What are the Labour Welfare Fund Contributions and Benefits [The Ultimate Guide]

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What are the Labour Welfare Fund Contributions and Benefits [The Ultimate Guide]

Labour welfare Fund (LWF) is a statutory contribution that state authorities manage individually. This contribution is carried out for the benefit of workers and labourers in the unorganized sector. If you are running your company’s payroll, you need to understand the different aspects of the LWF and how it applies to you.

In this blog, I have written in detail about how you can calculate and contribute to the LWF. I have covered the following points

What is the Labour Welfare Fund?

The Labour Welfare Fund (LWF) is an initiative by the government of India to help and improve the living conditions of the unorganized sector. Out of 36 states and union territories, the act has been only implemented in 16 of them (I have mentioned a list below).  Based on this act, you as an employer need to contribute a certain about on your behalf as well as on behalf of your employee. This will vary based on the state in which your company functions.

The amount to be contributed, the last date to contribute and even the penalties for not contributing differ from one state to the other. You need to check the applicability and this will depend on the state your company is registered in.

Apart from the Labour Welfare Fund, some of the other compliances for payroll that you need to be aware of are Employee State Insurance, Employee Provident Fund, Professional tax and TDS. If you are running payroll in excel, the following helps you understand the compliance calculations: how to run payroll in excel.

What are the common benefits of the Labour Welfare Fund (across states)?

While different states decide how they decide to use the funds, there are some benefits that are majorly common to all. Some of them are mentioned below

Improved social security

Because of this fund, unemployed people or women in subsidiary occupations have a better chance of arranging for medical treatments. Also, workers in the unorganized sector earn higher wages as a result of this fund, hence, better living conditions that increase the standard of living for a lot of them.

Through this scheme, the families of workers also receive nutritious food, medical facilities and access to recreational facilities.

Improved working conditions

When you as an employer help contribute to the Labour Welfare Fund, you also ensure better working conditions for industrial workers. The state governments use a part of this fund to provide better working conditions for the labourers. Better working conditions include transportation to commute to work as well.

Scholarships and housing facilities for the workers’ families 

Under this scheme, industrial workers, especially those working in construction, receive special concessions while applying for housing loans. You as a founder and employer should be aware of all the place your money is going and who all you are potentially helping.

The children of industrial workers also receive certain benefits like scholarships. They are eligible for it if scored above a certain percentage in their 10th and 12th standard exams. Some scholarships under this scheme are also reserved for the kids who wish to do their MBBS in the future.

Who contributes to the LWF and how to contribute?

Based on the Labour Welfare Fund Act, both the employer and the employee are liable to make contributions towards the fund. However, most of the time, the employer makes the contribution on behalf of the employee. So, this is something you need to keep in mind. You must make the contribution on behalf of each employee along before paying them their salary. Meaning, make them LWF deduction and then pay the employees’ salary.

In most cases, the employee (employer on behalf of the employee) contributes a certain percentage of their income. The employer contributes double or triple the amount for each employee.

For example, every employee contributes 0.2 per cent of their income (the employer does this on behalf of the employee). In addition to this, the employer contributes 0.4 per cent of the employee’s income and does this for each employee. So, if Rs 3 is contributed by the employee (from their salary), and Rs 6 by the employer, the total contribution is Rs 9 for that individual employee. And this is done separately for every employee in the company.

Also, irrespective of the state or union territory you’re in, you must register for the scheme within the first 30 days of commencement of business.

Region-wise applicability of the Labour Welfare Fund

As mentioned earlier, LWF is not applicable in all states and union territories. Each state also enforces it differently. Here below I have listed the states and union territories to which the scheme is applicable. If your startup doesn’t function in any of these states then you don’t need to worry. But if your startup is registered in any of these states or union territories, then you need to make sure you comply with the rules!

List of states and union territories where the Labour Welfare Fund is applicable

  1. Andhra Pradesh
  2. Chandigarh
  3. Chattisgarh
  4. Delhi
  5. Goa, Diu and Daman
  6. Gujarat
  7. Haryana
  8. Karnataka
  9. Kerala
  10. Madhya Pradesh
  11. Maharashtra
  12. Odisha
  13. Punjab
  14. Tamil Nadu
  15. Telangana
  16. West Bengal

How should you calculate the Labour Welfare Fund deductions in different states?

Since the scheme is managed by individual states, the rules applicable are also decided by individual states and union territories. And if you have offices in multiple states then you need to be able to keep track of the changing rules to avoid penalties.

