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Introduction to the Labour Welfare Fund (LWF)
The Labour Welfare Fund (LWF) is an important mechanism that mobilizes resources for furthering the welfare of workers employed in factories, mines, plantations and other establishments. Constituted under the LWF Act of 1965, it aims to provide housing, medical, educational, recreational and other facilities to improve the lives of workers.
With increasing industrialization and expanding workforce, the role of LWF has become even more critical. However, there are gaps in the understanding of employers as well as workers regarding the working of LWF, its ambit and utilization.
This comprehensive guide aims to serve as a one-stop reference providing clarity on all key aspects of the Labour Welfare Fund in India.
Whether you are an employer, worker, policymaker or simply interested in learning about LWF, this guide will help you gain a deeper perspective. So let us get started!
Definition of Labour Welfare Fund
The Labour Welfare Fund is defined under the Labour Welfare Fund Act, of 1965. As per the Act, the fund is set up ‘for the financing of activities to promote the welfare of labour’. The purpose is to provide housing, medical, recreational and educational facilities to workers employed in factories, mines, plantations and other establishments.
Objectives of the Labour Welfare Fund
The Labour Welfare Fund aims to promote the welfare of workers and their dependents by providing various facilities and assistance. This section covers the key purposes of the Labour Welfare Funds:
- To promote the welfare of labourers and their dependents by providing housing, educational, medical and other amenities.
- To finance various welfare schemes launched by Central/State governments for the benefit of workers.
- To provide recreation and cultural facilities to industrial workers to improve their quality of life.
- To provide vocational training to workers to enhance their skills and productivity.
- To make loans available to workers for housing, marriage, education etc. at concessional rates.
Legal Framework of LWF
The Labour Welfare Fund Act of 1965 and the schemes formulated under it govern the operations of the Labour Welfare Fund in India. Key aspects include:
- Contributions to the fund by employers at the rate of 6% of the total salary/wages.
- Formation of welfare boards at the centre and state level to administer the fund.
- Utilization of the fund strictly for the welfare of workers as laid down in the Act.
- Maintenance of accounts and annual audit of the fund.
- Penal provisions for non-compliance with the Act.
The Act applies to factories, mines, plantations and other establishments employing 20 or more workers. Some states have reduced this threshold.
Contribution to the Labour Welfare Fund
Who Contributes to LWF?
As per the Labour Welfare Fund Act, contributions to the fund are made by employers of factories, mines, plantations and certain other establishments.
LWF Contribution by Employers
- All employers covered under the Act are required to contribute a sum equal to 6% of the total wages payable to employees.
- This contribution is in addition to wages and other statutory contributions like EPF, ESI etc.
- The contribution applies to all employees earning wages up to Rs. 10,000 per month.
- For employees earning above this limit, the contribution is payable only on the first Rs. 10,000.
- The employer contributes even for contract workers engaged through contractors.
LWF Contribution by Employees
- Employees do not directly contribute to the Labour Welfare Fund.
- The entire contribution is made by the employer at 6% of the total wages payable.
- A small portion of the employer’s contribution may be deducted from the employee’s wages with their consent.
- But this wage deduction cannot exceed 1% and is voluntary.
So in summary, the LWF is funded completely by contributions from employers covered under the Act. Employees do not directly contribute to the fund.
Labour Welfare Fund Contribution Rules
The Labour Welfare Fund is financed through contributions made by employers covered under the LWF Act. This section explains the rules concerning to the amount, frequency and mode of LWF contributions.
LWF Contribution Amount
- The contribution payable is 6% of total wages paid to employees earning up to Rs. 10,000 per month.
- For employees earning above Rs. 10,000 per month, contribution is payable only on the first Rs. 10,000.
- Wages include basic pay, DA, bonuses, and other allowances.
Payment Frequency of LWF Contributions
- Contributions are to be paid every month by the employer.
- The payments should be made within 15 days of the expiry of each calendar month.
- For example, the contribution for the month of January should be paid by 15th February.
Mode of Payment of LWF Contributions
- The contributions are to be deposited online through the portal of the Labour Welfare Board.
- The employer has to register on the portal and generate a challan to make the payment.
- Payment can be done via net banking or at authorized bank branches.
- The challan contains details like employer name, registration number, contribution period etc.
