Labour Welfare Fund Contribution: How LWF Works in Payroll

Labour welfare fund contribution is one of the smallest deductions on an Indian payslip, often ₹10 to ₹50 at a time, and one of the most frequently missed. LWF is levied by state governments under state Labour Welfare Fund Acts to fund welfare activities for workers: education support for children, medical facilities, recreation, housing assistance and similar schemes. Because each state sets its own amounts, frequency, eligibility and due dates, employers operating in several states need a clear method. This guide explains how LWF works, shows worked examples, and lists the compliance steps and common mistakes.

Which States Levy Labour Welfare Fund

LWF is levied in a number of states and union territories, including Andhra Pradesh, Telangana, Karnataka, Maharashtra, Tamil Nadu, Kerala, Gujarat, Madhya Pradesh, Chhattisgarh, Odisha, West Bengal, Goa, Punjab, Haryana, Delhi and Chandigarh. Other states either do not have an LWF law or do not apply it to most establishments. The list changes as states amend their laws, so verify the position for each location.

The Labour Codes, in force from 21 November 2025, did not replace state LWF Acts. LWF continues as a state-level obligation alongside professional tax.

How LWF Is Structured

Element	How states differ
Contribution amount	Usually a fixed rupee amount per employee; some states use a percentage of salary with a cap
Employer share	Typically two or three times the employee share
Frequency	Monthly, half-yearly (June and December) or annual
Eligibility	Some states exclude managerial or supervisory staff above a wage limit; some cover all employees
Establishment coverage	Based on type of establishment and number of employees
Due date	Usually within a few weeks after the contribution period ends

Illustrative State Examples

The figures below are as last revised to our knowledge. LWF rates are revised by state notification, sometimes with little notice, so confirm current amounts on the state labour welfare board website before running payroll.

Karnataka

• Frequency: annual, for the calendar year.
• Employee: ₹50. Employer: ₹100.
• Due date: by 15 January of the following year.
• Deduction: commonly from December salary.

Maharashtra

• Frequency: half-yearly, for the periods ending June and December.
• Employee: ₹25. Employer: ₹75, per half-year, as revised in recent years.
• Deduction: from June and December salary.
• Due date: by 15 July and 15 January respectively.
• Coverage: employees other than those in managerial or supervisory roles drawing wages above the notified limit.

Other states

Tamil Nadu and several other states collect annually; Gujarat, Madhya Pradesh and others use half-yearly periods; Haryana has used a percentage-of-salary formula with a cap and an employer share of twice the employee share. Treat these as indications and check the current rules.

Worked Example 1: Annual LWF in Karnataka

A Bengaluru office has 40 eligible employees on the rolls in December.

1. Employee contribution deducted from December salary: 40 × ₹50 = ₹2,000.
2. Employer contribution: 40 × ₹100 = ₹4,000.
3. Total payable by 15 January: ₹6,000.

Each employee's December payslip shows a ₹50 LWF deduction.

Worked Example 2: Half-Yearly LWF in Maharashtra

A Pune unit has 40 eligible employees on the rolls in June, and 44 in December.

Period	Employees	Employee share	Employer share	Total
January to June	40	₹1,000	₹3,000	₹4,000
July to December	44	₹1,100	₹3,300	₹4,400
Year		₹2,100	₹6,300	₹8,400

Workings: 40 × ₹25 = ₹1,000; 40 × ₹75 = ₹3,000; 44 × ₹25 = ₹1,100; 44 × ₹75 = ₹3,300.

Worked Example 3: Employee Transferring Between States

Kiran works in Mumbai from January to August and moves to Bengaluru in September. Under the illustrative rules above:

• Maharashtra June deduction: ₹25 (employer ₹75).
• Maharashtra December deduction: not applicable, as Kiran is not on the Maharashtra rolls in December.
• Karnataka December deduction: ₹50 (employer ₹100), as Kiran is on the Karnataka rolls in December.

Most LWF laws attach the liability to the employee's presence on the rolls in the relevant establishment on the specified date or during the period, so transfers can mean contributions in two states in one year. Follow each state's rule on the qualifying date.

Registration, Payment and Returns

1. Register the establishment with the state labour welfare board where required. Some states use the shops and establishments registration as the basis.
2. Deduct the employee share in the specified month.
3. Pay employee and employer shares together, usually online, by the due date.
4. File the prescribed return or statement, often with the payment, listing employees and amounts.
5. Keep challans and returns with payroll records.

