Introduction

In India’s fast-evolving business environment, understanding the complexities of legal compliance is essential. One of the fundamental regulations in this context is the Shop and Establishment Act, which serves as the cornerstone for many businesses by addressing crucial aspects of employment and commercial activities. In this article, we will take a closer look at the Shops and Establishments Act, examining its varied applications across different states while also outlining the online process for obtaining this important license.

What is the Shops and Establishments Act?

The Shops and Establishments Act is a state-specific legislation in India that governs working conditions and employment terms within commercial establishments. It covers key areas such as wages, working hours, leave entitlements, and other service conditions. Fundamentally, the Act protects the rights of both employers and employees, ensuring a fair and supportive work environment.

Different Shops and Establishments Acts Across States

India’s diversity is reflected in its legal framework, including the Shops and Establishments Acts. Each state adapts its regulations to meet the specific needs of businesses operating within its jurisdiction.

Maharashtra Shops and Establishment Act

Karnataka Shops and Establishment Act

Businesses in Karnataka must comply with the Karnataka Shops and Establishment Act, which outlines state-specific regulations on aspects like opening and closing hours, holidays, and leave policies. This proactive approach fosters a business-friendly environment while prioritizing employee welfare.

Delhi Shops and Establishment Act

Kerala Shops and Establishment Act

Kerala, celebrated for its high literacy and progressive social policies, enforces the Kerala Shops and Establishment Act, underscoring the state’s commitment to workers’ rights. This Act addresses areas like minimum wages, working hours, and leave entitlements, reflecting Kerala’s emphasis on social welfare through its comprehensive business regulations.

Shops and Establishments Act Registration Process

The registration process under the Shops and Establishments Act consists of several detailed steps essential for ensuring that businesses operate both legally and ethically.

Shops and Establishments Act License Fees

The fees for obtaining a Shop and Establishment Act license are generally affordable, encouraging compliance across businesses of all sizes. Fee structures vary significantly by state and are often determined by factors like the number of employees and the type of business.

Renewing Shops and Establishments Act Registration

Shop and Establishment Act registration is not a one-time requirement but an ongoing obligation for businesses. Keeping your registration current is just as important as the initial registration. Renewal is essential to uphold legal compliance, maintain ethical employment standards, and ensure smooth business operations.

Other Considerations for Renewals

Timing is a critical factor in the renewal process. Businesses must stay aware of the expiration date of their Shop and Establishment Act registration and submit renewal applications well in advance to prevent any compliance lapses. Delaying renewal can lead to penalties, legal complications, and possible disruptions in business operations.

Benefits of Timely Renewal

• Ongoing Legal Compliance: Renewing on time ensures your business remains within legal boundaries, helping you avoid fines and legal issues.
• Smooth Business Operations: A current registration allows for uninterrupted business activities, which is crucial for sectors like retail, hospitality, and service industries that rely on daily operations.
• Employee Confidence: Timely renewal demonstrates the business’s commitment to following labour laws, fostering greater employee morale and job satisfaction.
• Enhanced Reputation: Meeting renewal deadlines reflects professionalism and dependability, improving your business’s standing with clients, partners, and other stakeholders

Conclusion

Comprehending and adhering to the Shops and Establishments Act is crucial for businesses operating in India. This legislation plays a pivotal role in ensuring that businesses are legally compliant and provides a framework for maintaining a healthy and balanced work environment. By understanding the specific regulations applicable in each state, businesses can ensure that they meet the necessary requirements for operation and create a workplace that is both ethical and lawful. Furthermore, diligent attention to the registration and renewal process under this Act helps businesses avoid potential legal complications, fines, or disruptions to operations. It is, therefore, imperative for businesses to stay informed about the ever-evolving legal landscape in their respective states and remain committed to upholding the standards set by the Shops and Establishments Act.

During the COVID-19 pandemic, the Employees’ Provident Fund Organisation (EPFO) faced a surge in advance withdrawal requests and managed thousands of claims each week. To address this issue, the EPFO introduced its first fully automated claim settlement system, which processes claims without human intervention. This automation greatly relieved fund members by settling around 54 percent of COVID-19-related claims through the auto mode and cutting the settlement time from 10 days to just 3 days. The EPFO initially introduced this automated system specifically for illness-related advance withdrawals under para 68J of the scheme. Para 68J of the Employees’ Provident Fund Scheme, 1952, lets members and their family members advance withdraw Provident Fund for illness-related reasons.

