. Increased earnings would help employees to improve their standard of living. The other benefits of incentive plans are better utilisation of equipment, reduced supervision, reduced scrap, reduced lost time, reduced absenteeism and turnover. All these would, in the end, result in the reduction of total as well as unit cost of production.

However on the flip side, in an attempt to produce more, employees may sacrifice quality, put resources to extravagant use and rush up everything leading to increased accidents. Employees often have inflated ideas about their performance levels, which translate to unrealistic expectations about rewards as well. When they fail to receive appropriate performance ratings, they do not hesitate to turn the tables against management. In the end, many employees may feel that their rewards are not closely linked to their performance.

Group or Team-based Incentive Plans

Team-based incentive plans reward all team members equally based on overall performance of the team members. Performance is evaluated using an objective standard. As in individual plans, payments team members may be made in the form of cash bonus or in the form of non-cash rewards such as pleasure trips, time off or luxury items. Team-based incentives foster cohesiveness among team members. They can motivate group members to behave and think as a unit rather than as competing individuals. Also it is easy to measure the overall performance of the entire team.

Organisation-wide Incentive Plans

The biggest disadvantage of individual or group incentive plans is that the competition can lead to withholding information or resources, political gamesmanship, not helping others, and even sabotaging the work of others. To avoid the problems arising out of inter-individual and inter-group competition, some firms prefer to use organization-wide incentive plans. Organisation-wide incentive plans reward employees on the basis of the success of the organisation over a specified time period. These plans seek to promote a culture of ownership by developing a sense of belongingness, co-operation and teamwork among all employees. There are three basic types of organisation-wide incentive plans: -

(a) Profit-sharing

(b) Co-partnership

(c) Gain-sharing

(d) Employee Stock Option Plan. (ESOP)

The Minimum Wages Act, 1948

·Object of the Act

To provide for fixing minimum rates of wages in certain employments.

Fixation of Minimum Rates of Wages:

The appropriate government to fix minimum rates of wages. The employees employed in para 1 or B of Schedule either at 2 or either part of notification u/s 27.

To make review at such intervals not exceeding five years the minimum rates and revise the minimum rates.

Government can also Fix Minimum Wages for:

Time work

Piecework at piece rate.

Piecework for the purpose of securing to such employees on a timework basis.

Overtime work done by employees for piece work or time rate workers.

Sec. 3

Minimum Rates of Wages

Such as basic rates of wages, etc. Variable DA and Value of other concessions, etc.

Sec. 4

Procedure for Fixing and Revising Minimum Rates of Wages

Appointing Committee, issuing Notification, etc.

Sec. 5

Overtime

· To be fixed by the hour, by the day or by such a longer wage-period works on any day in excess of the number of hours constituting normal working day.

· Payment for every hour or for part of an hour so worked in excess at the overtime rate double of the ordinary rate of (1½ times or for agriculture labour).

Sec. 5

Composition of Committee

Representation of employer and employee in schedule. Employer in equal number and independent persons not exceeding 1/3rd or its total number. One such person to be appointed by the Chairman.

Sec. 9

Payment of Minimum Rates of Wages

Employer to pay to every employee engaged in schedule employment at a rate not less than minimum rate of wages as fixed by Notification by not making deduction other than prescribed.

Sec. 12

Fixing Hours for Normal Working

· Shall constitute a normal working day inclusive of one or more specified intervals.

· To provide for a day of rest in every period of seven days with remuneration.

· To provide for payment for work on a day of rest at a rate not less than the overtime rate. Sec. 13

· Wages of workers who work for less than normal working days same as otherwise hereinafter provided, be entitled to receive wages in respect of work done by him on that day as if he had worked for a full normal working day.

Sec. 15

Wages for Two Class of Work

Where an employee does two or more classes of work to each of which a different minimum rate of wages is applicable, wages at not less than the minimum rate in respect of each such class.

Sec. 16

Minimum Time Rate Wages for Piece Work

Not less than minimum rates wages as fixed.

Sec. 17

Claims by Employees

· To be filed by before authority constituted under the Act within 6 months.

· Compensation up to 10 times on under-payment or non-payment of wages.

Sec. 16

Maintenance of Registers and Records

· Register of Fines – Form I Rule 21(4).