Utilization of Labour Welfare Fund
The Labour Welfare Fund collected from employers is utilized for the benefit of workers through various welfare schemes and programs.
Welfare Activities Funded Through LWF
The Labour Welfare Fund is used to finance several facilities and amenities for industrial workers and their families.
1. Housing Facilities From LWF
One of the focus areas of LWF is providing housing amenities to workers.
- The fund provides subsidized loans as well as direct financial assistance to workers for constructing or purchasing houses.
- Group housing schemes are undertaken through state housing boards and other agencies.
- Land at concessional rates is allotted in industrial areas for building housing colonies for workers.
2. Medical Facilities Through LWF
Ensuring the health and medical welfare of workers is another prime objective of LWF.
- Hospitals, dispensaries, and ambulance services are set up in industrial areas for workers.
- Regular health checkups, vaccination camps, and health education programs are conducted.
- Subsidized treatments and medicines are provided at LWF health centres.
- Health insurance coverage is also provided by the fund.
3. Educational Facilities Through LWF
The LWF aims to promote education and skill development for workers’ children and dependents.
- Schools, libraries, and reading rooms are set up and grants are given to existing institutions near industrial clusters.
- Scholarships are provided to children of workers from the LWF to pursue education.
- Vocational training centers are run using the fund to equip workers with skills.
- Adult education programs and literary campaigns are taken up.
4. Recreational Facilities Using LWF
Recreation opportunities for workers form an important element of LWF.
- Community centers, clubs, and parks are constructed in industrial locations from the fund for recreation.
- Facilities like subsidized holiday homes and sports activities are provided.
- Grants are given for cultural events like theatre, music, and arts.
- Picnics, tours, and get-togethers are organized for workers and families.
5. Other Welfare Schemes Under LWF
In addition to the major areas covered, the LWF also sponsors other welfare measures for workers. This section discusses other schemes for workers funded by the Labour Welfare Fund.
- Child care centers for children of working women.
- Improving water supply, drainage, and sanitation facilities.
- The canteen provides subsidized meals during work hours.
Loans and Advances to Workers
The Labour Welfare Fund provides financial assistance in the form of loans and advances to workers at concessional rates:
- House building loan for construction/purchase of house.
- Marriage loan to meet marriage expenses.
- Maternity benefits for women workers.
- Education loan for higher studies of children.
- Loan for purchase of vehicles, appliances, and other assets.
- Festival advance to meet additional expenses.
So in summary, the LWF is used to finance a range of welfare schemes covering housing, medical, education, recreation and financial assistance for workers. This improves their quality of life.
Administration of Labour Welfare Fund
The Labour Welfare Fund is administered by welfare boards constituted at the central and state level.
LWF Committee Composition
The Labour Welfare Fund committee is constituted by the respective governments and is comprised of:
- Chairman – Generally the Labour Minister of the State or Union Territory.
- Representatives of employer associations like CII, FICCI, ASSOCHAM etc.
- Representatives of prominent trade unions and workers’ associations.
- Government representatives from the Labour Department, Finance Department etc.
- Subject experts nominated by the government from fields like banking, law, management, social service etc.
Powers of LWF Committee
The Labour Welfare Fund committee is responsible for the administration and utilization of the fund. Key powers include:
- Formulating various welfare schemes, and programs as per provisions of the LWF Act.
- Approving annual budgets and deciding the allocation of funds for various schemes.
- Disbursing grants and subsidies to implementing agencies as per approved schemes.
- Making investments to earn interest on surplus funds as per government guidelines.
- Maintaining accounts, conducting annual audits, and submitting reports to the government.
- Commissioning impact assessment studies to evaluate utilization.
- Appointing inspection teams to ensure compliance by employers.
- Taking punitive actions against defaulting employers as per the Act.
- Submitting annual reports and accounts to the Central/State government.
So in summary, the LWF committee exercises financial and administrative powers to effectively plan welfare activities and regulate the fund as per rules. This ensures optimal utilization for labour welfare.
Compliance and Penalties Under LWF
The Labour Welfare Fund Act lays down certain compliances for employers contributing to the fund and penalties for non-compliance.
LWF Records Maintenance
To ensure transparency and accountability, employers covered under the LWF Act must maintain proper records including:
- Register showing details like name, wages, contributions etc. of each employee.
- Receipts acknowledging payment of contributions to the fund.
