LABOUR LAW COMPLIANCES AND EXEMPTIONS FOR START-UPS IN INDIA: ENSURING BETTER BUSINESS OPERATIONS & EXPANSIONS

ABSTRACT

Compliance norms are legally mandated regulations and rules that a business must follow. In India, compliance with employment requirements must be done in line with the laws of the land. The Indian government has proposed measures to make it simpler for Indian start-ups to comply. One of these possibilities is to exempt start-ups that meet certain conditions from some labour constraints for up to three years. The idea is to free up start-ups to concentrate on expansion and growth rather than compliance. However, it is critical to emphasize that new businesses will still be required to observe certain fundamental labour laws, such as those controlling minimum wages and worker safety. This paper will gaze at Labour Law compliances and exemptions for Indian Startups to avoid any hurdles in carrying out its business operations.

Keywords:  Labour, Law, Compliances, Corporate, Government, Wages, Maternity Benefit, Payment, Profits, Child Labour, Occupational Safety.

INTRODUCTION

Entrepreneurship is not new to India. In fact, to quote from the Indian Industrial Commission Report (1916-1918)–“At a time when the West of Europe, the birth place of modern industrial system, was inhabited by uncivilized tribes, India was famous for the wealth of her rulers and for high artistic skill of her craftsmen. And even at a much later period, when the merchant adventures from the West made their first appearance in India, the industrial development of this country was, at any rate, not inferior to that of the more advanced European nations”.

In recent years, there have been notable developments observed within the Indian startup environment. India has emerged as the third largest worldwide centre for startups, mostly propelled by the growth of digital technology and a significant surge in the population of young entrepreneurs. Indian startups exhibit considerable potential in a range of promising industries, including fintech, e-commerce, renewable energy, health technology, cutting-edge technology, and eco-friendly transportation.[i] This can be attributed to a flourishing economy, the disruptive impact of technological innovations on conventional business models, and a substantial reservoir of skilled professionals. The Government of India, in conjunction with the State Governments, has been instrumental in creating a conducive environment for the advancement of startups in the country.

In addition to addressing the challenges related to financial constraints, resource allocation, and organisational expansion, it is crucial for startups to prioritise the development of compliance with pertinent legislations right from the outset. When startups commence their operations and engage in staff recruitment, it is crucial for them to prioritise compliance with labour law regulations.[ii] These legislations are implemented from the onset and embody a crucial though often disregarded obligation for businesses. The attainment of maximum compliance is contingent upon the effective implementation of a meticulously crafted and well deliberated policy framework, in tandem with the strategic use of the concessions provided by the Government. Start-up businesses must follow all work laws that apply to other businesses, whether they are a factory or an establishment. At any given time, there could be as many as 28 laws that need to be followed.

Recent Startup Compliance Framework Developments

The Indian government has formulated a strategy pertaining to labour law compliances with the aim of fostering the growth of start-up enterprises within the nation. The following are the main points derived from the source:

1. A startup is described as an emerging company that is typically characterised by its innovative business model, disruptive technology, and potential for rapid growth. This definition applies specifically to the exclusions outlined in the following context.

• An organisation that has been legally established or registered in India for a minimum of five years and has not generated an annual revenue exceeding Rs. Twenty-Five Crores in any previous fiscal year.
• The primary objective is to pursue the advancement, growth, implementation, or monetization of novel items, procedures, or services, propelled by technological advancements or intellectual assets.
• Assuming that the establishment of said firm does not involve the division or reorganisation of an existing business entity.
• Furthermore, it should be noted that an organisation will no longer be classified as a start-up if its annual revenue for the preceding fiscal years surpasses Twenty Five Crores or if it has reached the fifth anniversary of its incorporation or registration.

2. It is recommended that startups be granted the authority to independently verify their adherence to nine labour and environmental regulations by means of the Startup mobile application.
3. In relation to employment legislation, there will be a three-year period during which inspections will not be carried out. Startups can undergo an inspection process upon the receipt of a credible and verifiable complaint of a violation. This complaint should be submitted in written form and must be approved by a superior officer who holds a higher rank than the inspecting officer.
4. In the context of environmental legislation, startups categorised as ‘white’ by the Central Pollution Control Board (CPCB) would be granted the authority to independently verify their adherence to regulatory requirements. Consequently, inspections would be conducted sporadically for these startups.
5. The existing framework provides exemptions for certain labour laws.

• “The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996, The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979, The Payment of Gratuity Act, 1972, The Contract Labour (Regulation and Abolition) Act, 1970, The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, The Employees’ State Insurance Act, 1948”[iii].

