[India] Navigating Labour Laws in Telangana: Key Structure and Framework

Background

In this newsletter series, we will explore the labour law compliance required for operating in various states across India. Given India’s quasi-federal structure, businesses must navigate national and state-specific laws. Article 246 of the Indian Constitution delineates the distribution of legislative powers between the Union (Central Government) and the States. The Seventh Schedule of the Constitution further categorizes these powers into the Union List, State List, and Concurrent List, allowing both levels of government to enact laws in certain areas.

Labour laws in India fall under the Concurrent List of the Constitution, meaning both the Union and State Governments can legislate on these matters. In case of conflict, Union laws prevail, but State laws can complement them. Indian legislation consists of ‘Acts’ that define substantive laws, supported by ‘Rules’ outlining procedures. For Concurrent List issues, the Union enacts the Act, and States create specific Rules to suit their requirements. When applying these laws, four scenarios arise:

1. Union-Enacted Laws with Central Rules: Laws enacted by the Union, where both the Act and the Rules are applicable uniformly across all States.

2. Union-Enacted Laws with Union-Made Rules and State Amendments: In these matters, the Union makes the Acts and the Rules, while the States undertake some amendments that apply only to those specific States.

3. Union-Enacted Laws with State Rules: Here, the Union enacts the Acts, but allows the States to frame the Rules which are specific to individual States.

4. State-Enacted Laws with State Rules: These Acts and Rules are entirely governed by the State’s legislation and procedures.

This edition focuses on Telangana's state-specific labour laws, which, following its creation in 2014, inherited much of Andhra Pradesh’s legislative framework while introducing amendments and rules tailored to local needs. We provide an overview of how Telangana has adapted national laws to its context, along with state-specific statutes that impose unique compliance requirements on businesses.

Labour Standards for Shops and Establishments

Each state and Union Territory in India enacts its own Shops and Establishments Act to regulate working conditions in shops and commercial establishments. These laws are intended to supplement the Central Government’s Factories Act, 1948, which provided for the welfare of factory workers. The state-level Shops and Establishments Acts regulate work hours, wage rates, overtime, paid holidays, rest days, annual leave, termination notices, and some health and safety-type provisions. The Telangana Shops and Establishments Act of 1988 (the “SAE”), like most legislation in Telangana, finds its roots in Andhra Pradesh legislation, namely the Andhra Pradesh Shops and Establishments Act.

1. Application of the SAE

The SAE applies to all shops and commercial establishments in Telangana. It includes provisions for shops, eating houses, residential hotels, theatres, and other businesses. The establishments not covered under the Factories Act, 1948, fall under SAE.

2. Registration under the SAE

Employers or owners of a shop or establishment must register their establishments within 30 days of starting operations of the establishment. Registration certificates are issued upon approval and must be prominently displayed at the workplace. The certificate validity will remain from the issued date to the 31st Day of December of that particular year and every registration certificate must be renewed before 30 days of expiry of the year. If employers fail to comply with the registration requirements or delay renewing their certificates, they may face fines and penalties.

3. Working Hours and Holidays

Employees cannot work more than 8 hours daily or 48 hours weekly. Overtime is limited to 6 hours per week and is paid at double the normal hourly wage rate. Shops must remain closed on Sundays or another specified day as a weekly holiday. Mandatory holidays are specified, including major national holidays like Republic Day, Independence Day, and Telangana Formation Day.

4. Employment Conditions for Women, Children, and Young Persons

Employment of children below 14 years is strictly prohibited. The working hours for young persons between the ages of 14 – 18 are limited to 7 working hours daily, and they are not allowed to work night shift between 7 PM to 6 AM on the second day. SAE prohibits women from working before 6 AM and after 8:30 PM. Furthermore, the SAE provides 6 weeks of maternity leave before and after childbirth, along with maternity benefits for women employed continuously for at least 6 months.

5. Health, Safety, and Welfare Standards

Establishments are required to maintain a clean and properly ventilated workplace. Employers must also implement necessary fire precautions and ensure the availability of first-aid boxes. Employers must ensure employee safety from hazardous tasks. Additionally, employees must not be required to lift heavy loads that could jeopardize their health or safety, and specific weight limits may be prescribed to prevent harm.

6. Wages, Termination, and Enforcement

Wages must be paid within 5 days of the end of the wage period, and overtime wages are calculated at twice the standard rate as per the hourly rate. Termination rules mandate 1 month’s notice or wages in lieu of employees with 6 months of service. Those with over a year are entitled to severance pay of 15 days’ wages per year of service. A grievance mechanism allows employees to appeal against unjust termination or wage-related disputes. There is no concept of probation under SAE. However, the Industrial Employment (Standing Orders) Rules, 1946, establish guidelines for employment conditions, including probationers’ terms. While wages are to be paid to employees during the probation period, a probationer can be terminated without any notice or pay in lieu of notice.