- Annual returns submitted to the LWF committee showing contribution details.
- Authorization letters for deducting employee contributions from wages.
- Resolution copies approving LWF payment by the board of directors.
- Any other documents sought by LWF inspectors during audits.
- All records must be maintained for at least 5 years as per the Act.
Penalties for LWF Non-Compliance
If employers fail to comply with LWF rules and obligations, stringent actions are prescribed:
- Monetary penalty of up to Rs. 5000 for delayed payment or non-payment of contributions.
- Imprisonment up to 3 months on conviction for willful avoidance or default.
- Higher rate of interest up to 25% per annum on delayed contributions.
- Disallowing certain deductions and allowances for income tax calculation.
- Recovery of contribution amount as arrears of land revenue.
- Prosecution leading to stoppage or sealing of business activities.
Therefore, it is advisable for employers to duly comply with all LWF rules and obligations to avoid penalties. Proper maintenance of records also enables them to provide proof during inspections.
LWF Reforms and Developments
There have been some recent reforms in the Labour Welfare Fund Act and Rules to expand its scope and effectiveness. Some proposed amendments are also under consideration.
Recent Changes in the Labour Welfare Fund
Some of the recent changes in the LWF framework include:
- Introduction of an online payment system through a centralized portal for easier compliance.
- Reduction in the applicability threshold to 10 workers in some states to expand coverage.
- Increased quantum of welfare grants and subsidized loans for workers.
- Stringent penal provisions for non-compliance and delays by employers.
- Mandatory annual audit of state welfare boards to improve governance.
- Expansion of welfare schemes to provide skill development, creches etc.
Proposed Amendments to LWF
There are some amendments to the LWF Act proposed by central and state governments:
- Increase in employer’s contribution rate from 6% to 7% of total salary.
- Introducing mandatory 1% contribution for employees in some states.
- Expanding the scope to unorganized sector workers not currently covered.
- Allowing partial one-time withdrawals from LWF for contingencies like medical emergencies, higher education etc.
- Developing a common national portal for registration, payment and monitoring.
- Constituting the National Social Security Board for the welfare of unorganized workers.
Such reforms and developments will lead to wider reach, better monitoring and increased benefits for workers under LWF schemes.
The Labour Welfare Fund serves as an important social security net for millions of workers employed in factories and establishments across India. Mobilizing over Rs.10,000 crores annually through employer contributions, the fund enables multi-dimensional welfare schemes.
However, wider reach, increased awareness, better monitoring and stronger governance are required to maximize its impact. Recent reforms on streamlining contribution mechanisms and including marginalized workers are steps in the right direction.
Employers should realize that LWF contributions are not just a legal obligation but a social responsibility towards their workforce. Workers should also stay updated on their rights and entitlements under the LWF Act.
Going forward, sustained efforts by all stakeholders can help strengthen the Labour Welfare Fund and achieve the ultimate goal of promoting welfare, improving lives and bringing dignity to labour.
FAQs on Labour Welfare Fund
What is the maximum deduction allowed from employees’ wages towards LWF contribution?
As per the Act, the maximum deduction allowed from employees’ wages is 1% of the total wages. This deduction is voluntary and requires written authorization from the employee.
What are the eligibility criteria for taking advances or loans from LWF?
To avail of advances/loans from LWF, the worker should have completed at least 5 years of service. Loan eligibility depends on monthly salary, repayment capability and purpose like housing, education etc.
Can employers claim income tax exemption on LWF contributions?
No, the employer’s contribution to LWF is an additional statutory obligation and cannot be claimed as a deduction for income tax purposes.
What are the timelines for depositing LWF contributions?
LWF contributions are to be deposited monthly, within 15 days from the end of the calendar month. For example, a contribution for January month to be paid by 15th February.
What documents must be maintained by employers as LWF records?
Employers should maintain employee registers, receipts of payment, annual returns, authorization letters, board resolution and any other documents sought by inspectors during audit.
How is the rate of interest on delayed LWF payments decided?
Higher interest of up to 25% p.a. is levied on delayed payments as prescribed in the LWF Act and can vary across states. It is compounded on a monthly basis.
What are the penalties for non-compliance with the LWF Act?
Penalties for non-compliance include fines up to Rs.5000, imprisonment up to 3 months, higher interest rates, disallowance of tax benefits, prosecution etc. as per the Act.