STARTUPS IN INDIA: LABOUR LAW COMPLIANCES FOR

To comply with Indian labour laws, several essential rules must be observed. For Indian startups, the following are mandatory labour law compliance duties[iv]:

• 1948 Minimum Wage Act: This act establishes minimum wage rules based on different kinds of labour and geographical locations of the country. Employers are required to pay the government-mandated wage minimum to their employees.
• The 1936 Wage Payment Act: This law requires employers to compensate employees on an ongoing schedule and prohibits any form of salary withholding.
• The Maternity Benefit Act of 1961 allows female employees who are pregnancy or who just gave birth to take paid maternity leave.
• The Payment of Bonus Act of 1965 requires businesses to pay bonuses to employees based on their salary and the company’s performance.
• The Child Labour (Prohibition and Regulation) Act of 1986 prohibits the hiring of children under the age of 14 in certain areas of labour and regulates working conditions for children between the ages of 14 and 18.
• 2020 Occupational Health, Safety, and Conditions of Employment Code: This law makes measures for workers’ security, well-being, and health in the workplace.
• The Workmen’s Compensation Act of 1923, the Equal Compensation Act of 1976, & the Inter-State Migrant Workers (Regulation of Employment and Terms of Service) Act of 1979 are further important pieces of law.

These laws address a wide range of issues, such as maximum salary, hours worked, overtime compensation, social security benefits, and workplace safety. Noncompliance with these regulations may result in penalties, fines, and even criminal charges. As a result, it is critical for businesses to be aware of their responsibilities and to take efforts to ensure that they comply with all labour regulations. Labour laws encompass a comprehensive framework of regulations that dictate the treatment and rights of employees within the workplace. The enforcement of labour legislation is crucial in ensuring the protection of workers’ rights and preventing their exploitation, as labour is widely recognised as the most important asset within any firm. The regulatory framework encompasses the governance of corporations, employees, and labour groups.[v] Retaliatory proceedings against the corporation may ensue as a consequence of legal violations. Labour legislation is promulgated by both state and federal governments. The adherence to labour standards extends beyond the mere submission of returns. These records not only serve as evidence of conformity with regulations, but also need to be supplied to authorities in the event of any detected irregularities. Certain laws can only be enforced under specific conditions.

The Ministry of Labour & Employment has recently imparted sagacious counsel to the States/UTs/Central Labour Enforcers concerning a regulatory framework centred on autonomous governance and inspections pursuant to various Labour Laws. The primary objective of this initiative is to augment the existing start-up ecosystem within the nation, with the overarching goal of fostering the inception and proliferation of novel start-up enterprises. It is recommended that state governments establish a regulatory framework to supervise the audits of start-ups in accordance with labour rules. This measure aims to incentivize start-ups to adopt self-discipline and adhere to legal regulations. The purpose of implementing these regulations is to mitigate the potential negative impact of harassment on firms by limiting the exercise of discretion and arbitrariness. In the event of a violation of these labour norms, serious penalties will be imposed.

 LABOUR LAWS & START-UPS

A proposition has been put forth wherein it is suggested that in the event that these nascent enterprises furnish a self-affirmation of adherence to nine labour regulations during their inaugural year of functioning, there shall be a waiver of any inquiry into the implementation of said labour statutes, provided they are deemed applicable. The subsequent labour legislation will be examined:

• The Building and Related Construction Workers (Employment and Terms of Service) Act of 1996
• The Inter-State Migrant Workers (Regulation of Work and Conditions of Service) Act of 1979
• The Gratuity Payment Act of 1972
• The Employees’ Pension Funds and Other Provisions Act of 1952 and the Contract Labour (Regulation and Abolition) Act of 1970
• Workers’ State Insurance Act of 1948

The initiation of start-up enterprises necessitates the fulfilment of self-certification protocols via the utilisation of the Startup mobile application. This particular application facilitates the seamless provision of essential information and the fulfilment of requisite documentation for enterprises, either via the application itself or the associated website. The scrutiny of returns shall commence solely subsequent to the culmination of the second year, encompassing duration of no more than five years subsequent to the inception of the entities, on the condition that a credible and well-founded grievance of transgression is officially submitted in written form and authorization is bestowed by higher authorities[vi].

The Benefit of Startup Schemes

It is a difficult undertaking to start a business. It’s not like you launch a product or service and the world immediately embraces you. You must work hard at every level. There are other legal restrictions that must be followed depending on the industry.  That is the reason the government devises several programmes to facilitate the establishment of a business, particularly a small one. In the long run, supporting medium-sized businesses benefits the economy. In terms of startups, what follows are the benefits of startup compliance:

• Simplified process through mobile applications
• Reduction in costs including trademarks and patent processes
• Easily accessible funds as venture capital
• Tax exemptions for a limited period in the initial years
• Eligibility to apply for government tenders without complying with the criteria related to prior experience or turnover
• Facilities for Research and Development (R&D) sector
• Time and money saving compliance process
• Tax savings for startup investors
• Easy exit/ windup for startups from the business world[vii]

Government’s Eligibility Criteria for Start-Up Recognition

The startup should be registered as a private limited company, a partnership business, or a limited liability partnership (LLP).