Add LWF due dates for each state to your payroll compliance calendar, next to professional tax, which follows a similar state-wise pattern (see our professional tax slabs guide).

Worked Example 4: A Multi-State Employer's Year

A company has offices in Bengaluru (40 eligible employees in December), Pune (40 in June, 44 in December) and Gurugram (25 employees). Using the illustrative rates above and assuming, for this example, that Haryana's percentage-based contribution works out to ₹30 per employee per month for the employee and ₹60 for the employer (check the actual formula and cap):

State	Frequency	Employee share (year)	Employer share (year)	Total (year)
Karnataka	Annual	₹2,000	₹4,000	₹6,000
Maharashtra	Half-yearly	₹2,100	₹6,300	₹8,400
Haryana (illustrative)	Monthly	₹9,000	₹18,000	₹27,000
Total		₹13,100	₹28,300	₹41,400

Haryana workings: 25 employees × ₹30 × 12 = ₹9,000; 25 × ₹60 × 12 = ₹18,000. The amounts are small, but the example shows why a single company can have three different deduction months, three portals and three due dates for one statutory item. Without a state-wise table in payroll, something gets missed.

Records to Keep

• State registration certificates for LWF where applicable.
• The current rate notification for each state, with its effective date.
• Employee-wise deduction lists for each contribution period.
• Challans, payment confirmations and returns.
• Working papers for unpaid accumulations transferred to the fund.

Inspectors under state LWF Acts can ask for these records, and they are also the first thing an incoming payroll team needs when taking over.

Unpaid Accumulations

Several LWF Acts also require employers to transfer "unpaid accumulations" to the fund: wages, bonus or other amounts due to employees that remain unclaimed for a specified period (often three years), and fines collected from employees. These amounts are not salary deductions; they are balances in the employer's books. Review long-outstanding unpaid wages and unclaimed settlement amounts at least once a year and transfer them as the state law requires.

Treatment in Payroll and Accounts

• Payslip: show the employee share as "Labour welfare fund".
• Tax: the employee share is a small deduction from salary paid; it is not specifically deductible for income tax. The employer share is a business expense.
• CTC: employers usually treat their share as a statutory cost and do not include it in CTC, given the small amounts.
• Accounts: credit the employee share to an LWF payable account in the salary entry; record the employer share as an expense with a matching payable.

Joiners, Leavers and Eligibility Edge Cases

• Joined after the qualifying date: in states where liability depends on being on the rolls in June or December, an employee who joins in July does not contribute for the January to June period.
• Left before the deduction month: an employee who leaves in November is usually not liable for a December deduction in that state. Do not recover LWF in the final settlement unless the state's rule requires it.
• Promotion above the eligibility limit: in states that exclude managerial or supervisory employees above a wage limit, check eligibility as of the qualifying date, not at the start of the year.
• Contract workers: the contractor, as employer, deducts and pays LWF for its workers; the principal employer should check this as part of contractor compliance.

Write these rules into the payroll configuration once, so each period's deduction list is generated rather than assembled by hand.

Common LWF Mistakes

• Not knowing that a state where you opened a branch levies LWF.
• Deducting in the wrong month (for example, January instead of December).
• Deducting from ineligible managerial employees in states that exclude them.
• Paying only the employee share and missing the employer share.
• Using outdated rates after a state revision.
• Ignoring unpaid accumulations.

LWF Checklist

1. List states and establishments; confirm which levy LWF.
2. Record current rates, frequency, eligibility and due dates with effective dates.
3. Tag each employee with work state and eligibility.
4. Deduct in the right month and compute the employer share.
5. Pay and file by the due date; keep challans.
6. Review unpaid accumulations annually.

LWF in Fininvo Payroll

Fininvo Payroll lists labour welfare fund among its compliance features, alongside PF, ESI and professional tax. See compliance features.

Frequently Asked Questions

What is labour welfare fund in salary?

A small contribution deducted from employees' salaries and matched (usually at a higher amount) by employers, paid to a state labour welfare board to fund worker welfare schemes.

Is LWF mandatory in all states?

No. Only states with Labour Welfare Fund Acts that apply to your establishment require it.

How often is LWF deducted?

It depends on the state: monthly, half-yearly (June and December) or annually.

Is LWF part of CTC?

Employers usually treat their share as a statutory cost outside CTC because the amounts are small. The employee share is deducted from salary.

Is this legal advice?

No. This is general information. LWF rates and rules change by state notification; check the current position before applying them.