· Annual Returns – Form III Rule 21 (4-A).

· Register for Overtime – Form IV Rule 25.

· Register of Wages–Form X, Wages slip–Form XI, Muster Roll–Form V Rule 26.

· Representation of Register – for three years Rule 26-A.

Sec. 18

Penalties

PENALTIES Offence Punishment

Sec. 20For paying less than minimum rates of wages.

Imprisonment up to 6 months or with fine up to Rs.500/- .

For contravention of any provisions pertaining to fixing hours for normal working day etc.

Imprisonment up to 6 months or with fine up to Rs.500/-.

Payment of Wages Act, 1936

Applicability of Act

Factory/ industrial establishment

Tramway service or motor transport service engaged in carrying passengers or good or both by road for hire or reward

Air transport service, Dock, Wharf or Jetty

Inland vessel, mechanically propelled

Mine, quarry or oil-field Plantation

Workshops or other similar establishments

Object of the Act

To regulate the payment of wages of certain classes of employed persons.

Coverage of Employees

Drawing average wage up to Rs.10000 p.m. as amended w.e.f. 6.9.05.

Time of Payment of Wages

The wages of every person employed be paid. When less than 1000 persons are employed, wages shall be paid before the expiry of the 7th day of the following month. When more than 1000 workers, before the expiry of the 10th day of the following month.

Sec. 5

Wages to be Paid in Current Coins or Currency Notes

· All wages shall be paid in current coins or currency notes or in both.

· After obtaining the authorization, either by cheque or by crediting the wages to employee’s bank account.

Sec. 6

Deduction made from Wages

Deductions such as, fine, deduction for amenities and services supplied by the employer, advances paid, over payment of wages, loan, granted for house-building or other purposes, income tax payable, in pursuance of the order of the Court, PF contributions, co-operative societies, premium for Life Insurance, contribution to any fund constituted by employer or a trade union, recovery of losses, ESI contributions etc.

Sec. 7

Fines as Prescribed

· Not to be imposed unless the employer is given an opportunity to show cause.

· To be recorded in the register.

Sec. 8

Deduction for Absence from Duties for Unauthorised Absence

· Absence for whole or any part of the day.

· If ten or more persons remain absent without reasonable cause, deduction of wages up to 8 days.

Sec. 9

Deduction for Damage or Loss

For default or negligence of an employee resulting in loss, Show Cause notice has to be given to the employee.

Sec. 10

Deductions for Service Rendered

When accommodation amenity or service has been accepted by the employee.

Sec. 17B

Lay off & Payment of Compensation – Conditions for Laying off

Failure, refusal or inability of an employer to provide work due to:

· Shortage of coal, power or raw material

· Accumulation of stocks

· Breakdown of machinery

· Natural calamity

Sec. 25-C

Prior Permission for Lay off

When there are more than 100 workmen during preceding 12 months.

Sec. 25-M

Lay off Compensation

Payment of wages except for intervening weekly holiday compensation 50% of total or basic wages and DA for a period of lay off up to maximum 45 days in a year.

Sec. 25-C

Prior Permission by the Government for Retrenchment

· When there are more than 100 (in UP 300 or more) workmen during preceding 12 months.

· Three months’ notice or wages thereto.

· Form QA.

· Compensation @ 15 days’ wages.

Sec. 25-N

Conditions of Service etc. to Remain Unchanged Under Certain Circumstances during Pendency of Proceedings

· Not to alter to the prejudice of workmen concerned the condition of service.

· To seek express permission of the concerned authority by paying one month’s wages on dismissal, discharge or punish a protected workman connected with the dispute.

· To seek approval of the authority by paying one month’s wages before altering condition of service, dismissing or discharging or punishing a workman.

Sec. 33

Retrenchment of Workmen- Compensation & Conditions

· Workman must have worked for 240 days.

· Retrenchment compensation @ 15 days’ wages for every completed year to be calculated at last drawn wages.

· One month’s notice or wages in lieu thereof.

· Reasons for retrenchment.

· Complying with principle of ‘last come first go’.

· Sending Form P to Labour Authorities.

Conditions of Service etc. to Remain Unchanged under Certain Circumstances during Pendency of Proceedings

· Not to alter to the prejudice of workmen concerned the condition of service.