• In any of the prior fiscal years, turnover should have been less than Rs. 100 crores.
• A company is considered a start-up for the first ten years after its incorporation.
• The startup’s focus should be on product innovation/improvement of current products, services, and procedures, and it should be able to provide employment/income.
• It must be certified by the Inter-Ministerial Board established for this purpose.

An entity that emerges as a result of the partition or reconstruction of a pre-existing corporation must not be classified as a ‘start-up’[viii]. A startup in India represents the embodiment of a novel and innovative concept in its execution, as well as the manifestation of an idea that has been put into practise for further development. A startup is a company entity that seeks to quickly align with market trends and emulate the strategies of established businesses, with the objective of achieving long-term viability and market presence.

A startup has the potential to be established in various legal forms, such as a partnership, single proprietorship, or any other appropriate legal structure. While a startup organisation may not initially conform to established corporate culture, it is nonetheless bound by legal responsibilities that must be fulfilled in order to ensure growth and legal compliance throughout the establishment and operation of the firm. Entrepreneurs encounter various commercial challenges and endeavour to address them, while also ensuring strict adherence to legal regulations in all decision-making processes. 

Labour Laws

Every organisation relies on a workforce including employees or workers to ensure its seamless and efficient functioning on a day-to-day basis[ix]. Numerous employment regulations exist, encompassing the Minimum Wage Act, gratuity provisions, pension fund contributions, paid vacations for employees, maternity benefits, workplace harassment policies, and bonus distribution protocols, among other restrictions.[x] The government has provided a startup with an exemption from labour inspection on the condition that they constantly adhere to all of the significant labour norms of the country, so benefiting the workers: “The 1947 Industrial Disputes Act, The 1926 Trade Unit Act, The Inter-State Migrant Workers (Regulation of Employment and Service) Act of 1979; The Payment of Gratuity Act of 1972; The Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, The 1948 Employees’ State Insurance Act, Building and Other Construction Workers (Employment and Conditions of Service) Act of 1996, The 1946 Industrial Workers (Standing Orders) Act, The 1970 Contract Employment (Regulation and Abolition) Act”[xi].

REVIEW OF LITERATURE

Underfunding and bottlenecks have plagued Special Economic Zones (SEZs) and industrial region development plans. As a result, developed property on which entrepreneurs can quickly begin manufacturing activities is scarce. Another key obstacle for investment is labour regulations. Downsizing is unthinkable if it impacts directly employed workers, who have a near-certainty of not being laid off or laid off in businesses with 100 or more employees. Legislative ambiguity enhances the cost of compliance, and enforcement inspections are an indicator of harassment (Hoda and Rai 2014)[xii].

The Indian Constitution delineates the allocation of legislative powers between the central and state governments through the establishment of the Union List, State List, and Concurrent List. These lists serve as mechanisms for the distribution of law-making authority within the Indian federal system. The inclusion of labour regulation within the Union List is noteworthy, as it signifies the recognition of its significance in the governance of the nation. However, it is imperative to acknowledge that certain subjects pertaining to labour, namely labour disputes and welfare, have also found their place within the Concurrent List. This allocation of authority between the Union and the states underscores the shared responsibility in addressing these crucial matters, thereby fostering a collaborative approach towards their effective management and resolution. Consequently, both the esteemed Parliament and the legislatures of various states have duly embraced a multitude of employment laws, the number of which is indeed considerable. Amendments to legislative enactments often afford the opportunity for inconsequential modifications, yet on occasion, they may also facilitate substantial alterations, all while remaining faithful to the underlying intent and essential objectives of the original legislation. Based on the Annual Report for the fiscal year 2013-14, as published by the esteemed Ministry of Labour and Employment, it has been duly noted that the prevailing state of affairs encompasses a total of 44 enactments that hold jurisdiction over the entire governmental apparatus. Furthermore, it is worth noting that there exist approximately 160 enactments at the state level, which encompass supplementary measures. In accordance with the work of Papola (2013), it is evident that his research holds significant scholarly merit[xiii].

A general finding is that uncertainty caused by complex, overlaid, and out-of-date regulations influences ‘labour market results’ in India (Dougherty et al 2009). To address widely recognised inadequacies in employment regulation, the ‘National Commission on employment’ proposed categorising laws into five or more groups dealing to, among other things, labour relations, pay, social security, safety, social security, and working conditions[xiv].

Aside than the first two broad rules, the MSE sector is subject to a number of employment laws, as stated earlier. The most notable are the Minimum Wage Act of 1948 & the Child Labour (Regulation and Prohibition) Act of 1986. Under the Minimum Wage Act, state governments have passed many Acts based on trades/occupations and geographic locations. These Acts are rarely implemented due of their geographical and numerical reach. They also differ greatly depending on trade/industry/occupation and area. According to Anant and Sundaram (1998), many states have legal minimum wages that are significantly lower than the poverty line[xv].

