Practice Area Articles
India
February 05, 2024
By Paul Hastings Professional
Back to International Employment Law
KEY DEVELOPMENTS FOR 2024
Apprentices Act – Increased Compliance?
We are seeing increased scrutiny of private sector employers regarding their compliance with the provisions of the Apprentices Act 1961 (“AA”). The AA, read with the Apprenticeship Rules 1992, applies to certain industries notified by the central government. In this regard, private sector employers must undertake an assessment to understand if the provisions of the AA apply to them, and accordingly engage apprentices as per the provisions of the AA.
By way of background, the objective of the AA is to regulate the program of training apprentices as part of the Government’s initiative to promote skills development in India, with a view to improve the employment prospects of new entrants into the workforce. If engaging apprentices under the AA, employers will, based on the strength of their workforce, need to undertake apprenticeship programs where apprenticeship opportunities of at least 2.5% to 15% of its total work force (which will include both direct and contractual employees) are offered to individuals every year. We have observed increased vigilance from statutory authorities in the last year – to ensure employers comply with the provisions of the AA. In this regard, we have witnessed multiple private sector employers being issued show cause notices (from the Board of Apprenticeship Training), which requires them to comply with the provisions of the AA.
Contributions under welfare and benefits legislation
The Employees’ Provident Funds and Miscellaneous Provisions Act 1952 (“EPF Act”), which is a central (federal) law, applies to all establishments employing 20 or more individuals. Predominantly being a retirement savings scheme, the EPF Act is a socio-employee-welfare and benefit legislation that requires a prescribed monthly contribution to be made by the employee and the employer (on the employee's behalf) to an account created with the statutory authority. Employers must note that the wage ceiling (INR 15,000) does not apply to international workers. In our experience, we find that employers in India inadvertently remain in non-compliance of the EPF Act’s provisions when it comes to dealing with international workers on their payroll. It is important to note that EPF contributions envisaged for international workers under the EPF Act will be calculated on such international worker’s total salary and will not be capped at INR 15,000 per month. Similarly, the Employee’s Provident Fund Organisation has clarified that student trainees who are paid a stipend during ‘on the job’ training while pursuing a course in technical / professional educational institutions would not come under the definition of “employee” for the purpose of the EPF Act. In this regard, a view could be taken that statutory contributions would need to be paid for those individuals who have been engaged by employers on a paid internship basis, upon completing their graduation. We are now seeing increased scrutiny of private sector employers by the statutory authorities from an EPF Act compliance standpoint. The statutory penalties envisaged for any non-compliance under the EPF Act include imprisonment for a term, which may range between one to three years or with a fine which may extend up to INR 5,000, depending on the nature of the offence. Failure to pay the provident fund contributions envisaged in this regard shall also make an employer liable to pay simple interest at the rate of 12% per annum from the date when the provident fund contribution became due till the date of its actual payment. Further to the above, any default in the payment of contributions to the EPF may result in the statutory authority recovering, by way of penalty, damages at the rate ranging between five to twenty five percent (percentage of arrears per annum). Employers are therefore advised to reassess their provident fund processes to ensure that the same complies with the requisites of the EPF Act and scheme framed thereunder.
Effective implementation of legislation concerning sexual harassment in the workplace
The Supreme Court of India (Aureliano Fernandes Vs. State of Goa and Others, Civil Appeal No. 2482 of 2014) in 2023 has questioned the poor implementation of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 (“POSH Act”) by employers; and accordingly proceeded to issue directions to ensure the effective implementation of the POSH Act. While the focus of the issued directions was largely on public bodies (and specifically lacks reference to private sector employers), it is expected that there will be increased scrutiny on private sector employers going forward in 2024, given that the POSH Act applies to both private and public sector employment equally. Private sector employers are therefore cautioned, going forward, to ensure that the requirements of the POSH Act are adhered to in strict compliance. In this regard, employers must pay attention to the provisions of their POSH policy, constitution of the internal committee, training and awareness sessions conducted for its employees and ensure that the requisite disclosures required under applicable law, including but not limited to the POSH Act, are made to the relevant authorities.
KEY DEVELOPMENTS FOR 2023
Implementation of the new Labour Codes
India’s proposed employment law overhaul, which involves four new Labour Codes replacing a plethora of labour and employment-related legislations is now planned for the 2023-24 financial year. Recent reports suggest that the Labour Codes roll-out will finally take place in April 2023.
