This article is for educational and legal awareness purposes only. It does not constitute legal advice or solicitation. Please consult a qualified advocate for advice on specific legal matters.
Introduction
Indian labour law provides a framework of protections for employees against arbitrary termination, ensures social security through provident fund and gratuity, and mandates minimum bonus payments. The principal statutes governing these rights are the Industrial Disputes Act, 1947 (ID Act), the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), the Payment of Gratuity Act, 1972, and the Payment of Bonus Act, 1965. Additionally, the four new Labour Codes notified on 21 November 2025 are set to consolidate and modernise these laws.
This article explains the key protections available to employees, the procedures for claiming entitlements, and recent developments in labour law.
Retrenchment and Termination — Industrial Disputes Act, 1947
Section 25F — Conditions for Valid Retrenchment
No workman who has been in continuous service for at least one year may be retrenched unless the employer satisfies all three conditions:
- One month’s written notice stating the reasons for retrenchment, or wages in lieu of such notice
- Retrenchment compensation equal to 15 days’ average pay for every completed year of continuous service (service exceeding six months counts as a full year)
- Notice to the appropriate Government in the prescribed manner
Failure to comply with any of these conditions renders the retrenchment illegal.
Section 25G — Last Come, First Go (LIFO)
The employer must ordinarily retrench the workman who was last employed in that category. Departure from this principle is permissible only if reasons are recorded in writing.
Section 25H — Re-employment of Retrenched Workmen
Where retrenched workmen are available and the employer proposes to hire, retrenched Indian citizens are entitled to preference in re-employment over other persons.
Section 25N — Special Provisions for Larger Establishments
Establishments employing 100 or more workmen on average fall under Chapter V-B, which imposes stricter requirements:
- Prior Government permission is required for retrenchment, layoff, or closure
- Three months’ notice (instead of one month under Section 25F)
- If the Government does not respond within 60 days, permission is deemed granted
Layoff Compensation (Sections 25C–25E)
A workman with at least one year of continuous service is entitled to 50% of basic wages plus dearness allowance during a layoff, for the first 45 days. Beyond 45 days, the employer must either retrench (with Section 25F compliance) or continue paying layoff compensation.
Provident Fund — EPF Act, 1952
Contribution Rates
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 mandates contributions from both employer and employee, calculated on basic salary plus dearness allowance:
| Component | Employee | Employer |
|---|---|---|
| EPF (Provident Fund) | 12% | 3.67% |
| EPS (Pension Scheme) | — | 8.33% |
| EDLI (Deposit-Linked Insurance) | — | 0.50% |
| Administrative charges | — | ~1.11% |
| Total | 12% | ~13.61% |
The EPS contribution is capped at wages of Rs 15,000 per month; any excess goes to the EPF account. A reduced rate of 10% applies to establishments with fewer than 20 employees.
The current EPF interest rate is 8.25% for FY 2025–26.
Withdrawal Rules
- Full withdrawal: On retirement (age 58), or after unemployment exceeding 2 months (with self-certification)
- Partial withdrawal: 75% after 1 month of unemployment; remaining 25% after 2 months
- Advance for specific purposes:
- Medical treatment — after 7 years of service; up to 6 months’ basic wages
- House purchase or construction — after 5 years; up to 36 months’ wages
- Home loan repayment — after 10 years of service
- Marriage or education — after 7 years; up to 50% of employee’s share
- Pre-retirement (age 54+) — up to 90% of total balance
EPFO Helplines and Portals
| Channel | Details |
|---|---|
| Toll-free helpline | 1800 118 005 (9:15 AM – 5:45 PM) |
| PF/Pension helpline | 14470 (7 AM – 9 PM) |
| UAN Member Portal | https://unifiedportal-mem.epfindia.gov.in |
| Grievance portal | https://epfigms.gov.in |
| Missed call for balance | 9718397183 |
| Mobile app | UMANG |
Payment of Gratuity Act, 1972
Eligibility (Section 4)
Gratuity is payable to an employee on termination of employment after five years of continuous service. The five-year requirement is waived if termination is due to death or permanent disability caused by an accident or illness.
Under the new Industrial Relations Code, fixed-term employees become eligible for gratuity after one year of service.
Calculation Formula
Gratuity = (Last drawn salary × 15 × years of service) ÷ 26
- “Last drawn salary” means basic salary plus dearness allowance
- The maximum payable amount is Rs 20 lakhs (increased from Rs 10 lakhs by the 2018 amendment)
- For piece-rated employees, the average of the last three months’ total wages is used
Example: An employee with a last drawn salary of Rs 50,000 and 20 years of service would receive: (50,000 × 15 × 20) ÷ 26 = Rs 5,76,923.
Forfeiture (Section 4(6))
Gratuity may be forfeited in two situations:
- To the extent of damage or loss caused — if the employee is terminated for willful damage to the employer’s property
- Wholly or partially — if the employee is terminated for riotous or disorderly conduct, or any act constituting an offence involving moral turpitude committed during employment
The Supreme Court has clarified that criminal conviction is not required for forfeiture on grounds of moral turpitude — the disciplinary authority’s finding is sufficient (Western Coal Fields Ltd. v. Manohar Govinda Fulzele, 2025).
Payment Timeline
Gratuity must be paid within 30 days of it becoming due. Delayed payment attracts simple interest at the rate notified by the Government.
Payment of Bonus Act, 1965
Applicability and Eligibility
The Act applies to factories and establishments with 20 or more employees. Once applicable, it continues to apply even if the employee count falls below 20.
Eligible employees are those earning up to Rs 21,000 per month (basic plus dearness allowance) who have worked at least 30 days in the accounting year.