In the Indian context, it is the esteemed Office of the Chief Labour Commissioner that undertakes the crucial responsibility of implementing the comprehensive framework of labour laws. Concurrently, the various state governments, in accordance with their respective jurisdictions, assume the task of executing labour laws by virtue of their designated labour commissioners. In accordance with the directives of a former Chief Labour Commissioner, it is incumbent upon employees of the central government to exclusively scrutinise central public sector enterprises as well as notable private corporate sector entities that do not meet the criteria for being classified as Micro and Small Enterprises (Mukhopadhyay, 2010)[xvi].

OBJECTIVES

• To study the Startups and its labour law connections;
• To examine the self-certify compliance with nine labour and environmental rules (through the Startup mobile app) of start-ups;
• To understand the employees have a work-life balance in start-ups.
• To examine the start-ups and its sustenance in a competitive environment, compliance helps safeguard the company’s reputation, boost investor confidence, and create long-term success.

RESEARCH METHODOLOGY

The overarching framework of this inquiry was characterised by an exploratory nature. The imperative for enterprises and businesses to adhere to labour laws is universally acknowledged, however, it is worth noting that this particular requirement often engenders frustration among fledgling entrepreneurs. In pursuit of fostering and promoting the growth of nascent enterprises, the governmental authorities have formulated a policy whereby startups are afforded the opportunity to engage in self-certification of labour and environmental regulations for a designated span of three years. This initiative aims to mitigate challenges encountered by emerging entrepreneurs and facilitate their acclimation to the intricacies of labour law compliance within the aforementioned timeframe. The present government initiative in India to provide support to businesses is commendable, as it holds the potential to greatly enhance the startup ecosystem and generate employment prospects. The facilitation of compliance can be greatly enhanced through the diligent pursuit of comprehensive research, the acquisition of expert guidance, and the development of a meticulously crafted compliance plan.  Through the strategic emphasis on adherence to regulatory requirements, emerging enterprises have the potential to establish a robust framework for their organisation, thereby positioning themselves favourably within the fiercely competitive Indian market and attaining a distinct edge over their rivals[xvii].

Result and Discussion:

Start-ups are characterised as economic growth engines, led by enthusiastic entrepreneurs who are focused on providing more superior jobs to talented kids rather than self-seeking collar jobs for themselves. Following the launch of the Startup India programme, some inventive concepts became a reality, opening up new opportunities for Indian youngsters. In terms of higher revenues and profits in contracts, these businesses, on the other hand, lack government compliance diligence referring to one or more laws applicable to them.

Aside from employee desires for greater and more remunerative work possibilities, customer retention, market analysis, and cost difficulties, start-ups must also address certain industry-specific laws and regulations to ensure the smooth running of corporate operations. From creating their By-laws and Founder Agreements to ‘Chain level documents with employees’, all such practises must be approached with caution[xviii].

The inspection procedure will be simplified and made more meaningful! Startups are going to be able to self-certify in conformity with labour regulations and environmental legislations via the Startup mobile app. In the event of labour laws, it is to be noted that a period of 3 to 5 years shall transpire without any inspections being carried out. In the event that a reliable and duly authenticated report of a transgression is received, startups may be subject to inspection, provided that said report has been meticulously documented and authorised by a superior officer holding a rank senior to that of the inspecting personnel. Startups possess the capacity to engage in self-certification with regards to their adherence to regulatory requirements in the subsequent domains:[xix]

Table 1: Labour Laws

1996 Building and Other Construction Employees (Employment and Terms of Service) Act	The Inter-State Migrant Workers (Regulation of Employment and Conditions of Service) Act was passed in 1979.
The Payment of Gratuity Act, 1972	The 1970 Contract Labour (Article and Abolition) Act
Employees’ Provident Funds and Other Provisions Act of 1952	1948 Employees’ State Insurance Act
The Industrial Disputes Act, 1947	The Trade Unions Act, 1926
The Industrial Employment (Standing Orders), 1946

The labour laws, an assemblage of regulations, serve as a mechanism to govern the treatment of individuals within the realm of employment. The workforce stands as the most invaluable asset of an organisation, and in order to ensure the protection and preservation of their entitlements, labour laws are promulgated. The aforementioned entity exercises dominion over commercial establishments, personnel, and associations of workers. Failure to adhere to legal regulations can lead to the imposition of disciplinary measures upon the organisation. Both the state and federal governments are responsible for the imposition of labour regulations. The adherence to labour law encompasses a broader scope than mere submission of returns. These documents hold significant value as substantiating evidence of legal conformity and are required to be furnished to the appropriate authorities in the event of any deviations from the prescribed norms. In the realm of labour governance, it is imperative to acknowledge the existence of regulations that are tailored exclusively to particular work scenarios. In the realm of organisational governance, it is imperative to acknowledge the existence of specific regulations that hold sway over all entities, irrespective of their nature or purpose[xx].