The Labour Codes introduce substantial changes which would warrant employers to take a re-look at their standard employment practices. For instance, the Labour Codes standardize the definition of “wages” and envisage a revised compensation and take-home salary structure, thereby effectively looking at a possible increase in retirals and other employment-related benefits. For example, allowances cannot exceed more than 50% of an employee’s cost-to-company; with basic wages and any dearness or retaining allowance constituting (deemed to constitute) at least 50% of such employee’s salary.
Going forward, employers should also remain cognizant of pay elements, including but not limited to severance- / termination-related payments and gratuity calculations, as the same are expected to increase once the Labour Codes are implemented.
Work from home in Special Economic Zones
The Central Government notified the Special Economic Zones (Fifth Amendment) Rules, 2022 (“WFH Amendment”) on 8 December 2022, inserting Rule 43-A in the Special Economic Zones Rules, 2006 to permit employees to ‘work from home’. In this regard, employees: (i) of an IT/ITeS unit in a Special Economic Zone (“SEZ”); (ii) who are temporarily incapacitated; (iii) who are travelling; (iv) who are working offsite, are permitted to work from home (“WFH Relaxation”). The WFH Relaxation is applicable up to 31 December 2023 and is available to all employees of the SEZ unit.
The WFH Amendment introduces certain requirements for SEZ units, where the SEZ unit is required to intimate the Development Commissioner of details of its employees permitted to work from home, amongst certain other specific obligations and responsibilities on the unit for permitting its employees to work from home. The WFH Amendment is a welcome step and addresses the demands of the IT/ITeS sector.
The global recession – mass layoffs looming?
The effects of the massive layoffs from the global tech giants have, as expected, been felt in India. While terminations in the Indian ecosystem are rather inevitable, the regulatory authority, further to complaints initiated by disgruntled ex-employees, appears to be taking a keen interest on how these terminations are undertaken / implemented. One practice which Indian employers follow while undertaking reductions in force is to offer the impacted employees the option to “voluntarily resign” from employment. A Fortune 500 company recently came under the Labour Ministry’s scanner, after there were complaints of massive layoffs which were in violation of applicable laws (notice periods and severance payouts).
Indian employers must remain cautious if they plan on implementing any reductions in force going forward, as the process, implementation and connected payments will all come under the scrutiny of the regulatory authority, if there is a complaint made against the (ex) employer in this regard.
Policy framework for transgender persons
The Supreme Court of India (“SC”) has highlighted the importance of extending the benefit of the Transgender Persons (Protection of Rights) Act, 2019 (“TPPR”) in the context of both the public and private sectors. The SC took note of the right of transgender persons to access all facilities and accommodations, including proper education and employment opportunities, and has now tasked the Union Government to provide clear guidance to all entities, including but not limited to private sector establishments on the enforceable standards and reasonable accommodations to be provided to transgender persons.
Employers will need to comply with the framework once the Union Government drafts and implements the relevant policy, as per the directions of the SC.
KEY DEVELOPMENTS FOR 2021
India has enacted four new labour codes, which consolidate and simplify 29 existing Central (Federal) legislations. These Codes were expected to come into force on 1 April 2021 (beginning of India's ensuing financial year).
Briefly, the Codes are:
Code on Wages 2019 enacted
The Wages Code consolidates four laws and inter alia seeks to cover all "employees" including persons serving in managerial and supervisory roles (who were previously not eligible for all the protections under existing Indian labour laws), establish a base floor minimum wage, etc. The Code establishes Central (Federal) and State (Provincial) advisory boards which are tasked with making recommendations to increase employment opportunities for women in the workplace.
Occupational Safety, Health, and Working Conditions Code 2020 establishes uniform health and safety regulations
The OSHCW Code consolidates 13 laws and increases existing thresholds for its applicability. This Code seeks to establish uniform health and safety regulations to be followed by all establishments (and not just "factories"). The Code permits women to work in factories at night (which is presently not permitted) and empowers State (Provincial) Governments to exempt certain industries and factories from compliance to create more economic or employment opportunities.
