Labour laws and compliance in India

Startups like any other business should comply with the laws of the land. Compliance is critical for a company’s performance and helps in the creation of a positive brand image. Failure to comply with these laws and regulations carries legal consequences such as fines and, in extreme cases, closing down of business.

India has a rigorous labour law compliance regime under existing labour laws. Hence, the Indian government has consolidated twenty-nine labour legislations into four Labour Codes (yet to be brought into effect) and has taken measures to simplify the filing of returns with the regulatory authorities under labour laws.

We will take a look at how businesses are categorised, how the workforce is construed from a legal perspective and key labour legislations that are extended to startups in India.

Categorisation of businesses and workforce in India

The extant labour laws broadly categorize industries into factories or manufacturing units and commercial establishments. The health, safety and working conditions of workers in certain factories are regulated by the Factories Act, 1948 and the conditions of work and employment in non-manufacturing units are generally regulated by the State-specific Shops and Establishments Acts (“S & E Acts”).

The workforce in India can be broadly classified as employees and non-employees. Non-employees generally include interns, contract workers or third-party employees and consultants.

Employees can be further categorized into “workmen” and “non-workmen”. Workmen are The are generally the non-supervisory and non-managerial category employees.From a laws perspective, theIndian laws protect the workmencategory thoroughly, compared to the non-workmencategory.

Key labour legislations applicable to startups in India

Indian labour laws can be broadly classified into the following, s, based on the aspects they regulate:

• Working hours and conditions of service 
• Health and safety
• Equality, minimum wages and social security benefits
• Termination and retrenchment
• Prevention of sexual harassment of women in the workplace

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Working hours and conditions of service 

The Factories Act and S&E Acts regulate the hours of work, leaves and weekly holidays of employees. Unilateral change in certain conditions of service is restricted for workmen category employees under the Industrial Disputes Act, 1947.

For instance, Under the law, no factory worker should be allowed to work for more than 48 hours/week.

Health and safety

As per the Factories Act, the factories be kept clean and free of dangerous discharges from areas such as drains, privies and other nuisance. For instance, the factories should discharge the effluents and wastes as prescribed and ensure adequate ventilation, safe drinking water, maintenance of sufficient and suitable lighting, and first-aid kits among others. The Act also requires fencing of machinery and regulates the working near dangerous machines.

In some states, S&E Act prescribes the health and safety measures required to be taken by employers.

Equality, minimum wages and social security benefits

• The Equal Remuneration Act of 1976 ensures that men and women are paid equally for doing the same work and prohibits gender discrimination in employment.
• The Minimum Wage Act, 1948 establishes minimum wage rates paid to employees for a wide range of jobs. For instance, the minimum wages for the unskilled category of workers in the mining industry based on them working above the ground and below the ground were differentiated. The amounts were Rs 443/day and Rs 553/day respectively.
• The Payment of Wages Act, 1936 regulates the deductions that can be made from the wages and the timeline for payment of wages for a certain category of employees. For example, The deduction from the wages of an employee can happen if the employee is absent from duty, causes any damage or loss to the goods entrusted to the employee on the working premises etc.
• The Payment of Bonus Act, 1965 requires employers to pay profit/productivity-based bonuses to their eligible employees. The Act applies to businesses with 20 or more employees and provides certain relaxations to newly set up establishments.  For example, The act directs the employers to pay the bonus within the month the award becomes enforceable and it should be paid only in cash.
• The Employees Provident Funds and Miscellaneous Provisions Act, 1952 requires businesses with 20 or more employees to register their businesses and contribute under the social security benefit schemes such as provident fund, pension and deposit-linked insurance in respect of the eligible employees.
• The Employees’ State Insurance Act, 1948 provides benefits to eligible employees in case of sickness, maternity and employment injury. Under the Act, businesses with 10 or more employees (in some States, it is 20 or more employees) register themselves and contribute towards the funds maintained by the government in respect of their eligible employees.
• The Payment of Gratuity Act, 1972 requires establishments with 10 or more employees to pay gratuity to employees who have completed 5 years of continuous service at the time of separation of employment. For instance, if an employee is terminated and subsequently re-employed, the service would not be deemed continuous.
• The Maternity Benefit Act, 1961 regulates the employment of a woman during her pregnancy and after childbirth. For example, it directs certain employers to extend paid maternity leave for 26 weeks.
• The Employees’ Compensation Act, 1923 requires certain employers to pay compensation to their employees in case of any injury by accident in the course of their employment.

Termination of employment

The termination/retrenchment of workmen is regulated under the Industrial Disputes Act, 1947. For example, this Act requires the employer to give at least 1 month’s written notice or notice pay and severance compensation at the rate of 15 days’ wages for every completed year of service and part thereof.

The S&E Acts generally allow termination of employment of the employees for reasonable cause and require the employers to give one month’s notice or payment in lieu thereof.

However, if an employee is indulged in any act of misconduct, the employer is required to follow disciplinary processes before terminating the employment, following the Principles of Natural Justice.

Prevention of sexual harassment of women in the workplace

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 prohibits sexual harassment of women in the workplace and lays down a grievance redressal mechanism to deal with sexual harassment complaints.

Under this Act, establishments/units with 10 or more employees are required to constitute an internal committee to inquire into sexual harassment cases.

By allowing startups to self-declare compliance with various labour laws, the Indian government has made it easier for businesses to comply with labour rules. In addition, the government has relaxed the inspection of a business’s premises during its first few years of operation. However, it should be noted that this relaxation does not preclude new businesses from complying with the aforementioned labour standards; rather, it offers an administrative structure to oversee the inspection of new businesses by encouraging them to self-comply with applicable labour laws.