· To seek express permission of the concerned authority by paying one month’s wages on dismissal, discharge or punish a protected workman connected with the dispute.

· To seek approval of the authority by paying one month’s wages before altering condition of service, dismissing or discharging or punishing a workman.

Sec.33

Payment of Bonus Act, 1965

Applicability of Act

Every factory wherein 10 or more persons are employed with the aid of power or an establishment in which 20 or more persons are employed without the aid of power on any day during an accounting year.

Establishment

Establishment includes departments, undertakings and branches, etc.

Components of Bonus

Salary or wages includes dearness allowance but no other allowances e.g. overtime, house rent, incentive or commission.

Sec. 2 (21)

Separate Establishment

If profit and loss accounts are prepared and maintained in respect of any such department or undertaking or branch, then such department or undertaking or branch is treated as a separate establishment.

Sec. 3

Computation of Gross Profit

For banking company, as per First Schedule. Others, as per Second Schedule.

Sec. 4

Computation of Available Surplus

Income tax and direct taxes as payable. Depreciation as per section 32 of Income Tax Act. Development rebate, investment or development allowance.

Sec. 5

Eligibility of Bonus

An employee will be entitled only when he has worked for 30 working days in that year.

Sec. 8

Disqualification & Deduction of Bonus

On dismissal of an employee for:

· Fraud; or

· Riotous or violent behavior while on the premises of the establishment; or

· Theft, misappropriation or sabotage of any property of the establishment or

· Misconduct of causing financial loss to the employer to the extent that bonus can be deducted for that year.

Secs. 9 & 18

Payment of Minimum Bonus

8.33% of the salary or Rs.100 (on completion of 5 years after 1st Accounting year, even if there is no profit).

Sec. 10

Eligible Employees

· Employees drawing wages up to Rs.3500 per month or less.

· For calculation purposes, Rs.2500 per month maximum will be taken even if an employee is drawing up to Rs.3500 per month.

Sec. 12

Note: The proposal to enhance the existing ceiling of Rs.3500 is under active consideration by the Govt.

Set-off and Set-on

As per Schedule IV

Sec. 15

Time Limit for Payment of Bonus

Within 8 months from the close of accounting year.

Sec. 19

Maintenance of Registers and Records, etc.

· A register showing the computation of the allocable surplus referred to in clause (4) of section 2, in form A.

· A register showing the set-on and set-off of the allocable surplus, under section 15, in form B.

· A register showing the details of the amount of bonus due to each of the employees, the deductions under section 17 and 18 and the amount actually disbursed, in form C.

Sec. 26, Rule 4

Act not applicable to certain employees of LIC, General Insurance, Dock Yards, Red Cross, Universities & Educational Institutions, Chambers of Commerce, Social Welfare Institutions, Building Contractors, etc.

Sec.32.

Penalty

PenaltiesFor contravention of any provision of the Act or the Rule

Up to 6 months or with fine up to Rs.1000. Sec.28

Employees Provident Funds & Misc. Provisions Act, 1952 & the Schemes

An Act to provide for the institution of provident funds, family pension fund and deposit-linked insurance fund for employees in factories and other establishments. It extends to the whole of India except the State of Jammu and Kashmir.ApplicabilitySubject to the provisions contained in section 16, it applies to the following: -a) To every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed, andb) To any other establishment employing twenty or more persons or class of such establishments which the Central Government may, by notification in the Official Gazette, specify in this behalf, provided that the Central Government may, after giving not less than two months' notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to any establishment employing such number of persons less than fifty as may be specified in the notification.c) The Central Provident Fund Commissioner, whether on an application made to him in this behalf or otherwise, that the employer and the majority of employees in relation to any establishment have agreed that the provisions of this Act should be made applicable to the establishment, he may, by notification in the Official Gazette, apply the provisions of this Act to that establishment on and from the date of such agreement or from any subsequent date specified in such agreement.(d) An establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below twenty.Important Definitionsa) Appropriate Government means, in relation to an establishment belonging to, or under the control of, the Central Government or in relation to an establishment connected with a railway company, a major port, a mine or an oil field or a controlled industry, or in relation to an establishment having departments or branches in more than one State, the Central Government; and in relation to any other establishment, the State Government.b) Authorised Officer means the Central Provident Fund Commissioner, Additional Central Provident Fund Commissioner, Deputy Provident Fund Commissioner, Regional Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette;

