Essential Labour Laws That Every Employee Should Know

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Labour laws play a significant role in protecting the rights of workers, trade unions and building a healthy relationship between the government and the workers, unorganized workers and organized workers, employers and employees, etc. It aims at creating awareness among the labourers about their rights such as working conditions, equality in terms of work and wages, maintaining healthy relations at the workplace, etc.

This article will cover the labour laws and the rights of employees in India.

Britishers first introduced Labour laws were in India, to protect the interest of British employers. However, during British colonialism, the Indian textile industry was tough to compete by the Britisher’s textile, therefore, the Factories Act was enacted in 1883 to make the Indian labour expensive. Thus, new labours laws such as the abolition of child labour, restriction of women’s night work, the introduction of eight hours of work, and overtime wages for working beyond working hours were introduced.

Right from the beginning the employee joins the company till the time of retirement, the employees are given certain rights under various laws.

Employment Agreements

Every employee signs an employment agreement at the time of joining the company. This employment agreement clearly states the employees’ rights and obligations,  the working hours, designation, number of leaves, granted, grounds of termination, and how to resolve the dispute in case of any conflict of interest or dispute or discrepancies.

Therefore, the employee should read the employment agreement carefully before signing it. Then they are clear about what is expected from him/her and negotiate and discuss it with the employer.

Rights during probation

Probation means a trial period during which a person’s character or ability is monitored to check the eligibility of the person while working. It is also known as the training period. Usually, the probation period is of six months, extending to an additional three months but cannot exceed more than two years.

The employee has the right to terminate the employee during the probation period on the ground of unsatisfactory work or unsuitability profile, by giving a prior notice of such termination.

However, if the reason for termination is other than unsatisfactory work then, the employee can ask for an inquiry.

Basic Rights

Having a clean and healthy working environment with proper ventilation, washroom, lighting facilities, clean drinking water, proper disposal of waste, etc, are the basic rights of the employees. The employer must ensure that these basic rights are provided to the employees.

These fundamental rights are laid down under the Factories Act. However, if the employer does not provide for any of these basic rights to its employees and as a result, the employees suffer any injury, then the employer will be liable to pay compensation to such employee as per the provision of the Employees Compensation Act.

Protection From Sexual Harassment

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 lays down the rules and guidelines to be followed by the companies to ensure a safe working environment and thereby prevent sexual harassment at the workplace.

This Act makes it mandatory for organizations or companies that have ten or more employees to create an Internal Complaints Committee, that will look into issues relating to sexual harassment. It also states how the committee will be constituted and who will preside over the committee.

The employees should be aware of this Act as it put forward what are the offences that constitute sexual harassment namely;

  • Physical contact and advances,
  • demand or request for sexual favours,
  • making sexually coloured marks,
  • showing pornography,
  • any other unwelcome physical, non-verbal, verbal conduct of sexual nature, etc.

The company should create a committee and educate the employees about these offences and the punishment for the commission of such offences.

However, many companies are not aware of this Act and those who are familiar with it are negligent in enforcing the Act.

Wages, Working Hours and Overtime

Another most essential law that every employee should be aware of is the Minimum Wages Act, 1948. This Act guarantees every employee to have a minimum wage which would help him/her to live a sustainable lifestyle with all the necessary amenities.

Article 23 of the Indian Constitution prohibits forced labour, i.e., causing a person to work below the minimum wage.

The Act lays down the criteria for determining a minimum wage, such as; type of employment, class of work done under that type of employment, location, age factor like children, adults, apprentice, etc.
Minimum wages also depend on the following factors namely; cost of living, region, working hours, type of work, and capacity of the employer to pay.


This is not enough, if you are a person who works overtime or works beyond office time, then you should be aware of what the Minimum Wages Act states in this regard. If a person works overtime, then such person should be paid for the number of hours, they have worked overtime. The rate of overtime work is fixed according to the Act or other applicable laws.

Every company gives at least one day of rest to its employees. If an employee works on his/her day of rest, then that work would be counted as overtime and the employee would be entitled to receive payment for the same.

However, if the employee works less than the normal working hours, he will still be paid for full working day wages. Nevertheless, the employee will not be paid if he/she does not work due to the employer’s failure to assign work to the employee or unwillingness to work.

The next important act is the Act of Equal Remuneration, 1976. This Act provides for equal wages for equal work irrespective of their gender or physical strength.

The Payment of Wages Act states that every employee should be given their remuneration when it’s due or in other words, promptly. However, suppose the employee does not receive the payment on time. In that case, such an employee can approach the labour commission or file a civil suit (if the salary is above Rs. 18,000).


An employee is eligible to receive a bonus in accordance with the Payment of Bonus Act, 1965. This Act states that any organization which is at least 5 years old and employs 20 or more employees in an accounting year (i.e., having a salary of at least Rs. 21,000 per month) is bound to give a bonus to its employees.
To be eligible to receive a bonus, the employee should have worked for more than 30 days in an accounting year.
To understand the criteria for receiving a bonus, the employee should understand the following scenario:

a) If the company is making a profit, the minimum bonus would be 8.33% and the maximum bonus would be 20% of 7000 or minimum wages (whichever is higher).
b) Productivity of the employee as stated under the agreement, a minimum bonus would be 8.33% and maximum bonus would be 20% of annual salary in that accounting year.