The major acts included in the industrial law compliance rules are in Table 2:

Act	Applicable to	Purpose	Other Comments
1996 Building and Related Construction Workers Act	It is relevant in organisations where the contractor directly employs 10 or more individuals on a construction site.	The Act’s objective is to collect cross from building sites and use it for the benefit of the workers on the site.	This statute does not apply to construction and building sites governed by the Factories statute of 1948 or the Mines Act of 1952.
Contract Labour Act, 1970	·       If the organisation hired 20 or more contract workers in the previous 12 months ·       To any contractor who has hired 20 or more workers in the last 12 months.	The goal is to regulate contract labour working conditions.	It isn’t applicable to jobs that are performed on a casual basis. Only organisations registered within this Act are permitted to contract labour.
Minimum Wages Act, 1948	·       It is applicable throughout India. ·       It applies to any job if it employs 1000 people in the state in question.	·       To provide minimum wages to workers in the organised sector; and ·       To authorise government agencies to take steps towards establishing minimum wages. and to revise wages within 5 years.	Except with the approval of the Central Government, it does not apply to any employees of any undertaking held by the Central Government or of the federal railway.

 Application of Labour Codes on Startups

The Indian Parliament has brought about a significant overhaul in the labour law framework by adopting the historic step of unifying 29 fundamental labour legislation into four Labour Codes. These codes are expected to be in place by 2023/24. The Centre completed the process of finalising the draft rules for the labour codes in February 2021, but because Labour is on the concurrent list, some states in India have finalised the draft rules while others have not. The Wage Code has been pre-published by the most states, followed by 20 states on Industrial Relations, and eighteen states on the Code of Social Security, and 13 states on the Working Conditions, Health, and Safety at Work Code[xxi].

 Table 3: Labour Codes

LABOUR CODES
Social Security Code	Wages Code	Industrial Relation Code	OSH Code
The Social Security Code incorporates nine labour law acts that provide various social security schemes such as the employees a savings account, employee state insurance, and employee pension plan.	The Wage Code incorporates four labour statutes. The Code guarantees that the regulations governing timely payment of salaries and minimum wages are applied consistently to all employees.	This code combines 12 labour laws. This rule mandates employers to ensure that the workplace is free of risks that could cause injury or work-related risks to employees, as well as to give free health checks to certain groups of employees.	This section discusses the three primary laws governing the resolution of labour disputes. The Industrial Disputes Act, Trade Union Act, and Industrial Employment (Standing Orders) Act are the most important of these legislation.

Increase in Employment of Contract Labour

Preceding the initiation of economic reforms in the years 1991-92, the state of employment within the realm of organised manufacturing exhibited a protracted period of stagnation, persisting within the range of 6-7 million individuals for a span exceeding ten years. Subsequent to this temporal juncture, a discernible and consistent upward trajectory was observed, which subsequently gave way to a gradual descent during the period encompassing 1998-99. Nevertheless, it is noteworthy to observe that the realm of occupation within this particular domain has experienced a substantial surge in its magnitude subsequent to the year 2001-02. This upward trajectory culminated in an unprecedented pinnacle of 12.88 million employments during the fiscal year of 2011-12, signifying a remarkable augmentation of 5.43 million positions when juxtaposed with the preceding year.  Based on the data provided by the Annual Survey of Industries (ASI), it is evident that contract workers have played a substantial role in the notable surge of employment within the organised sector. The data reveals a notable surge in the count of contract workers engaged in the realm of organised manufacturing, escalating from approximately 1.21 million during the fiscal year of 2000-01 to an impressive figure exceeding 3.40 million by the fiscal year of 2011-12. The prevalence of contract workers within the manufacturing sector has experienced a significant expansion over the observed period, with their representation increasing from 20.28 percent during the fiscal year 2000-01 to 34.63 percent by the fiscal year 2011-12. In a recent survey conducted by the Indian Council for Research on International Economic Relations (ICRIER), a notable proportion of manufacturing establishments disclosed their utilisation of contract employees[xxii].

Industry Labor Laws

The IT and industrial industries employ the vast bulk of India’s formal workers. Employers in these industries, for example, must fully understand the regulation that relates to their industry and, more broadly, to their employees. IT companies are governed by state-enacted Shop and Commercial Establishments Acts. Firms should be aware that labour regulations differ not just from one state to the next, but also from one industry to the next. For example, to make it simpler for IT enterprises in Karnataka to do business, the state government amended requirements in the Shops and Establishments Act, such as women’s employability or working hours, while totally exempting them away from the federal Industrial Employment Act. Similarly, strict provisions in the federal the Industrial Disputes of 1947 demand government approval to retrench, lay off, or transfer any workers in a business with more than 100 employees. Haryana, Maharashtra, Madhya Pradesh, the state of Rajasthan, and Uttarakhand have increased the barrier to 300 workers under this regulation[xxiii].