c) Basic Wages means all emoluments which are earned by an employee while on duty or 6*[ on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include(i) The cash value of any food concession;(ii) Any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;(iii) Any presents made by the employer;d) Contribution means a contribution payable in respect of a member under a Scheme [or the contribution payable in respect of an employee to whom the Insurance Scheme applies];e) Controlled Industry means any industry the control of which by the Union has been declared by a Central Act to be expedient in the public interest;f) Employer means:(i) In relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and(ii) In relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent;]g) Employee means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment, and who gets his wages directly or indirectly from the employer, and includes any person employed by or through a contractor in or in connection with the work of the establishment, engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment.h) Exempted Employee means an employee to whom a Scheme or the Insurance Scheme, as the case may be would, but for the exemption granted under section 17, have applied;i) Factory means any premises, including the precincts thereof, in any part of which a manufacturing process is being carried on or is ordinarily so carried on, whether with the aid of power or without the aid of power.j) Family Pension Fund means the Family Pension Fund established under the Family Pension Scheme;k) Recovery Officer means any officer of the Central Government, State Government or the Board of Trustees constituted under section 5A, who may be authorised by the Central Government, by notification in the Official Gazette, to exercise the powers of a Recovery Officer under this Act;]

Eligibility

Any person who is employed for work of an establishment or employed through contractor in or in connection with the work of an establishment.

Applicability

Every establishment, which is a factory, engaged in any industry specified in Schedule 1 and in which 20 or more persons are employed.

Any other establishment employing 20 or more persons which Central Government may, by notification, specify in this behalf.

Any establishment employing even less than 20 persons can be covered voluntarily u/s 1(4) of the Act.

Payment of Contribution

The employer shall pay the contribution payable to the EPF, EDLI and Employees’ Pension Scheme in respect of the member of the Employees’ Pension Fund employed by him directly by or through a contractor.

It shall be the responsibility of the principal employer to pay the contributions payable to the EPF, DLI and Employees’ Pension Fund by himself in respect of the employees directly employed by him and also in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor.

Benefits

Employees covered enjoy a benefit of Social Security in the form of an un-attachable and un-withdrawable (except in severely restricted circumstances like buying house, marriage/education, etc.) financial nest egg to which employees and employers contribute equally throughout the covered persons’ employment. This sum is payable normally on retirement or death. Other Benefits include Employees’ Pension Scheme and Employees’ Deposit Linked Insurance Scheme.

Employees’ State Insurance Act, 1948 & the Scheme

An Act to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto.Important Aspects(a) It extends to the whole of India.(b) It applies, in the first instance, to all factories including factories belonging to the Government) other than seasonal factories. However nothing contained in this sub-section shall apply to a factory or establishment belonging to or under the control of the Government whose employees are otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act.(c) The appropriate Government may, in consultation with the Corporation and where the appropriate Government is a State Government, with the approval of the Central Government], after giving six months' notice of its intention of so doing by notification in the Official Gazette, extend the provisions of this Act or any of them, to any other establishment or class of establishments, industrial, commercial, agricultural or otherwise. (d) Provided that where the provisions of this Act have been brought into force in any part of a State, the said provisions shall stand extended to any such establishment or class of establishments within that part if the provisions have already been extended to similar establishment or class of establishments in another part of that State. (e) A factory or an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under this Act or the manufacturing process therein ceases to be carried on with the aid of power.Important Definitions

(a) Appropriate Government means, in respect of establishments under the control of the Central Government or a railway administration or a major port or a mine or oil-field, the Central Government, and in all other cases, the State Government. (b) Contribution means the sum of money payable to the Corporation by the principal employer in respect of an employee and includes any amount payable by or on behalf of the employee in accordance with the provisions of this Act.

1. Dependant means any of the following relatives of a deceased insured person, namely:-2. i)A widow, a minor legitimate or adopted son, an unmarried legitimate and adopted daughter.3. ii)A widowed mother;4. iii)If wholly dependent on the earnings of the insured person at the time of his

death, a legitimate or adopted son or daughter who has attained the age of eighteen years and is infirm;

5. iv)If wholly or in part dependent on the earnings of the insured person at the time of his death,6.