To make it easier for you I have put together the rules for multiple states in this blog itself. I have included the amount to be contributed, when and how often you must contribute and also penalties for not complying.

LWF rules in Maharashtra

This scheme is applicable to any company registered in Maharashtra, having 5 or more employees in the company.

In Maharashtra, the amount needs to be contributed bi-annually. Hence for the 30th of June ending 6 months, the payment needs to be done on or before the 15th of July. Similarly, for the half-year ending on the 30th of December, the payment has to be done by the 15th of January. This means that the contribution is to be deducted from the employee’s salary from the months of June and December each.

The scheme is also 2 slabs here, (for all employees except for those who work in the managerial capacity)

  • For any employee earning Rs 3000/- or less, the employee contributes Rs 6/- while the employer contributes thrice that. Meaning Rs 18/-. Hence, for employees earning less than R 3000/-, the amount contributed in Rs 24/-
  • For any employee earning Rs 3001/- and more, the employee contributes Rs 12/- while the employer contributes thrice that. Meaning Rs 36/-. Hence, for employees Rs 3001/- or more, the amount contributed in Rs 48/-

Penalties for non-compliance to the LWF Maharashtra

  1. In case of 1st offence- imprisonment for a term that can be extended to 3 months and/or a fine that can extend to Rs.500/-
  2. For the 2nd or subsequent offences- imprisonment for a term that can be extended up to 6 months and/or with a fine which may extend to Rs.1000/-. In any case of only a fine, the fine cannot be lower than Rs.50/-.

Kerala and its rules pertaining to the LWF

Any startup that is registered in Kerala and has 2 or more employees must register with the scheme. Here, the amount has to be contributed every month. Hence the amount deducted from one month must be paid before the 5th day of the next.

  • The amount payable is, for all employees except for those who work in the managerial capacity and apprentice or part-time, the employer pays Rs 8/- while the employee contributes Rs 4/- per month

Penalties for non-compliance to the LWF Provisions in Kerala

In case of obstructing the inspector while he exercises his duties

  1. Imprisonment for a term that can be extended up to 6 months and/or a fine which may extend to Rs.500/-.

Labour Welfare Fund regulations in  Tamil Nadu

If your company is in the state of Tamil Nadu and has 5 or more employees, you should have registered your company with the scheme.

In the state of Tamil Nadu, you will need to make the payment for every year at the beginning of the next year. For the period between January 1st to December 31st, you should do it before the 31st of January of the next year.

  • In the case of all employees (except those in a managerial role and those who earn more than Rs 15,000/-) the amount to be paid is Rs 20/- by the employer and Rs 10/- by the employee. (Hence, total Rs 30/- for each individual employee)

Penalties when obstructing inspector’s duties or failing to produce appropriate documents in Tamil Nadu

  1. In case of 1st offence- imprisonment for a term that can be extended to 3 months and/or a fine that can extend to Rs.500/-
  2. For the 2nd or subsequent offences- imprisonment for a term that can be extended up to 6 months and/or a fine which may extend to Rs.1000/-. In any case of only a fine, the fine shall not be lower than Rs.50/-.

Gujarat and its LWF rules

In Gujarat, the amount needs to be contributed bi-annually. Hence for the 30th of June ending 6 months, the payment needs to be done on or before 15th July. Similarly, for the half-year ending on the 30th of December, the payment has to be done by the 15th of January. This means that the contribution is to be deducted from the employee’s salary from the months of June and December each.

This has to be done in case your company has 10 or more employees

  • For all employees, the employee contributes Rs 6/- while the employer contributes thrice that. Meaning Rs 12/-. Hence, for each individual employee, the amount contributed is Rs 18/-

Penalties with regard to payment and maintenance of record in Gujarat

  1. The person is punishable with a fine that cannot be less than Rs.2000/-.
  2. When the offence is a continuing one, with a daily fine not exceeding Rs.1000 during the continuance of the offence.

Karnataka’s rules w.r.t the LWF scheme

If your company is registered in Karnataka and has 50 or more employees, then you must register for the scheme. You need to be making these contributions annually. This needs to be done on or before the 15th day of the next year (meaning, 15th of January).