Industrial Relations Code 2020 enacted
The IR Code consolidates three federal labour laws regulating industrial relations and disputes, working conditions in industrial establishments and trade unions. The IR Code has increased the employee threshold to 300 workmen (from the current 100 workmen) where prior Government approval will be required by a factory to close down, lay off or terminate workmen. A similar increase to 300 workmen is also seen where an establishment needs to have certified standing orders in place (from the current 100 workmen), which are prescribed working conditions for employment.
Social Security Code 2020 consolidates nine federal labour laws which provide social security to employees
The SS Code consolidates nine federal labour laws which aim to provide social security to employees. While broad social security benefits remain the same, a key change in the SS Code is coverage of the unorganised sector for the first time, where the Government will be setting up social security coverage funds in conjunction with "aggregators," i.e., entities utilising the services of these unorganised workers.
Some uniform features seen in all the above Codes are: (a) the number of registers to be maintained and returns to be filed with the authorities under each Code have been substantially reduced, (b) faceless and web based interaction with the authorities has been introduced, and (c) fines for violations have been substantially increased but at the same time, the penalties of imprisonment have been largely limited to repeat offenses. An immediate recommended action item for employers is to undertake review of their existing CTC (cost to company) salary structures to ensure compliance with the new Codes, especially the Wages Code and the Social Security Code.
KEY DEVELOPMENTS FOR 2020
Changes anticipated by the Code on Wages
The Code on Wages was implemented in 2019, but the effective date of commencement is still pending. The Code merges four central Indian laws relating to wages, minimum wage rates, bonus payments and pay parity for employees into one single piece of legislation. It is expected that such consolidation will result in fewer compliance requirements for employers and make it easier for businesses to operate in India.
Reduction in contributions under the Employees' State Insurance Act
India has reduced the employee contribution rate as required by the Employees' State Insurance Corporation to 0.75% (from 1.75%) and the employer contribution to 3.25% (from 4.75%).
Supreme Court judgment regarding treatment of "special allowances" payment
In the case of Regional Provident Fund Commissioner (II) and Ors v Vivekananda Vidyamandir and Ors, the Supreme Court of India (India's Apex Court) held that "special allowances" paid by an employer to its employees will fall under the definition of 'basic wages' and would be subject to provident fund contributions. Before this decision, employers would typically use the "special allowance" component of an employee's salary to reduce the amount of an employee's compensation that would be held as basic wages and subject to statutory contributions. This recent decision by the Supreme Court is binding on all employers in India, and accordingly, any special allowances paid to employees will be subject to provident fund contributions.
KEY DEVELOPMENTS FOR 2019
Fixed term employment open to all sectors
India has recently introduced an amendment to the Industrial Employment (Standing Orders) Central Rules, 1946 to allow fixed term employment across all sectors. Previously, fixed term employees were only permitted in the apparel manufacturing sector.
Increase in statutory limit under the Payment of Gratuity Act, 1972
India has increased the statutory maximum amount of gratuity payable to eligible employees to INR 2,000,000 from the previous limit of INR 1,000,000.
Provident fund contribution by the Government of India
To boost employment, the Government of India will (subject to certain conditions) pay the employer's share of the contribution to the provident fund (i.e. 12% of the monthly salary) in respect of any new employees for a period of 3 years starting from 1 April 2018. The scheme shall apply once the beneficiary has been registered on or before 31 March 2019.
KEY DEVELOPMENTS FOR 2018
Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017
The Maharashtra Shops & Establishments Act 1948 is being replaced with the Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 (“Act”). The Act will not apply to establishments employing less than ten workers, in contrast with the preceding legislation which applied to all establishments irrespective of the number of workers employed.
Launch of “SHe-Box” by the Ministry of Women and Child Development
An online portal has been launched to register complaints of sexual harassment in the workplace, named the “SHe-box” (sexual harassment electronic box).
Cabinet approves introduction of the Payment of Gratuity (Amendment) Bill, 2017
As a result of inflation and wage increases, new legislation anticipates an increase in the maximum limit of tax free gratuities for employees who are not covered under the CCS (Pension) Rules.
Code on Wages, 2017
The Code on Wages Bill, 2017 (which is yet to come into force) proposes to replace four federal labor laws, and is intended to ensure minimum and timely payment of wages to all employees. The Central Government is pushing to regularise and unify working hours and ensure payment for overtime to employees as well.