To keep its members informed and up-to-date, the EPFO expanded the auto claim settlement system to cover education and marriage under Rule 68K, and housing under Rule 68B. The EPFO announced this expansion in a press release on May 13, 2024. This update allows members to make advance withdrawals for marriage or education for themselves and their children. Rule 68B permits advance withdrawals from the PF account to buy or construct a house. Additionally, the EPFO increased the maximum amount for auto claim settlements from ₹50,000 to ₹1,00,000 to enhance the quality of life for millions of fund members nationwide.

In the financial year 2023-24, the EPFO settled approximately 4.45 crore claims, with over 60% (2.84 crore) being advance claims. Out of these advance claims, around 89.52 lakh were processed using the auto mode.

Without the auto claim settlement system, members usually waited 10-20 days for the withdrawal amount to reach their bank accounts. The auto mode significantly speeds up this process. To use the system, members must have a Universal Account Number (UAN), an Aadhar card, a PAN card, and a bank account linked to their UAN. Members then access the EPFO online portal, complete claim form 31C, and specify the reason for the advance withdrawal.

Advance claims are settled within 3 days of receipt by the EPFO. This method is much faster than the traditional process, which involves verifying the EPF member’s eligibility, reviewing submitted documents, checking KYC status, and confirming bank account details. The auto mode, which operates without human intervention, automatically processes claims that meet KYC, eligibility, and bank validation criteria using IT tools. If a claim isn’t validated and isn’t returned or rejected, it indicates that it has been sent for a second level of scrutiny and approval.

What is “Wages”?

Wage is the monetary compensation or remuneration paid by an employer to employees in exchange for work done. Employers may calculate wage as a fixed amount for each task completed, or at an hourly/daily rate, based on easily measurable quantities of work performed.

Wages encompass all remunerations expressed in terms of money, encompassing the following:

• Amounts payable under the terms of employment,
• Payments under any award, settlement, or court order,
• Compensation for overtime work or for holidays/leave periods,
• Payments due on account of termination of employment

Wages does “not include” the following Payments:

• Bonus, which does not constitute part of the remuneration,
• Value of any house accommodation, provision of light, water, medical assistance, etc.,
• Any travel concession,
• Contributions payable by the employer to any pension or provident fund,
• Any sum paid to cover special expenses incurred as a requirement of employment,
• Gratuity payable upon termination of employment.

Objectives:

• Ensure the regulation of wage payments to a specific class of workers in the industry, preventing any wrongful deductions except those specified in the Act.
• Establish rules for determining the wage period, timing, and method of wage payment.
• Protect the rights of workers covered under this Act.

Applicability:

The Act applies to all individuals employed, whether directly or through contractors, in factories or specified industrial and other establishments.

The Central Government enforces the Act in Railways, Mines, Oilfields, and air transport services.

State Governments enforce the Act in all other establishments, including factories.

The Act does not apply to individuals earning Rs. 24,000/- or more per month.

Salient features of the Act

Obligations of Employers:

Every employer must pay wages to all the employees they employ. Additionally, any person designated, held responsible by the employer, or nominated by them must also ensure these payments

Wage Period:

The person responsible for wage payments must establish specific periods for which wages are payable, and no wage period should exceed one month.

Time and Mode of Payment of Wages:

Establishments with more than 1,000 employees must pay wages by the 10th day of the following month. All other employers must pay wages by the 7th day of the following month.

Employers must pay wages in current currency notes (cash) or through bank transfers.

Deductions from Wages:

Employers must ensure that wages are paid to all employees without any unauthorized deductions, except those permitted by this Act.

Deductions from wages may include:

• Fines
• Absence from duty
• Damage to or loss of goods, including loss of money, when such damage or loss is directly due to the employee’s neglect or default
• Recovery of advances or loans and the interest due on them
• Adjustment for over-payment of wages
• Payments made by the employee to the employer or their agent, which are also considered deductions from wages.

Deductions do not include the following penalties, provided the penalties conform to the requirements specified by the State Government:

• Withholding of increments or promotions
• Demotion to a lower post
• Suspension

 Compliance Requirements:

A. Maintenance of Registers:

Employers are required to maintain registers and records that include the following details:

Information about the persons employed

Work performed by the employees

Wages paid to employees and deductions made from their wages

All these registers must be preserved for a period of three years.