  • For all employees, the employee contributes Rs 20/- while the employer contributes thrice that. Meaning Rs 40/-. Hence, for each individual employee, the amount contributed is Rs 60/-

Penalties for not contributing in Karnataka

  1. In case of 1st offence- imprisonment for a term that can be extended to 3 months and/or a fine that can extend to Rs.500/-
  2. For the 2nd or subsequent offences- imprisonment for a term that can be extended up to 6 months and/or a fine which may extend to Rs.1000/-. In any case of only a fine, the fine will not be lower than Rs.50/-.

LWF regulations in West Bengal

In case your company has 10 or more employees, you need to contribute on a bi-annual basis. Meaning, for the 6 months ending on the 30th of June, the payment needs to be done on or before the 15th of July. Similarly, for the half-year ending on the 30th of December, the payment needs to be done by the 15th of January.

  • For all employees, (except those in a managerial capacity or earning more than Rs 1600/-) you have to pay Rs 3/- by the employee and Rs 15/- by the employer

Penalties for obstructing the inspector’s duties in West Bengal

  1. In case of 1st offence- imprisonment for a term that can be extended to 3 months and/or a fine that can extend to Rs.500/-
  2. For the 2nd or subsequent offences- imprisonment for a term that can be extended up to 6 months and/or a fine which may extend to Rs.1000/-. In any case of only a fine, the fine will not be lower than Rs.50/-.

Delhi’s rules w.r.t to the LWF scheme

Any startup that is registered in Delhi with five or more employees, should register for the scheme. You need to contribute on a bi-annual basis. The contributions shall be made every six months per employee on 30th June and 31st December every year repectively, as share of employee. As share of employer, the contributions should be made before the 15th Day of July and 15th Day of January for every six months, every year.

  • For all employees (except those working in the managerial or supervisory capacity and drawing wages exceeding Rs.2500/- only per month.) you have to pay Rs. O.75 paise per employee as share of employee whereas Rs. 2.25 per employee, as share of employer.
  • You have to pay Rs. 1.50 every six months per employee, as share of Govt. of Delhi as matching contribution, an amount equal to twice the employee’s contribution.

LWF regulations in Haryana

Any startup registered in Haryana, should register for the scheme. Here, the amount is contributed on a monthly basis. 

  • The rate of contribution from an employee is Rs. 0.2% of the salary or any remuneration subject to a limit of Rs. 25/-.
  • The rate of contribution from an employer is twice the amount contributed by such employee.

The rules in Andhra Pradesh pertaining to the LWF

If your company is registered in Andhra Pradesh and has 20 or more employees, you should register for the scheme. This need to be done annually, before the 15th of January (of the next year).

  • For all employees, (except those in a managerial capacity or earning more than Rs 1600/-) you have to pay Rs 30/- by the employee and Rs 70/- by the employer

Penalties for non-compliance

  1. In case of the 1st offence- imprisonment for a term of a maximum of 3 months. (and/or) Also, a fine that can extend to Rs.500/-
  2. For the 2nd or subsequent offences- imprisonment for a term that can be extended up to 6 months and/or with a fine which may extend to Rs.1000/-. In any case of only a fine, the fine is not to be lower than Rs.50/-.

How does a payroll software help implement the LWF rules?

There are many overall benefits of using a payroll software, some of them are,

  • Helps save time
  • Ensures zero calculation errors
  • Provides security of data that wouldn’t be there in case of outsourcing
  • Provides the opportunity for the HR or accountant to focus on other work instead
  • Payroll softwares are generally very reliable in terms of delivery of the paycheck and other factors
  • But most importantly, it will help you keep track of the different payroll policies that you need to comply with, be it ESI, TDS, PF, PT or even LWF etc.

Payroll software cta

Summary

In a nutshell, the rules of the LWF vary from one state to another. It is extremely important for you to keep track of the different changes in the laws. Yes, the two of them could be different especially with work from home.

FAQs

What is LWF deduction?

The Labour Welfare Fund, also known as the LWF is an initiative of the Ministry of Labour, Government of India. It has been implemented for the benefit of the unorganized sector. The fund aims to provide the labourers and their family with a certain amount of social security. The contribution is made both by the employee and the employer.

Is contribution to the LWF mandatory?

The LWF is managed by separate state authorities. If the LWF is applicable in your state then it is imperative that you contribute. While each state has their own rules for non-compliance, the penalties vary from a fine of Rs 50/- to Rs 20,000/-, up to one-year imprisonment or even both depending on the state!

Who is responsible for the Labour Welfare Fund?

Both the employer and the employee are responsible to contribute to the LWF fund.