Figure 1: The IT and Manufacturing Sectors Employ the Majority of India’s Formal Workforce

Major Labor Laws Applicable to Manufacturing and IT Sectors
Conditions of service	Remuneration
·       The Factories Act of 1948 ·       The Contract Labour (Regulation and Abolition) Act of 1970 ·       Industrial Employment Act of 1946 (Standing Orders Act) ·       Building and Other Construction Workers (Employment and Conditions of Service) Act of 1996	·       Payment of Wages Act of 1936; ·       Minimum Wage Act of 1948; ·       Payment of Bonus Act of 1965; ·       Equal Remuneration Act of 1976
Industrial	State-wise
·       • The Industrial Disputes Act of 1947; and the ·       Trade Unions Act of 1926.	·       Shops and Establishments Acts
Social Security benefits
·       The Gratuity Payment Act of 1972 ·       Workers’ Compensation Act of 1923	·       The Employees’ State Insurance Act of 1948 ·       The Employees’ Provident Fund and Other Provisions Act of 1952

The Ministry Vide Advisory Also Directed that:

In the first year of operation, start-ups will not be inspected under any of the six labour laws (BoCW Act, ISMW Act, Gratuity Act, CLRA, EPFA, and ESIA), but will be subject to any admission of credible and verified allegation of infringement. To realise this benefit, an online self-declaration of compliances is required.

For new firms, self-certified refunds are permissible. Start-ups are subject to inspection beginning in the second year and continuing for up to five years, but only if a recorded credible and verifiable complaint of violation of these labour standards is lodged and approved by at least one level senior to the inspecting officer or by CAIU.

Along with to these incentives, the Ministry of Skills Development and Entrepreneurship also used the Apprentices Act of 1961 and the Apprenticeship Rules of 1992 to encourage new businesses to hire apprentices. On January 15, 2016, the Ministry of Skills Development and Entrepreneurship released a letter.[xxiv]

In accordance with the intricate fabric of global governance, it is incumbent upon each sovereign nation to establish and enforce a distinct corpus of labour regulations, encompassing both regional and national spheres. These prescribed standards serve as the guiding principles to which enterprises are obliged to conform. The management of statutory compliance necessitates that organisations maintain a comprehensive understanding of the entirety of labour legislation applicable within their respective jurisdiction. Corporations are compelled to conform to these regulations as well. Noncompliance with the aforementioned regulations may engender profound legal ramifications, encompassing punitive measures and pecuniary sanctions. Consequently, each enterprise allocates substantial financial resources, exertion, and vitality towards fulfilling their obligations pertaining to compliance, encompassing a spectrum of responsibilities such as adherence to tax regulations and compliance with minimum wage statutes. In order to obtain guidance in this matter, the enterprise solicits the expertise of professionals well-versed in the intricacies of labour and tax legislation.

In order to navigate the intricacies of a formidable regulatory milieu, it is incumbent upon each enterprise to acquire a comprehensive understanding of the statutes governing labour and diligently adhere to all prescribed obligations. In order to achieve optimal outcomes, it is imperative for individuals to cultivate efficacious methodologies that guarantee adherence to prescribed guidelines while concurrently mitigating potential hazards. To deal with a challenging regulatory environment, every firm should be familiar with labour laws and follow all requirements. They must develop effective techniques for ensuring compliance while minimising risks.[xxv]

Broad Areas for Management of Labour Law Compliance in India:

The broad areas where enterprises must conform to labour law compliances in India are as follows:

• Maintaining statutory registers and records.
• Filing of statutory forms and returns.
• Ensuring that mandatory notices are posted on the firm’s notice boards in a language that the majority of the workmen/labour understand.
• Adherence to previously discussed substantive legal provisions.

Labour Law Compliance Audit:

Audits help firms determine whether they are in compliance or not with applicable legislation. They also help to determine the appropriate corrective activities to take in order to avoid legal liability. A labour law audit comprises a thorough evaluation of the company’s policies and practises, with the goal of not only avoiding litigation but also of fostering a constructive working relationship between managers and staff members.

The auditor must first ascertain which labour regulations apply to the company before conducting an audit. The scope varies according to the nature of the job at hand. Stores and enterprises, for example, as well as manufacturers, have various compliance rules that vary by state. A labour law audit should also ensure that the institution is up to date on the most recent departmental notices and filing systems.[xxvi]

HOW NEW LABOUR CODES WILL AFFECT THE STARTUPS:

 

The Industrial Relations Code of 2020 (IR Code):  The implementation of the legislation pertaining to Industrial relations is contingent upon the precise delineation of the concepts of ‘employe’’, ‘worker’, and ‘workman/employee’. The IR Code has implemented a revised conceptualization for the terms ‘industry’, ‘employer’, ‘employee’, and ‘worker’. The introductions of the idea of “Fixed-term employees” and the establishment of a “Re-skilling fund” have been implemented by the IR Code. According to Section 2 (o) of the Industrial Relations Code, the term ‘Fixed Term Employment’ is defined. The proviso states that the hours of work, pay, allowances, and other benefits for fixed term employees should be equivalent to those of permanent workers performing the same or similar activity. Employees on fixed-term contracts are entitled to receive benefits such as gratuity, provided that they have completed a minimum duration of one year of employment under the said contract. Fixed-term employment in a startup can provide employers with the flexibility to acquire the necessary knowledge and allocate the appropriate amount of time required for their operations[xxvii].