B. Display of Notice of Abstracts:

All employers must display a notice containing summaries of this Act and its rules in both English and the language spoken by the majority of the factory employees. This notice should include:

A list of acts and omissions approved under Rule 12

Rates of wages payable to employees (excluding those in supervisory or managerial positions)

Penalties for Offences under the Act:

If an employer fails to maintain the required registers, willfully refuses to provide information or returns, or willfully provides false information, authorities may impose fines up to Rs. 1,500, extending to Rs. 7,500.

Additionally, failure to pay wages by the specified date may result in an additional fine of up to Rs. 750 per day.

Undisbursed Wages in the Event of an Employee’s Death:

If wages cannot be paid due to the death of an employee or lack of information about their whereabouts, employers must pay the amount to the person nominated by the employee. If no nomination exists, the amount must be deposited with the prescribed authority.

 Conclusion

The act has established a range of rules and regulations to enhance and ensure efficient functioning within the industry. It empowers workers to perform their duties without worries about delayed payments or salary issues. The legislation sets the foundation for employees to work with dignity, bolstered by established mechanisms. Its provisions build trust between employers and employees, encouraging optimal productivity through motivation. The concepts of wage payment and deductions under the code are vital for industry operations, ensuring desired outcomes and providing benefits to employees.

A contractor employs a contract laborer, whether or not acknowledged by the main employer, to work in a company for a specified duration. These laborers, who are indirectly employed workers, typically receive compensation through daily wages or a monthly aggregate. The contractor is responsible for recruiting, supervising, and compensating them.

The practice of contract labor has long prevailed in India, both pre- and post-independence. Numerous commissions, committees, and even the Ministry of Labour have extensively scrutinized the working conditions of contract laborers.

Research indicates that contract laborers frequently endure poor economic conditions and face job insecurity due to the casual nature of their employment. Moreover, employers and contractors historically exploited them in the absence of regulations. Consequently, to combat this issue, the government enacted the Contract Labour (Regulation and Abolition) Act, 1970, which came into effect on February 10, 1971. This Act aims to regulate contract labor employment and safeguard them from exploitation nationwide.

The primary goals and scope of the Act include:

• Preventing the exploitation of contract labourers
• Ensuring adequate working conditions
• Establishing rules and regulations for registering establishments that employ contract labour
• Outlining requirements and procedures for licensing contracts

Who is covered by the Act?

The Act will be applicable to establishments meeting the following criteria:

– Any establishment where 50 or more workers are employed or were engaged as contract labour during any day within the last 12 months.

– Any contractor who employs or has employed 50 or more workers as contract labour on any day within the preceding 12 months.

Establishment to which the Act does not apply.

The Act excludes establishments engaged in casual or intermittent work, as well as seasonal work lasting less than 60 days. Intermittent work refers to activities performed for fewer than 120 days in the preceding 12 months.

Main Definitions.

Principle Employer

The Principal Employer encompasses various roles, including the head of any government or local authority, the proprietor or occupant, or the Manager of a factory as per the Factories Act. Additionally, it includes the Owner, Agent, or Manager of a mine, or any individual accountable for supervising and controlling the establishment.

Contractor

The term “contractor” pertains to any individual who provides contract labour for tasks at an establishment, which may also encompass subcontractors. Contractors falling under the Act’s purview are required to obtain a license as mandated by the Act.

Establishment and composition of the Advisory Boards.

The Contract Labour (Regulation and Abolition) Act, 1970 mandates the formation of central and state Advisory Boards. These Boards are tasked with advising the central and state governments, respectively, on issues related to the Act’s administration and performing functions designated by the Act.

The Central Advisory Board

The Central Government establishes the Central Advisory Board, which includes representatives from various sectors such as government, railways, coal industry, mining, contractors, workers, and other relevant sectors as determined by the government. Additionally, the Central Government may appoint eleven to seventeen members to the Advisory Board. Moreover, the number of members from the workers’ side must not be fewer than those representing the principal employer and contractors. The Board also includes a chairman appointed by the Central Government and the Chief Labour Commissioner.

The State Advisory Board.

The State Advisory Board is established by the respective State Governments and comprises a chairman appointed by the government. Additionally, in the absence of the Labour Commissioner of that State, the State Government will designate another officer to serve on the Board.

In addition to these individuals, the State government has the authority to appoint nine to eleven members representing various sectors, such as government, industry, contractors, workers, and other sectors chosen by the State government.

Furthermore, the number of members representing workers must not be fewer than those representing the principal employer and contractors. Additionally, both the central and State Advisory Boards are empowered to establish committees as deemed necessary under the Act. Moreover, these committees will fulfill their duties and responsibilities in accordance with the provisions of the Act.