Bonus Rates
- Minimum bonus: 8.33% of wages (or Rs 100, whichever is higher)
- Maximum bonus: 20% of wages
- Calculation ceiling: Rs 7,000 per month (or minimum wage, whichever is higher)
Disqualification (Section 9)
An employee is disqualified from receiving bonus if dismissed for fraud, riotous or violent behaviour on premises, or theft, misappropriation, or sabotage of establishment property.
Payment Timeline
Bonus must be paid within 8 months of the close of the accounting year.
New Labour Codes — Key Changes
All four Labour Codes were notified on 21 November 2025, with full operational rollout targeted for 1 April 2026:
| Code | Key Statutes Replaced |
|---|---|
| Code on Wages, 2019 | Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, Equal Remuneration Act |
| Industrial Relations Code, 2020 | Industrial Disputes Act, Trade Unions Act, Industrial Employment (Standing Orders) Act |
| Code on Social Security, 2020 | EPF Act, ESI Act, Gratuity Act, Maternity Benefit Act, and others |
| Occupational Safety, Health and Working Conditions Code, 2020 | Factories Act, Mines Act, Contract Labour Act, and others |
Important Changes
- Threshold for prior Government permission for retrenchment, layoff, and closure raised from 100 to 300 workers
- Fixed-term employment formally recognised — such employees receive parity with permanent employees in wages and benefits
- Re-skilling fund: Employers must contribute 15 days’ wages per retrenched worker
- Gig workers and platform workers brought within the social security framework for the first time
- Standing orders mandatory only for establishments with 300 or more workers (raised from 100)
UP Shops and Commercial Establishments Act, 1962
Employees working in shops, commercial establishments, hotels, restaurants, and places of entertainment in Uttar Pradesh are additionally protected under this Act:
- Working hours: Maximum 8 hours per day and 48 hours per week
- Overtime: Payable at double the ordinary rate
- Leave entitlements:
- Earned leave: 15 days per year (after 12 months of service; carry forward up to 45 days)
- Sick leave: 15 days per year
- Casual leave: 12 days per year
- Weekly holiday: One day mandatory
- Maternity benefits: Six weeks before and six weeks after delivery (requires six months of continuous employment)
Key Case Law
Deepali Gundu Surwase v. Kranti Junior Adhyapak Mahavidyalaya (2013) 10 SCC 324
The Supreme Court held that reinstatement with continuity of service and full back wages is the normal rule in cases of wrongful termination. Where the employer has acted in gross violation of statutory provisions or principles of natural justice, or is guilty of victimization, the court observed that there is no justification to give a premium to the employer for wrongdoing.
Key Legal Principle: Reinstatement with back wages is the default remedy for wrongful termination; departure requires specific justification.
Madhya Bharat Gramin Bank v. Panchamlal Yadav (2021)
The Supreme Court held that violation of Section 25F does not automatically entail reinstatement with full back wages. The court awarded monetary compensation of Rs 5 lakhs instead of reinstatement, acknowledging that the appropriate relief depends on the facts of each case.
Key Legal Principle: Courts have discretion to award monetary compensation instead of reinstatement in retrenchment cases.
Western Coal Fields Ltd. v. Manohar Govinda Fulzele (2025)
The Supreme Court (Justices Sudhanshu Dhulia and K. Vinod Chandran, decided 17 February 2025) held that criminal conviction is not required for gratuity forfeiture under Section 4(6)(b)(ii) of the Payment of Gratuity Act. The disciplinary authority’s finding that the misconduct constitutes an offence involving moral turpitude is sufficient. However, forfeiture must be proportionate — in connected cases involving fare misappropriation, the Court directed only 25% forfeiture, releasing 75% on sympathetic grounds.
Key Legal Principle: Gratuity forfeiture for moral turpitude does not require a criminal conviction but must be proportionate.
Limitation Periods
| Claim Type | Limitation Period | Authority |
|---|---|---|
| Industrial dispute (termination/retrenchment) | 3 years from the date of discharge | Section 2A(3), Industrial Disputes Act |
| Gratuity claim | No limitation prescribed | Payment of Gratuity Act |
| EPF claim | No specific limitation | EPF Act, 1952 |
| Bonus claim | Within a reasonable time | Payment of Bonus Act |
| Wages claim | 3 years | Limitation Act, 1963 |
Important Points to Remember
- Retrenchment without compliance with Section 25F (notice, compensation, Government intimation) is illegal and entitles the workman to remedies including reinstatement or compensation
- Establishments with 100+ workers (300+ under the new Labour Codes) require prior Government permission for retrenchment
- EPF is mandatory for establishments with 20 or more employees; both employer and employee contribute 12% of basic salary plus DA
- Gratuity becomes payable after 5 years of continuous service (1 year for fixed-term employees under the new Codes); the maximum cap is Rs 20 lakhs
- Minimum bonus of 8.33% is payable to eligible employees regardless of the employer’s profits
- An employee may approach the Labour Court, Industrial Tribunal, or the Controlling Authority under the respective Act for enforcement of these rights
- The EPFO helpline (14470) and the UAN portal allow employees to check PF balance, file claims, and lodge grievances online
Useful Resources
- EPFO Member Portal — Check PF balance and file claims
- EPFO Grievance Portal (EPFiGMS) — Lodge PF-related complaints
- Chief Labour Commissioner (Central) — Labour law information and complaint filing
- Indian Kanoon — Search case law and statutory provisions
- e-Shram Portal — Unorganised workers’ registration
- EPFO Toll-Free Helpline: 1800 118 005
- PF/Pension Helpline: 14470
Disclaimer: The information provided on this website is for general legal awareness and educational purposes only. It does not constitute legal advice, advertisement, or solicitation. No reader should act or refrain from acting based on this information without seeking professional legal counsel. Advocate Akhil Singh and this website are not liable for any actions taken based on the content provided herein.