Wages

In India, the Minimum Wages Act, 1948 (the “MWA”) regulates wages to ensure that workers in scheduled employments receive minimum pay, with periodic revisions based on skill, industry, and economic conditions. Telangana adopted the Andhra Pradesh Minimum Wages Rules, 1960, modifying them to address state-specific needs. These Rules set wage standards across sectors and skill levels, with periodic updates guided by the State Level Minimum Wages Advisory Board and inflation adjustments through the “Variable Dearness Allowance (“VDA”).

1. Computation and Payment of Wages

If the wages are paid in non-cash form, such as paid in kind or other essential commodities, the cash value for concessions is computed based on the average market prices of the last 3 months before the wage period. Wages must be paid within 7 days after the last day of the wage period in respect of which wages are payable for workers in establishments with fewer than 1,000 employees and within 10 days (after the last day of the wage period) in case of other establishments. Deductions are allowed only for fines, absence, damages, and specific services, such as housing or provident fund contributions.

2. Hours of Work

The standard workday for adult workers is 9 hours, with a rest interval of at least 30 minutes if work exceeds 5 hours. Total working hours should not exceed 10.5 hours unless approved. Any work beyond the standard working hours is considered overtime and workers are entitled to overtime pay at twice their normal hourly wage, in case of non-agricultural employment.

3. Holidays and Leave

Workers are entitled to a weekly rest day, usually Sunday, which may be substituted if necessary. They cannot work more than 10 consecutive days without a rest day. If they work on a rest day, they are entitled to overtime pay, and any substituted rest day must also be paid appropriately.

Gratuity

The Payment of Gratuity Rules, 1972 were enforced under the Payment of Gratuity Act, 1972 (the “PGA”) to regulate the payment of gratuity to employees in establishments with 10 or more employees. Gratuity is a statutory right of the employee and is payable on the termination of employment for reasons like superannuation, retirement, resignation, or in cases of death or disablement due to accident or disease, provided the employee has completed at least five years of continuous service. However, if termination is solely by the employer (e.g., dismissal for misconduct), gratuity may be forfeited either partially or fully. The gratuity amount is calculated as 15 days’ wages for each completed year of service, with the maximum amount payable being INR 20 lakhs. The employer must pay gratuity within 30 days from the date it becomes payable.

In addition to the above, the Andhra Pradesh Compulsory Gratuity Insurance Rules, 2011 (“Gratuity Insurance Rules”) require employers, excluding those under the control of the Central or State Government, to obtain insurance for their liability to pay gratuity. The insurance must be obtained from the Life Insurance Corporation of India or any other insurance company authorized under the Companies Act. The controlling authority, as appointed under the Gratuity Insurance Rules, is empowered to recover gratuity payments from the insurance provider or the approved gratuity fund if there is any dispute or delay in payment.

Employers are also required to register their establishments with the controlling authority, submit employee details, and keep the insurance updated. Employers with 500 or more employees, or those who have already set up an approved gratuity fund, can opt to continue with their existing

arrangement, provided it covers the full liability under the PGA. This ensures that gratuity payments are properly secured and protected for the benefit of employees.

Professional Tax

Professional tax is a state government tax levied on individuals earning an income through profession, trade, employment, or similar means. This tax is considered equitable, as it is based on the taxpayer's ability to pay. The Constitution of India authorizes this levy under Article 276, capping it at Rs. 2,500 per annum, and is not imposed uniformly across all states. Telangana imposes a progressive professional tax under clause 2 of Article 276 of the Indian Constitution and the Telangana Professional Tax Act, 1987. The tax rate for professional tax in Telangana is:

Monthly Income (INR)	Tax Payable (INR)
Up to 15,000	Nil
15,000 to 20,000	150
Above 20,000	200

The employer is responsible for deducting the amount of professional tax, if applicable, from the employee’s salary and paying it to the government.

National Festival and Other Holidays

The Telangana Factories and Establishments (National Festival and Other Holidays) Act, 1974 (the “Holidays Act”) provides guidelines for the grant of national, festival, and other holidays to employees without loss of wages in factories and establishments in the State of Telangana. The Joint Commissioner of Labour, in coordination with employer and employee organizations, designates 5 festival holidays each year in addition to the national holidays on January 26th, August 15th, and October 2nd. These 5 holidays are finalized and notified by the Joint Commissioner by December 10th annually. Additionally, the Telangana Weekly Holiday (Substitution of Sunday for Friday) Act, 1950, provides for the observation of a weekly holiday on Friday, instead of Sunday. However, in effect, this act is becoming obsolete as current employment laws and common practices have established Sunday as the weekly day off.

