Factory Compliance in India: Audit Checklist, Key Rules & Requirements Under Factories Act, 1948

The Factories Act, 1948 (FA) is the building block of every central and state legislation related to labour safety, health and welfare in India. Lots of changes in manufacturing practices, technologies and business dynamics have occurred since the first introduction of this Act. In fact, the Occupational Safety, Health and Working (OSH) Conditions Code, 2020 has subsumed many of the provisions in the FA. However, a fundamental understanding of this Act is essential for factory compliance in India. 

This article discusses rules and regulations under the Factories Act in the context of factory compliance and an essential audit checklist for compliance.   

What is Factory Compliance?

Factory compliance is the practical approach that an industrial unit must follow to ensure adherence to legislations and regulations related to labour welfare, occupational safety, environmental integrity and structural safety of a factory.   

The key components of factory compliance are:

• Labour legislations - These are related to wages, maximum working hours, leaves and other statutory rights of labourers.  
• Worker safety and health - It deals with practical measures to protect labourers from occupational hazards, accidents, injuries and hygiene issues related to work conditions. 
• Environmental impact - Implications of production activities in a factory to its surrounding and extended environment, including pollution, waste disposal, etc., come under the purview of this component.  
• Structural fitness of a factory - Structural weakness of an industrial may cause harm to labourers working in the factory as well as to third parties living in the vicinity. Compliance related to ensuring factories’ structure integrity takes care of these factors. 
• Licenses and permissions - Businesses are required to comply with and get approvals from concerned authorities at different stages of setting up a factory. This includes permissions on factory building plans and fitness certificates after the completion of construction and at the beginning of operations.  
• Documentation - Licensing and permission are not one-time responsibilities. Factory owners are required to comply with every provision of the factory compliance rules and regulations in the process of operating an industrial unit. An unfortunate event in the factory premises may become incriminating for owners if the management fails to substantiate their compliance with rules and regulations. So, factories act 1948 notes and records are a vital component of factory compliance. 
• Auditing and inspections - Finally, regular inspection of factory operations and auditing are critical to ensure actual compliance and improve upon drawbacks. 

Who Must Follow the Factory Act Compliance Checklist?

Following the factory compliance checklist is essential for every industrial unit or factory. The eligibility criteria depend on the number of workers and the type of ‘prime mover’ being used in the unit. ‘Prime mover’ in the context of factory compliance is an engine or motor that generates power for driving machinery. 

Criteria includes-

1. A factory that uses tools or machinery running on electricity/power in any part of its operations and has a headcount of 10 or more workers on any day during the last 12 months. 
2. A factory that does not use tools or machinery running on electricity/power in any part of its operations and has a headcount of 20 or more workers on any day during the last 12 months.  

The criteria apply to existing operational industrial units and new factories that are yet to begin manufacturing operations. 

What is the Factories Act, 1948?

The Factories Act, 1948, is a popular law formulated and enacted by the Parliament of India on 23rd September 1948. It was further amended in 1987 by the Factories (Amendment) Act. 

The law has a principal purpose of guiding national and state-level policies on worker rights, safety, health, hygiene and workers’ wellbeing. The original Act consists of 11 chapters, though many of the original provisions have been amended many times. The Ministry of Labour and Employment, India, administers the legislation centrally through the Directorate General Factory Advice Service & Labour Institutes (DGFASLI). The state governments administer the provisions through their respective labour welfare ministries.  

Factory Compliance Rules & Regulations in India

The rules and regulations applicable to factory compliance in India are: 

• Employees’ Compensation Act, 1923  
• Payment of Wages Act, 1936 
• Industrial Disputes Act, 1947
• Factories Act, 1948 
• Minimum Wages Act, 1948 
• Employees’ Provident Fund Act, 1952
• Maternity Benefits Act, 1961 
• Contract Labour (Regulation and Abolition) Act, 1970 
• Building and Other Construction Workers Act, 1996
• Code on Occupational Safety and Working Conditions (OSH), 2020
• Industrial Relations Code, 2020
• Code on Social Security, 2020

Factory Compliance Checklist in India 

While ensuring an industrial unit’s compliance with the Factories Act, 1948, the following checklist can be a useful guide-

1. Ensure that the industrial unit is appropriately registered and all the necessary licenses have been acquired. 
2. Maintain a health and hygiene-friendly work environment for workers 
3. Assess work safety risk, evaluate and implement essential safety
4. Follow rules and regulations related to working hours, duration of work breaks and overtime. 
5. Ensure compliance with regulations regarding wages, minimum wages, deductions, and payment periods.
6. Maintain adequate rest rooms, proper canteen, and first aid facilities on-premise as per the number of workers. 
7. Maintain all the records related to wages, work hours, and overtime as per the regulations. 
8. Adhere to all regulations related to employing women and pregnant women.  
9. No child should be employed in the factory otherwise in accordance with the notice of periods of work for children displayed in the factory.
10. Manage hazardous materials and wastes properly and control workers’ exposure to such materials.  
11. Make workers aware of their rights and responsibilities as per the factory compliance rules and regulations.  
12. Ensure necessary on-premise fire safety capability. 
13. Display statutory notices, abstract of the Act, and other required information publicly for workers. 

Penalties for Non-Compliance Under the Factories Act

Non-compliance with the Factories Act and other legislation leads to different types of punishment and penalties with varying severity. 

• As per Sec. 92, contravention of any provision may result in either imprisonment for up to 2 years, a penalty of up to Rs.1,00,000 or both. 
• Continuing offence attracts a penalty of a daily fine at a rate of Rs.1,000 per day. 
• As per Sec. 94, death, injury or serious physical damage due to contravention of the Act will attract a fine of Rs.25,000 (death) to Rs.5,000 (serious injury). 
• As per Sec. 95, any obstruction to inspection by concerned authority may lead to either an imprisonment of up to six months, a fine of Rs.10,000 or both.  
• As per Sec. 96, wrongful disclosure of information related to factory compliance may lead to either an imprisonment of up to 6 months, a fine of up to Rs.10,000 or both. 
• As per Sec. 97, workers violating provisions of the Act are also liable to pay a fine of up to Rs.500. 

Examples of Factory Compliance

Scenario: Section 21 of the Factories Act, 1948 requires the fencing of machinery. Legally, factories are required to, 

• Secure machinery, its moving parts be secured within a fence to protect workers coming in contact with those parts accidentally and suffer injuries.
• Continuous monitoring and maintenance of fence and guards 

The actual compliance will involve:

• Risk identification, analysis and assessment 
• Installation of safeguards, fences 
• Maintenance of guards 
• Worker training and awareness building about the safety provisions under the Act 
• Supervision 
• Record keeping related to risk assessment, installation, continuous monitoring, supervision and awareness-building interventions. 
• Inspection and audit of compliance with the provision 

Best Practices for Ensuring Factory Compliance

To ensure factory compliance with various applicable legislations, it is important to maintain a set of best practices. 

• Establishing a culture of safety and accountability in the management 
• Clarity in the understanding of rules and regulations 
• Thorough implementation of statutory provisions 
• Continuous and comprehensive documentation of compliance procedures 
• Training and awareness-building initiatives among workers and management 
• Regular inspection and audit
• Proactive risk management