The criteria for the implementation of standing orders.

The Industrial Relations Code mandates that industrial companies with a workforce over 300 employees must adopt standing orders to govern the terms and conditions of employment for their workers. The aforementioned duty was also found under the Industrial Employment (Standing Orders) Act, but with the stipulation that it applied exclusively to companies employing over 100 workers. Consequently, it will not be obligatory for startups with fewer than 300 employees, granting employers the freedom to establish and organise the employees’ handbook or manual in a manner that suits their preferences.

“The IR Code contains the three core laws relating to settlement of labour disputes that are the Industrial Dispute Act, the Trade Union Act and the Industrial Employment (Standing Orders) Act. As per the Advisory of Ministry of Labour and Employment, the Startups are required to self-certify themselves under all the three laws of the IR Code”.

Occupational safety, health and working conditions code, 2020: The subject of discussion is the Occupational Safety, Health and Working Conditions Code of 2020, commonly referred to as the OSH Code. The Occupational Safety and Health (OSH) Code is to be applied to establishments that employ a minimum of 10 individuals or more. The Occupational Safety and Health (OSH) Code encompasses several key sections[xxviii]. These provisions outline the responsibilities of employers in ensuring a secure working environment for their employees. Such responsibilities include the duty to furnish a safe workplace, the obligation to issue appointment letters, and the requirement to promptly notify the appropriate authority in the case of an accident resulting in the death or severe bodily harm of an employee.

The act of registering for a certain event or programme.

The OSH Code has implemented a measure known as the ‘one registration’ option, which aims to streamline the registration process for employers by consolidating the different registration requirements mandated by several laws. This option allows employers to electronically register their establishments with the relevant government authorities.

The OSH Code, 2020 subsumes 13 (Thirteen) labour legislations regulating health, safety and working conditions. As per our understanding the Startups are required to comply with all the laws covered under the OSH Code, 2020 however, the Startups will get exemption of labour inspection under the BoCW Act,CLRA and ISMW Act under the OSH Code, 2020.

Social Security Code, 2020: Employers in numerous startup companies have challenges while attempting to offer childcare services, particularly during the initial stages of development. The implementation of the SS Code has granted permission for businesses to utilise a third-party crèche facility, or alternatively, collaborate and build a shared crèche facility instead of maintaining separate crèches for each establishment[xxix].

The purpose of this section is to introduce the concepts of “gig workers” and “platform workers” within the context of contemporary labour markets.

The SS Code has expanded its purview to encompass workers in the unorganised sector, such as gig workers, platform workers, and aggregators, who were previously not included in existing legislation. A primary goal of this expansion is to establish a social security fund similar to a provident fund and employee state insurance for all workers.

The SS Code subsumes nine central labour legislations regulating the social security of the employees. While the Startups are required to comply with the SS Code, they are exempted from inspection under the Gratuity Act, ESI Act and EPF Act for a period of 5 years provided they self-certify themselves.

Code on Wages, 2019: The subject of discussion pertains to the legislation known as the Code on Wages, which was enacted in the year 2019. The unification of the definition of ‘wages’ under the Code on Wages and SS Code signifies a significant development, as it resolves the previous discrepancies in the interpretation of this term across various labour legislations. The lexical entity denoted as ‘wage’ within the context of the Wages Code encompasses all forms of compensation, be it in the form of salaries, allowances, or any other mode of recompense. This compensation is explicitly expressed in monetary terms or possesses the potential to be so articulated. It pertains to the remuneration that would be disbursed to an individual engaged in employment, or for services rendered within the scope of said employment, provided that the stipulations of the employment agreement, whether explicit or implicit, are duly fulfilled. Furthermore, the term ‘wage’ encompasses the fundamental remuneration, dearness allowance, and any applicable retaining allowance.  The Wages Code further stipulates that the allowances granted to an employee must not surpass 50% of their overall remuneration. In the circumstance wherein the sum of the allowance surpasses half of the total, the surplus shall be integrated into the remuneration. The alteration in the delineation of remuneration pursuant to the Wages Code and the SS Code shall necessitate the employer to revise the remuneration framework of the employee in such a manner that the fundamental component, augmented by the dearness allowance and the retaining allowance, shall collectively constitute fifty percent of the aggregate wages. The aforementioned phenomenon shall exert an influence on both the employer’s contributions and the associated costs borne by the employee[xxx].

The Code on Wages subsumes four Central Labour Legislations namely the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976. As per our understanding the Startups are required to mandatorily comply with the Code on Wages with no exemptions applicable to them under this Code.

LABOUR LAW COMPLIANCE

India’s labour laws are exceedingly complicated, making it far harder to ensure adequate timely compliance.