1. Wages for Holidays

Employees are entitled to wages for holidays allowed under the Holidays Act, provided they have worked at least 30 days within the preceding 90 days. Employees on paid leave during the holiday period are excluded when calculating the 30 working days. Employers may require employees to work on a holiday, provided the employer gives at least 24 hours’ notice. If an employee works on a holiday, they are entitled to either twice the regular wages or the option of a substituted holiday with pay (within 3 days before or after the holiday).

2. Penalties

Employers who violate the provisions of Section 3 [Notification of Festival Holidays] and Section 5 [Manner of service of notice and calculation of daily average wage] of the Holidays Act would face penalties. For the first offense, the fine can extend to INR 150, and for subsequent offenses, it can extend to INR 750.

Maternity Benefits

Under the Telangana Maternity Benefit Rules, 1966, women who have worked at least 160 days in the 12 months before childbirth are entitled to up to 12 weeks of maternity leave, divided before and after delivery, and 6 weeks in case of miscarriage. During this leave, maternity benefits are based on the average daily wage, with a medical bonus if healthcare is not provided by the employer.

Women are entitled to get two 15-minute nursing breaks per day until the child is 15 months old. If the creche or childcare facility is far from the workplace, an additional break of up to 15 minutes may be granted, with a minimum of 5 minutes depending on the distance.

To claim maternity benefits, proof of pregnancy, delivery, miscarriage, or illness related to these conditions must be provided. This can be achieved through certificates from authorized medical personnel, such as a Government Medical Officer, Employees State Insurance Corporation Medical Officer, or Registered Medical Practitioner. Certified birth or death extracts, or a midwife’s certification in cases of miscarriage, are also valid. Employers are also prohibited from dismissing or terminating a woman during her pregnancy or maternity leave.

New Labour Codes and Their Expected Impact

India’s New Labour Codes aim to simplify and consolidate various labour laws, improving transparency and worker protection. Key provisions include:

1. Code on Wages, 2019: It introduces a ‘national minimum wage’ and allows flexibility for states and industries to set their own wage standards, addressing wage disparities based on region and cost of living.

2. Social Security Code, 2020: Under this code, the Maternity Benefits (Amendment) Act, 2017 extends 26 weeks of paid maternity leave for women in formal sectors, up from 12 weeks. This change aims to improve gender equality and provides benefits for women in both organized and unorganized sectors.

3. Industrial Relations Code, 2020: The Industrial Relations Code, 2020 streamlines dispute resolution processes and facilitates collective bargaining, while the Occupational Safety, Health, and Working Conditions Code, 2020 strengthens worker safety and extends coverage to more sectors, including gig and platform workers.

These reforms balance worker welfare with business competitiveness, promoting fairness while creating a more efficient regulatory framework, fair wages, better conditions for women, and easier compliance for employers.

Exemption for IT/ITeS Establishments in Telangana

The Telangana government has extended an exemption for Information Technology (“IT”) and IT-enabled services (“ITeS”) establishments from certain provisions of the SAE for a further 4 years, starting from May 30, 2024. This extension, granted through a notification in June 2024, allows IT/ITeS establishments greater flexibility in their operational and workforce management while adhering to specific conditions.

Under the extended exemption, IT/ITeS establishments are relieved from the provisions of Sections 15, 16, 21, 23, and 31 of the SAE. Under the extended exemption, IT/ITeS establishments can open and close beyond the hours prescribed by the government (Section 15), and employees can work beyond the usual 8-hour daily or 48-hour weekly limits (Section 16). Women employees can work night shifts, with the condition that safety measures, such as secure transportation, are in place (Section 23). Young persons can be employed before 6 am or after 7 pm (Section 21), and establishments are not required to close on nine holidays per year (Section 31). These relaxations provide more flexibility while ensuring compliance with necessary safety standards.

However, establishments must comply with certain requirements to maintain this exemption:

- Workers must be paid overtime for hours exceeding 48 per week.

- Employees must be granted a compensatory holiday if they work on a notified holiday.

- Special safety protocols must be followed when engaging women employees for night shifts, including pre-employment screening of drivers and secure routes.

Failure to meet these conditions could result in the loss of the exemption. This extended exemption is aimed at facilitating the growth of the IT sector in Telangana, providing a balance between operational flexibility and employee welfare.

Conclusion

As the youngest State in the Union, Telangana is still in the process of establishing a unique legislative identity separate from Andhra Pradesh. With Telangana focusing on expanding and developing its IT sector, and Andhra Pradesh enjoying favourable relations with the Central Government due to its political structures, a gradual differentiation is expected. Andhra Pradesh is likely to increasingly support the manufacturing and construction industries, while Telangana maintains its competitive edge in the IT sector. This evolving landscape highlights the importance of businesses staying informed and adapting to the specific compliance requirements of each State.