These benefits of bonus will not be given to employees who were dismissed from the service on the ground of fraud, stealing, or sabotage of any property belonging to the company, behaving violently on the company’s premises.


The Payment of Gratuity Act, 1972 covers the situations under which the employer gives a lump sum amount to their employee as a gratuity. In short, it is the employer’s way of complementing the employees for their work or services rendered.

The Act lays down the situation when the employee is given a gratuity amount namely;

  • Superannuation,
  • Inability to perform work due to disability,
  • Resignation,
  • Retirement or
  • Death.

The gratuity amount is not deducted from the employee’s salary. Instead, it is calculated depending upon the number of years the employee is engaged in the company (minimum 5 years) as 15 days salary for every year of the employee’s service.

For example:
Gratuity = Last month salary x 15 working days x Number of years of service
As per The Payment of Gratuity (Amendment) Act, 2018 the gratuity amount should not go beyond Rs. 20,00,000/-

However, the gratuity can be forfeited, due to employee misconduct where such act had caused financial loss to the company.

Provident Fund

The amount a person receives after retirement is called a provident fund. The Employee Provident Fund Organisation of India (EPFO) looks after the provident fund of all employees receiving salaries in India. Any organization that has more than 20 employees are obliged to register with EPFO.

The employer and employees contribute equally to the provident fund amount, i.e., 12 % of the employee’s salary is kept aside as a provident fund.

The provident fund can be withdrawn wholly or partially on the occurrence of the following events:

  • Medical expenses
  • Education expenses
  • Marriage,
  • House renovation or construction,
  • Home loan,
  • Immigration abroad or
  • Retirement.

However, the amount of withdrawal depends on the number of years the employee was engaged with the company. You cannot withdraw provident funds during employment. However, if you withdraw the provident fund before retirement or before five years of service, then that provident fund amount would be taxed.

So, what happens if you become unemployed before retirement?

For instance, if the company winds up or becomes bankrupt, then in such a situation, you can withdraw 75 % of your provident fund after 1 month of unemployment and the remaining 25% can be withdrawn after 2 months of unemployment. Nevertheless, if in the meantime, that person manages to get another job. In that case, 25% of the provident fund will be deposited to the new provident fund account.

If you do not wish to contribute to the provident fund scheme, you can opt-out of the scheme at the initial stage of employment. But, once you have started depositing for provident funds, then you have to continue with it. You cannot back out. So, make sure you opt-out earlier.

Having looked into the bonus, gratuity, and provident fund, let us now discuss the laws that provide for leaves that every employee should know.

Maternity Leaves

If you are a woman, you need to know the maternity leaves, the number of leaves granted, will be paid while you are on leave, and what are the maternity benefits granted to the employee. In India, the women’s laws relating to maternity pay for a woman are governed under the Maternity Benefits Act, 1961.

The Act states that a pregnant woman is granted 26 weeks of maternity leave along with 8 weeks for pre-natal leave. The maternity leave can also be granted to adoptive, surrogate, and commissioning mothers. But, the duration of leave varies.

The law clearly states that an employer cannot terminate a pregnant women’s service merely because of her pregnancy. Nevertheless, if the pregnant employee is terminated, then that person would still be eligible to receive maternity benefits.

The next critical point to remember is, that the employer cannot force or ask the female employee to join the service immediately within 6 weeks from the date of delivery or miscarriage. Even the female employee cannot work or join the company on her own immediately within the given six weeks.

These paid paternal leave and child care leave in private sector companies are at the discretion of the employer whether it is paid or unpaid.


The State legislation has made rules regarding the leave policy for the company. The employee should be given at least seven holidays for national and state festivals. Of which three are mandatory national holidays namely; Republic Day, Independence Day, and Gandhi Jayanti. Other holidays for festivals are at the discretion of the employer.

Now, let us discuss other leaves that an employee is given:

Casual leaves

This leave is granted for unforeseen circumstances or when there is something urgent. This leave can be used for medical purposes, in the absence of any sick leave. Usually, an employee is granted only three days per month of casual leave.

Privilege leave or earned leaves

When the employee has not used his/her previous year’s leaves, then his/her can enjoy the benefit of the previous year’s leave or such leave can be used in the following year. The employee can also use that leave if their sick leave is over. Such outstanding earned leave can also be encashed at the time of retirement.

Compensatory leave

When an employee has worked during their official off-day, then they can take compensatory leave.

Leave without pay

Additional leave taken by the employee, when their leave is over, then that employee’s salary will be deducted for each leave taken. However, it is also at the discretion of the employer to pay or not for such leave.


Many labour laws govern the rights of labourers, workers, and employees. The employees should be aware of their rights such as the right to have equal pay, leaves, working hours, a clean and healthy environment, maternity benefits, etc. The working atmosphere would not be pleasant or healthy unless the company implements the laws mentioned above. Remember, it always works two ways, if the employees are happy and satisfied at their workplace, the company would progress manifold.


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