Figure 2: Labour Law Compliance[xxxi]

CONCLUSION

Compliance with labour laws is crucial for Indian tech start-ups since it guarantees that employers respect the law and provide an appropriate working atmosphere for their employees. It is vital for new enterprises to understand their legal requirements and to follow the necessary procedures to ensure compliance. Given the aforementioned legal requirements that are mandated by labour and employment laws in India, it is incumbent upon new firms to ensure that they comply to these regulations in order to offset any potential barriers to the operating of their enterprises. This is because the laws in question are mandated by labour and employment laws in India. In the current environment, when start-ups and established businesses are going through mergers or acquisitions, it is absolutely necessary to conduct an in-depth investigation into the rights and responsibilities of workers in order to guarantee that industries will continue to operate without interruption. It is of the utmost significance to make certain that the full potential of all industries is realised. The imperative of adhering to labour law regulations is incumbent upon all enterprises and industries, albeit it serves as a discerning factor for potential maltreatment towards nascent entrepreneurial ventures. Consequently, in pursuit of bolstering and advancing nascent enterprises, the government formulated a strategy wherein nine labour laws and environmental laws were designated for self-certification over a span of three years. This initiative aimed to mitigate hurdles encountered by emerging entrepreneurs and facilitate their acclimation to the intricacies of labour law adherence within said timeframe. The government’s commendable initiative to foster entrepreneurship in India is poised to yield positive outcomes by bolstering the burgeoning startup ecosystem, thereby engendering a surge in employment opportunities.

References

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[ii] Leveraging An Effective Policy Framework to Achieve Compliance: The Start-Up Mantra. BCP Associate, 2023. Achieving Compliance: Policy Framework for Start-Up Success (bcpassociates.com)

[iii] Shram Suvidha, (One-Stop-Shop for Labour Law Compliance). https://shramsuvidha.gov.in/startUp.action

[iv] King Stubb & Kasiva, India: Labour Law Compliance In India For Tech Startups, 08 February 2023. https://www.mondaq.com/india/employee-rights-labour-relations/1280132/labour-law-compliance-in-india-for-tech-startups.

[v] https://taxguru.in/chartered-accountant/startup-business-proprietorship-form-entity.html

[vi] http://www.citehr.com/140909-provision-termination-employment-under-indian-labour-law.html

[vii] Abhimanyu Shandilya Kolkata December 29, 2022 Labour Law Compliances for Startups in India vidhikarya.com/legal-blog/labour-law-compliances-for-startups-in-India.

[viii] Read more at: https://taxguru.in/corporate-law/legal-compliances-start-ups-india.html Copyright © Taxguru.in.

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[xvi] Mukhopadhyay, S.K. 2010. A study on labour inspection: Sanctions and remedies, paper prepared for the ILO Sub regional Office for South Asia (New Delhi).

[xvii] The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

[xviii] MN & Associates – Firm in Delhi, we specialize in services pertaining to Corporate Law, Intellectual Property Rights, Startups, E-commerce and other such laws.

[xix] Shram Suvidha Portal

[xx] Labour Law Compliance in India Jan 10th, 2022 START-MANAGE Business Labour Law Compliance in India Https://Cleartax.In/S/Labour-Law-Compliance-India.

[xxi] Application of Labour Codes on Startups Kanti Mohan Advocate at Patanjali Associates Law firm & Corporate Advisor.

[xxii] Besley, Timothy and Robin Burgess. 2004. ‘Can Labor Regulation Hinder Economic Performance Evidence from India’. The Quarterly Journal of Economics, Vol. 119, No. 1 (Feb. 2004), pp. 91-134.

[xxiii] Rohini Singh India December 26, 2018 Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices in China, Hong Kong, Indonesia, Singapore, Vietnam, and Russia.

[xxiv] AUTHOR – SHIVANI PANDEY; Student- B.B.A. LL. B-3rd Yr., Jamnalal Bajaj School of Legal Studies, Banasthali Vidyapith.

[xxv] Statutory Compliance in Payroll a Complete Guide https://www.greythr.com/complete-guide-statutory.

[xxvi] Decoding the Labour Law Compliance in India Geethika Satti Animay Singh Mukesh Thumar JUNE 19, 2020.

[xxvii] https://singhania.in/blog/wages-as-per-the-new-wage-code-

[xxviii] https://www.mondaq.com/india/employee-rights-labour-relations/1211054/decoding-definition-of-wages-as-per-the-new-wage-code–india

[xxix] https://ssrana.in/articles/decoding-definition-wages-new-wage-code-india/

[xxx] https://www.mondaq.com/india/employee-rights-labour-relations/1211054/decoding-definition-of-wages-as-per-the-new-wage-code–india

[xxxi] Talisman HR with its associate partners can take care of registration and monthly compliance related to Provident Fund, ESIC, Professional Tax, Labour Welfare Fund, Shop & Establishment, Factories act and other such labour related compliances.