INTRODUCTION
If you’re a business owner who is part of the Indian startup ecosystem, you and your employees are held to an assortment of legal standards. It is essential for startups to understand their legal prerequisites when recruiting and employing staff, as well as the prerequisites laid out by the government. In this article, we will look at what constitutes “hiring” a person, how startups can fulfil labour laws, and what they should do to avoid any financial penalties associated with non-compliance with regulations. The importance of Labour Law Compliance is opined in Dy. Cit vs Abg Heavy Industries Ltd. on 8 September 2006 – 2008 303 ITR 328 Mum that the employer is responsible for the maintenance of the compliance.[1] The Indian startup sector is anticipated to expand quickly in the coming years. It is essential that all startups obey the current laws and regulations to avoid any problems. This piece will go over some of the most significant labour laws in India and how startups can abide by them.
HOW DOES A STARTUP NEED TO COMPLY WITH LABOUR LAWS?
It is essential for startups to understand the regulations that are in place when taking on employees, as not adhering to them can result in hefty fines. This article will review what it means to “employ” someone, how start-ups can ensure that they are compliant with labour laws, and the measures they should take to avoid penalties for non-compliance. The Indian startup industry is expected to experience rapid growth in the future, and this article will go over some of the most crucial labour laws and how startups can abide by them.
So, what does this mean for your startup?
When it comes to meeting the standards of labour law in India, startups must be aware of the country’s regulations. Additionally, they need to make sure that they are following their own guidelines and rules. Lastly, even if those policies are not included in the labour law, they should still observe their own business practices.
INDIAN LABOR LAWS
In India, there is a broad scope of employment regulations that have to be followed by startups. The government has set the lowest wages that are to be paid to workers based on their location and industry. These wages must be given to employees on a regular basis and should correspond to their hours of work each month. The main aim of Labour Laws in India is to protect the rights and dignity of workers, as well as control and manage the working conditions, wages, and hours of employment. This is based on the principle that staff members should be guaranteed reasonable working circumstances and the lowest possible wages. Startups in India must comply with labour laws to ensure the safety of their employees. India’s Labour Laws govern the circumstances and entitlements of personnel in the country. Legal regulations incorporate national, state, and local regulations to promote collective bargaining, grant workers protection from unjust employment practices, and oversee agreements of employment and other matters.
WHAT ARE THE COMPLIANCES REQUIRED FOR STARTUPS?
A failure to comply with relevant labour laws can have serious implications for a startup, both legally and financially, impacting its standing and progress. It is essential for any new business to comprehend and obey the various labour regulations to build a just and equitable work environment. In this article, we will give a thorough examination of the labour law compliance that startups in India must comply with.
- Minimum Wage Act, 1948: The Act requires employers to pay their staff a minimum wage that is set by the government. Startups are required to make sure that their employees receive the minimum wage as required by law. The government reviews and updates the minimum wage on a regular basis. Failure to do so can result in legal consequences for the company. [2]
- Employee Provident Fund (EPF) and Employee Pension Scheme (EPS), 1952: Employee social security programmes like the EPF and EPS offer financial security in the event of retirement. [3] To participate in these programmes, both the employer and the employee must contribute a set percentage of their respective salaries. Startups with over 20 employees are required to abide by these policies, and failure to do so may have legal repercussions.
- Payment of Gratuity Act, 1972: Employers are required to give gratuities to workers after they have worked for the company for five years in a row. Employees receive a lump sum payment known as a gratuity when they retire, resign, or are fired. Startups must calculate and pay gratuities to qualified employees in accordance with the provisions of the act or face legal repercussions. [4]
- Contract Labour (Regulation and Abolition) Act, 1970: This law regulates the use of contract labour in particular establishments. Workers hired by a contractor rather than being directly employed by the business are referred to as contract labour. Startups that engage in contract labour are required to register themselves with the appropriate authorities and comply with the provisions of the act, which include ensuring that the working conditions of contract labour are like those of regular employees. [5]
- Equal Remuneration Act, 1976: This law forbids discrimination based on gender in matters involving hiring, promotion, training, and pay. Startups must ensure that they are not discriminating against their employees based on gender and provide equal pay for equal work. Additionally, the act mandates that employers keep records of employee wages and make them accessible for inspection. [6]
- The Workmen’s Compensation Act, 1923: This act provides compensation to employees who suffer injury or death in the course of their employment. According to the act, employers are required to purchase insurance policies to protect their workers, and the amount of the award is based on how severe the injury or disability is. Startups must make sure they have enough insurance coverage to abide by the act’s requirements. [7]
- The Payment of Bonus Act, 1965: According to this law, employers must give their staff a bonus based on the company’s earnings or a predetermined portion of the employee’s salary, whichever is higher. Startups must abide by the Act’s rules to avoid legal repercussions, and the bonus must be paid annually. [8]
- Industrial Disputes Act, 1947: This law establishes the process for conciliation and arbitration in the event of disputes and provides for the resolution of labour disputes between employers and employees. Startups are required to abide by the Act’s guidelines and arbitrate any disputes amicably and openly. [9]
- Maternity Benefit Act, 1961: According to this law, female employees who have worked a minimum of 160 days in the 12 months prior to the delivery date are eligible for maternity benefits. The employer provides the employee with maternity benefits while she is pregnant.[10]
OBLIGATIONS OF EMPLOYERS
Employers’ primary responsibility is to make sure that the relevant labour laws are followed properly. This includes paying wages in line with the Minimum Wages Act and paying gratuities in line with the Payment of Gratuity Act. Employers must also make sure that gratuity and provident fund payments are made in accordance with the Employees Provident Fund and Miscellaneous Provisions Act. Additionally, employers are required to observe that the Industrial Disputes Act is to be followed when it comes to the resolution of labour disputes. [11]
CONCLUSION
A startup is a transient, adaptable entity that has the potential to grow and change significantly over time. “Social enterprises” and “crowdfunded startups” are other names for startups. This indicates that they have a social mission to improve the world through original thinking and solutions, all the while making money for their investors. A social enterprise must abide by national and international labour laws as well as other rules that safeguard workers’ rights to fair wages, workplace safety, and the right to organise. These rights are crucial for any business in India today.
Author(s) Name: Anjali Rathod (Mumbai University, Mumbai)
References:
[1] Dy. Cit vs Abg Heavy Industries Ltd., (2008) 303 ITR 328 Mum.
[2] Minimum Wages Act, 1948, § 4, No. 11, Acts of Parliament, 1948 (India)
[3] The Employees’ Provident Funds Scheme, 1952, § 69, No. 19, Acts of Parliament, 1952 (India)
[4] Payment of Gratuity Act, 1972, § 4, No. 39, Acts of Parliament, 1972 (India)
[5] The Contract Labour (Regulation and Abolition) Act, 1970, § 2, No. 37, Acts of Parliament, 1948 (India)
[6] Equal Remuneration Act, 1976, § 4, No. 25, Acts of Parliament, 1976 (India)
[7] The Workmen’s Compensation Act, 1923, § 3, No. 8, Acts of Parliament, 1923 (India)
[8] The Payment of Bonus Act, 1965, § 31A, No. 21, Acts of Parliament, 1965 (India)
[9] The Industrial Disputes Act, 1948, § 4, No. 14, Acts of Parliament, 1948 (India)
[10] Maternity Benefit Act, 1961, § 5, No. 53, Acts of Parliament, 1961 (India)
[11] Simpliance, https://www.simpliance.in (last visited Mar. 5, 2023)
