Shops and Establishment Acts in India: An Explainer

The Shops and Establishment Acts in India are state and union territory-specific laws that govern employment and labor service conditions in shops and commercial establishments, excluding factories, and require compliance within their respective jurisdictions.

The Shops and Establishment Acts are state-specific legislation in India that regulate the functioning of shops and commercial establishments within their respective jurisdictions. The respective Acts set out the rules and regulations governing the working hours, wages, and other working conditions of employees working in these establishments.

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While each state enacts its own version of the Shops and Establishment Act, core provisions remain largely consistent across the country. The Shops and Establishment Acts are implemented and enforced by the Labour Department of each state.

All commercial businesses in India, including shops, hotels, cafes and restaurants, theaters, and other venues, are subject to this act. With various exceptions based on the number of employees, the nature of the activity, and the kind of establishment, the act applies to both registered and unregistered establishments.

Unlike the Factories Act, there is no central labor act governing shops in India. The Shops and Establishments Act, rooted in 19th-century European labor laws, has been adopted by each state based on a model code since independence. Maharashtra was a pioneer with its 1948 Act and again with the updated 2016 Model Act. More states are anticipated to modernize their decades-old acts to align with current business needs.

Salient features of the Model Shops and Establishment Bill, 2016:

• Applicability: Applies to shops and establishments employing 10 or more workers, excluding manufacturing units.
• Operational flexibility: Freedom to operate 365 days a year with flexible opening and closing times.
• Women workers: Permitted to work night shifts if provisions for shelter, rest rooms, toilets, adequate protection, and transportation are available.
• No discrimination in recruitment, training, transfer, or promotions.
• Simplified registration: Online, common registration through a simplified procedure.
• Safety and health regulations: Government empowered to set rules for worker safety, including clean drinking water, first aid, lavatories, crèches, and canteens.
• Holidays: Five paid festival holidays in addition to national holidays.
• Weekly rest: Mandatory weekly holiday of at least 24 consecutive hours.
• Compensatory leave or double wages if required to work on a rest day.
• Working hours: Maximum 48 hours per week and 9 hours per day for all workers.
• Mandatory break of at least half an hour after five hours of continuous work.
• Penalties: Sufficient penalties for non-compliance with the provisions.

Key definitions and scope of the Shops and Establishment Act

Shops: Under the Act, a shop is broadly defined as any premises where goods are sold, either retail or wholesale, or where services are provided to customers. This definition includes offices, godowns, storerooms, and warehouses connected with the business.

Commercial establishments: These are defined as establishments engaged in commercial, banking, trading, or insurance activities where office work is performed. This category also includes hotels, boarding houses, restaurants, cafes, theaters, and places of public amusement or entertainment. Notably, factories and industries are not covered by the Shops and Establishment Acts and are instead regulated by the Factories Act, 1948, and the Industries (Development and Regulation) Act, 1951.

Mandatory registration

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All shops and commercial establishments covered under the Shops and Establishment Act must register with the relevant state authority and obtain a Shop and Establishment Registration Certificate, commonly referred to as a Shop License. This requirement extends to businesses operating from home, e-commerce entities, and online businesses. Registration is mandatory within 30 days of commencing business operations.

Importance of the Registration Certificate

The Shop and Establishment Registration Certificate serves multiple purposes:

• Legal recognition: It acts as proof of the business’s incorporation and is a basic requirement for legalizing the business.
• Facilitating other registration: This certificate is often necessary for obtaining other business licenses and types of registration.
• Banking: Banks require this certificate for opening a current bank account for the business.
• Loans: It is also needed when applying for business loans.

Regulatory provisions

The Act covers various aspects of employment and operational standards, including:

• Hours of work: Regulation of daily and weekly working hours.
• Leave and holidays: Provisions for annual leave and weekly holidays.
• Wages and compensation: Guidelines for payment of wages and compensation.
• Prohibition of child labor: Ban on the employment of children.
• Employment conditions for women and young persons: Restrictions on night shifts for women and young workers.
• Enforcement and inspection: Mechanisms for ensuring compliance.
• Rest intervals: Mandated breaks during work hours.
• Opening and closing hours: Specified times for business operations.
• Record keeping: Requirements for maintaining employee and operational records.
• Dismissal provisions: Rules regarding the termination of employment.

Registration procedure

The procedure for obtaining the Shop and Establishment Registration Certificate can be conducted either online or offline or both, varying from state to state.