A parent other than a widowed mother, A minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or adopted

or illegitimate if married and a minor or if widowed and a minor, A minor brother or an unmarried sister or a widowed sister if a minor. A widowed daughter-in-law. A minor child of a pre-deceased son. A minor child of a pre-deceased daughter where no parent of the child is alive. A paternal grand-parent if no parent of the insured person is alive.

(d) Employment Injury means a personal injury to an employee caused by accident or an occupational disease arising out of and in the course of his employment, being an insurable employment, whether the accident occurs or the occupational disease is contracted within or outside the territorial limits of India;e) Family means all or any of the following relatives of an insured person, namely:(i) A spouse(ii) A minor legitimate or adopted child dependent upon the insured person(iii) A child who is wholly dependent on the earnings of the insured person and who is-(a) Receiving education, till he or she attains the age of twenty-one years(b) An unmarried daughter(c) A child who is infirm by reason of any physical or mental abnormality or injury and is wholly dependent on the earnings of the insured person, so long as the infirmity continues.(d) Dependent parents

Applicability of the Act & Scheme

It is extended in area-wise to factories using power and employing 10 or more persons and to non-power using manufacturing units and establishments employing 20 or more person up to Rs. 7500/- per month w.e.f. 1.4.2004. It has also been extend-ed upon shops, hotels, restaurants, roads motor transport undertakings, equipment maintenance staff in the hospitals.

Coverage of Employees

Drawing wages up to Rs. 15000/- per month engaged either directly or thru’ contractor.

Rate of Contribution of the wages

Employers’ 4.75%

Employees’ 1.75%

The ESI Scheme Today

No. of implemented Centres 677 No. of Employers covered 2.38 lacs No. of Insured Persons 85 lacs No. of Beneficiaries 330 lacs No. of Regional Offices/SRO’s 26 No. of ESI Hospitals/Annexes 183 No. of ESI Dispensaries 1453 No. of Panel Clinics 2950

Manner and Time Limit for Making Payment of Contribution

The total amount of contribution (employee’s share and employer’s share) is to be deposited with the authorized bank through a challan in the prescribed form in quadruplicate on ore before 21st

of month following the calendar month in which the wages fall due.

Benefits to the Employees under the Act

Medical, sickness, extended sickness for certain diseases, enhanced sickness, disablement benefits, dependents maternity, besides funeral expenses, rehabilitation allowance, medical benefit to insured person and his or her spouse.

Wages for ESI Contributions

Registers/files to be maintained by the employers

To be Deemed as Wages

Basic pay Dearness allowance House rent allowance City compensatory allowance Overtime wages (but not to be taken into account for determining the coverage of an employee) Payment for day of rest Production incentive Bonus other than statutory bonus Night shift allowance Heat, gas & dust allowance

Payment for unsubstituted holidays Meal/food allowance Suspension allowance Lay off compensation Children’s education allowance (not being reimbursement for actual tuition fee)

NOT to be deemed as Wages

Contribution paid by the employer to any pension/provident fund or under ESI Act. Sum paid to defray special expenses entailed by the nature of employment – Daily allowance

paid for the period spent on tour. Gratuity payable on discharge. Pay in lieu of notice of retrenchment compensation. Benefits paid under the ESI Scheme. Encashment of leave. Payment of Inam, which does not form part of the terms of employment. Washing allowance for livery. Conveyance Amount towards reimbursement for duty related journey.

Contribution Period

1st April to 30th September. 1st October to 31st March.

If the person joined insurance employment for the first time, say on 5 th January, his first contribution period will be from 5th January to 31st March and his corresponding first benefit will be from 5th October to 31st December.

Penalties

Different punishments have been prescribed for different types of offences in terms of Section 85: (I) (six months imprisonment and fine Rs.5000), (ii) (one year imprisonment and fine), and 85-A: (five years imprisonment and not less to 2 years) and 85-C (2) of the ESI Act, which are self-explanatory. Besides these provisions, action also can be taken under section 406 of the IPC in cases where an employer deducts contributions from the wages of his employees but does not pay the same to the corporation, which amounts to criminal breach of trust.