Contract Labour (Regulation and Abolition) Amendment Act, 2017
This amendment will revise the definition of ‘contract labour’ to ensure workers who are in reality regular employees are excluded from the definition of ‘contract labour’, and will impose higher registration, notification obligations and sanctions on the employer.
The Factories (Amendment) Bill, 2016 / The Employment Exchanges (Compulsory Notification of Vacancies) Amendment Bill, 2013/ Employees' Provident Fund & Miscellaneous Provisions Act, 1952
These pieces of legislation, together with many others, are all in the pipeline for action by the Indian Government. Many changes are underfoot and it remains to be seen how many of these proposed amendments are passed into law in 2018.
KEY DEVELOPMENTS FOR 2017
On-going agenda to update very old employment laws
Mr. Modi’s government has taken steps to enact the Labour Code on Industrial Relations Bill 2015 (“IR Code”). The IR Code aims to consolidate three main enactments: the Trade Unions Act 1926 (“TU Act”) which deals with laws relating to trade unions; the Industrial Employment (Standing Orders) Act 1946 (“IESO Act”) which requires an industrial establishment to formally define conditions of employment; and the Industrial Disputes Act 1947 (“ID Act”), which is often regarded as the bible of Indian employment laws. As and when the IR Code gets parliamentary consent, and is promulgated into law, Indian labour laws may finally be seen to be aligned to the liberal investment climate that the government is promoting.
Strengthening of maternity laws
The Maternity Amendment Bill 2016 was approved by the Upper House, however, it is yet to become law. Currently, the Maternity Benefit Act 1961 entitles eligible female employees to receive 12 weeks of maternity leave and benefit. However, under the new Bill there would be increased maternity leave and benefits from 12 to 26 weeks other than for women who already have two children, a 12 week maternity leave period for adopting and surrogate mothers, greater flexibility to work from home, a mandatory requirement for companies having over 50 employees to have a crèche within a 1km range of the office and no continuity of service requirement for women to receive these benefits
Various additional legislative proposals
Proposed amendments to the current Employees Provident Fund & Miscellaneous Provisions Act, 1952 (“EPF Act”), the Employees Compensation Act 1923, better protections for those working in shops, minimum wage for contract labourers, the Employee State Insurance Act, the Factories Act and strengthen laws in relation to the Sexual Harassment at The Workplace (Prevention, Prohibition and Redressal) Act and Rules, 2013.
KEY DEVELOPMENTS FOR 2016
Wider coverage and changes to method of payment to the Employee’s Provident Fund scheme
An amendment to the Act has raised the threshold of applicability of the Act to all employees drawing up to 15,000 rupees per month. Previously the cap was set at 6,500 rupees. The central government has made it mandatory for all employers to make monthly provident fund contributions through internet banking of the State Bank of India or any other nationalised bank authorised to collect the contributions. Companies are advised to check if they are compliant with this change in the law.
Limited carve-out to child labour laws
The Child Labour (Prohibition and Regulation) Act, 1986 has been amended. The employment of children under 14 years of age is prohibited in all occupations and processes. However, an exception has been made, namely where the child helps his family or family enterprises, which is other than any hazardous occupation, or works after school hours or during vacations; or where the child works as an artist in an audio-visual entertainment industry. Foreign companies working with sub-contractors should be mindful of this provision to ensure their vendors remain compliant with the law.
More employees eligible to larger statutory bonus
The Bonus Act Amendment Bill has increased the threshold of applicability for statutory bonuses. Employees earning 21,000 rupees or less must now be given a statutory bonus in line with applicable laws. The amendment also increases the amount of bonus that would be received by the eligible employees to 7,000 rupees per month or the minimum wage for the scheduled employment (whichever is higher).
Changes relevant to expats to or from India
The citizens of many countries, including Belgium, Germany, France, Switzerland, Netherlands, Luxembourg, Hungary, Sweden, Norway, Finland, Denmark, Czech Republic, South Korea, Austria, Canada, Australia and Japan will not be expected to make social security contributions in India as provided for in the specific treaty. Reciprocally, Indian citizens working in the signatory country will also not be required to make any social security contributions in the host country. If the home country of the foreign citizen working in India has not entered into an SSA with India, then such foreign citizens will be obliged to make social security contributions in accordance with the EPF Act.
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