Registration of Establishment hiring contract labour.

Every establishment intending to employ contract labour must acquire a registration certificate from the appropriate government authority. Additionally, the registration process involves submitting Form No. 1 along with the prescribed registration fee receipt to the Registration Authority. Furthermore, upon thoroughly examining and verifying the application, the Registering Authority may register the establishment and issue a registration certificate in Form II. This certificate will also include essential details such as the establishment’s name and address, the maximum number of contract workers to be hired, the nature of the business, and any other relevant particulars.

The Responsibilities of the Employer.

The employer must adhere to the following duties:

1. Registering the establishment.
2. Employing contract labour exclusively through licensed contractors.
3. Posting a notice in both English and the local language, displaying the name and address of the Inspector, along with wage details and payment dates.
4. Ensuring that the contractor pays wages according to government-set standards or, in the absence of such standards, provides fair wages, as determined by the Commissioner of Labour.

Licensing of Contractors.

Any contractor intending to engage in work using contract labour must obtain a license from the Licensing Authority. This requirement applies to contractors who employ fifty or more workers on any day of the month.

The Procedure for obtaining a License.

The license is issued under Sec.12 of the Act by the licensing authority.

Contractors must submit an official request and application form to the Licensing Authority.

A security deposit must be deposited along with the application.

Conditions such as working hours, wage fixation, and amenities for contract labour are specified in the license.

The application form should include details about the establishment’s location, nature of work, and other relevant information.

The license remains valid for the specified period and can be renewed periodically by paying the relevant fee.

Provide the following facilities:

When employing 100 or more workers for a period of at least six months, establishments must provide a canteen for contract labour.

Separate urinals for men and women must be adequately provided.

Amenities such as drinking water, washing facilities, first aid, and a crèche are to be provided.

Various registers and records must be maintained appropriately.

A separate register of Contractors in Form XII should be maintained.

Annual returns must be filed to the licensing authority by February 15th of each year.

Responsibilities of the Contractor.

The contractor must seek approval from the Principal Employer.

Obtaining a license from the Licensing Authority is mandatory.

Monthly bills for payment to contract labour must be raised.

Maintenance of all relevant registers such as Muster Roll, Wage register, etc., is required.

Wages must be paid on or before the 7th of each month.

Wages should be disbursed in the presence of the employer’s representative.

Employment cards must be distributed to all workers three days before work commences.

Half-year returns in Form XXIV must be filed within 30 days from the close of each half-year period, i.e., June and December.

Penalties.

Individuals who breach any provision of the Act or its associated rules may face imprisonment for up to three months, a fine of One Thousand rupees, or both. Moreover, in cases of persistent violation, authorities may impose an additional fine of one hundred rupees per day for each day of contravention.

Shortcomings in the Act that need change.

The Contract Labour (Regulation and Abolition) Act, 1970 exhibits various shortcomings that require legislative attention to enhance implementation effectiveness.

The Act fails to distinguish between core and peripheral activities, resulting in poor enforcement.

The Act applies to establishments with 50 or more contract labourers, enabling establishments and contractors to evade responsibility by hiring fewer than 50 labourers.

Establishments exploit loopholes by obtaining licenses under different names; adopting a unified system for registration issuance and appointing a licensing authority in each state can address this issue

Principal employers often opt to pay penalties rather than comply with Act provisions due to inadequate penal provisions.

Extending education schemes to contract labourers is imperative, considering their predominantly unskilled, illiterate, and uninformed status regarding their rights.

The Act’s lack of direct or independent provisions for filing claims necessitates submitting them under the Payment of Wages Act or Minimum Wages Act, highlighting the need for their inclusion within the Act itself.

Conclusion.

The central government introduced the Contract Labour (Regulation and Abolition) Act, 1970 to safeguard contract labourers from exploitation by employers and contractors. The Act grants them specific rights and legal recourse to claim their rightful dues. However, legislative measures are essential to address existing deficiencies and enhance the provisions. Additionally, simplifying the Act for principal employers and contractors is imperative, along with incorporating provisions for improved safeguards and amenities for contract labourers.

With extensive experience in managing payroll and ensuring compliance with statutory regulations, Serve HR has successfully supported clients in meeting their contract labour needs. We proficiently address all aspects related to contract labour employment, and establishments have benefited from our expertise in this area. Our advanced cloud-based e-compliance portal simplifies these processes, providing organizations easy access to relevant information whenever needed.

Please note: –

Registration forms and number of employees differs from state to state.