Online registration

• Log in to the State Labour Department website.
• Create login Id and Password
• Complete the application form.
• Upload necessary documents.
• Pay the prescribed fee.
• Upon approval, the certificate is issued online.

Offline registration

• Preparation of documents related to registration
• Fill out the application form and attach the prepared documents.
• Submit it to the Concerned Authority of the relevant area along with the prescribed fee.
• The Concerned Authority issues the certificate after verifying the application and documents.

Required documents

• Proof of address of the shop or business establishment.
• Identification proof of the proprietor/company.
• MOA and AOA of the Company (if the applicant is company).
• PAN Card of the proprietor/company.
• Details of employees.
• Payment challan.
• Additional necessary business licenses, if any.
• Other documents as may be asked by the department or authority

Validity and renewal

The validity and fees for the Shop and Establishment Certificate vary across states. Some states issue certificates valid for a lifetime, while others may have validity periods ranging from one to five years. Renewal must be done before the expiration of the current certificate.

Impact on organizations

The Shops and Establishment Acts ensure that organizations operate within a legal framework that promotes fair labor practices and standardized operational procedures. Compliance with these regulations helps in fostering a structured and transparent business environment, which can enhance the trust and reliability of the organization among employees, customers, and financial institutions.

• Compliance requirements: Organizations must comply with the provisions of the Act, including registration, maintaining records, and adhering to prescribed work conditions. Non-compliance can lead to penalties and legal issues.
• Operational hours: Businesses have to plan their operational hours and employee shifts in accordance with the Act, which may affect their operational flexibility.
• Cost implications: Adhering to wage laws, providing holidays, and maintaining safety standards can have financial implications for businesses.
• Employee welfare: The Acts contribute positively to employee welfare by ensuring fair working conditions, which can lead to higher employee satisfaction and productivity.
• Legal liability: Ensuring compliance helps organizations avoid legal disputes and penalties, promoting a smooth business operation.

FAQs on the Factory Act and Shop and Establishment Act

1. What is the primary focus of the Factories Act?

The Factories Act primarily focuses on regulating manufacturing processes and ensuring the welfare of workers in factories.

2. What does the Shop and Establishment Act regulate?

The Shop and Establishment Act deals with the regulation of working conditions in commercial establishments and requires businesses to obtain a license for legal operation.

3. Is registration under the Shop and Establishment Act mandatory for all businesses?

Yes, registration under the Shop and Establishment Act is mandatory for all shops, offices, warehouses, restaurants, hotels, theaters, venues for public entertainment, or any location involved in the sale of goods and services, whether retail or wholesale.

4. Do home-based businesses need to register under the Shop and Establishment Act?

Yes, home-based businesses and online or e-commerce enterprises need to obtain a license under the Shop and Establishment Act, typically within the initial 30 days of commencing operations.

5. What benefits does the Shop and Establishment registration provide?

The Shop and Establishment registration serves as evidence of your registered business and facilitates processes such as securing a bank loan or opening a bank account.

6. Who needs to obtain a factory license under the Factories Act, 1948?

A factory license is required for factories with 10 or more workers involved in manufacturing with the aid of power and 20 or more workers in manufacturing without the aid of power.

7. What are the benefits of obtaining a factory license?

Obtaining a factory license ensures that necessary safety measures are implemented to enhance worker welfare and health. It also makes owners eligible for government benefits offered through various schemes and safeguards against penalties outlined in the Factories Act.

8. Who issues the factory license and how long is it valid?

The factory license is issued by the relevant state department of labor and remains valid for a period ranging from one to five years, with the specific duration varying among states.

9. What should factory owners do when their factory license is about to expire?

 Factory owners should initiate the renewal process for the factory license certificate before its expiration by submitting an application to the relevant state labor department or department of factories.

10. Is it necessary for businesses operating in multiple states to register under each state’s Shop and Establishment Act?

Yes, businesses operating in multiple states must register under the Shop and Establishment Act of each respective state or union territory where they conduct business activities.

Conclusion

The Shops and Establishment Acts play a crucial role in regulating the working conditions of employees in various establishments across India. While they impose certain compliance requirements, they also ensure the protection and welfare of employees, which can lead to a more motivated and productive workforce. Organizations need to be well-versed with the specific provisions of the Act applicable in their state to ensure full compliance and avoid legal issues.

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