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Labour Law compliances for Indian startups

May 06, 2022
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This article is written by Shivangi Lal pursuing a Diploma in International Business Law. This article has been edited by Zigishu (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction : Labour Law compliance

Labour laws are a set of rules that govern how employees are treated in the workplace. Labour is an organisation’s most valuable asset, and labour laws are enforced to guarantee that their rights are safeguarded and that they are not exploited. It governs businesses, employees, and labour unions. Noncompliance with the legislation may result in retaliation against the company.

Labour laws are enacted by both the state and the central government. Compliance with labour regulations is not limited to submitting returns; these records also serve as proof of compliance with the rules and must be provided to the authorities in the event of any inconsistencies. There are certain laws that can only be enforced under particular circumstances.

The Ministry of Labour & Employment has published guidance to the States/UTs/Central Labour Enforcers for a compliance regime focused on self and regulating inspections under various Labour Laws in an effort to enhance the Start-Up environment in the country and incentivize startups in establishing new start-up ventures and thus help facilitate the formation of career opportunities through them.

The advice to state governments is to create an administrative framework to oversee the inspection of start-ups under such labour regulations so that start-ups are motivated to be self-disciplined and follow the rule of law. These policies aim to protect enterprises against harassment by limiting discretion and arbitrariness. When there is a breach of these labour regulations, however, punitive action will be taken.

Eligibility criteria for startup recognition

Compliance under labour laws

It has been recommended that if such start-ups provide self-declaration for compliance with nine labour regulations during the first year from the date of the start-up, there would be no investigation under these labour laws, wherever applicable. The following are the labour laws that will be covered:

  1. The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
  2. The Inter-State Migrant Workmen(Regulation of Employment and Conditions of Service) Act, 1979
  3. The Payment of Gratuity Act, 1972
  4. The Contract Labour (Regulation and Abolition) Act, 1970
  5. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  6. The Employees’ State Insurance Act, 1948

These start-ups are required to file self-certification through the Startup mobile app which allows entrepreneurs to fill up requisite forms and details on the application itself or the details can be filed on the online portal. Returns from the second year onwards, for a period of up to five years after the units are established, will only be inspected if a reliable and verifiable grievance of infringement has been filed in written form and authorization has been obtained from higher authorities.

The major acts included in the industrial law compliance rules which must be taken into very serious account are:

Other Construction Workers Regulation of Employment & Conditions Act, 1966

An Act which regulates the employment & condition of service of building & other construction workers. This Act also provides for the safety of the workers including their health & welfare measures as well. 

Inter-State Migrant Workmen Act, 1979

An Act which was enacted in order to regulate the condition of service of the interstate Labourers. The sole purpose of this act is to protect the workers whose services are outside their native states. This Act was created to protect the rights of the workers as well as to provide the employer with workers outside the state whenever he/she faces a shortage of skills among the locally available workers.

The Payment of Gratuity Act, 1972

Gratuity is basically the payment that is to be made to an employee or the worker upon the termination of his/ her service. The act provides the employer to pay the amount of gratuity at the rate of 15 days per year of service of the last salary. The acts specifically say that gratuity should be payable within 30 days of the last employment of that worker & is payable to the employee only after the termination.

The Employees Provident Funds & Misc. Provisions Act, 1952

This act basically provides for the compulsory contribution of a fund for the future of that employee post his/her retirement. However, as per the Act, the employees’ provident fund is mandatory for all those employees earning less than 15,000 per month. Provident Fund is contributed from both sides at 12% of the basic salary.

The Employees State Insurance Act, 1948

The provisions under this Act provide for certain benefits which the employees enjoy in the cases of sickness, maternity & or employment injury. This act is applicable to any factory which has employed 10 or more workers at any point in time. This insurance fund comprises the contributions made by the employer & employee. As per law Employers, the contribution is 4.75% & the employee’s contribution is 1.75% of the total wages. However, there is some exception in this act which is that this act is only for the employees whose monthly wages are less than 15,000 INR or lesser. Another exception is that if the wages of any employer are less than 100 INR, he/she will be exempted from making the contribution & only the employer will be liable to make the contribution.

Industrial Employment (Standing Orders) Act, 1946

The sole purpose of this act is to provide the workers with sufficient knowledge of their work environment. The act basically requires the employers to define with sufficient precision all the conditions of the employment the workers would be facing after the employees under them.

Industrial Disputes Act, 1947

Provisions of this act provide for the investigation & settlement of all industrial disputes. The provisions of this act are to secure industrial peace & harmony by providing the machinery & procedure for the investigation & settlement of industrial disputes by negotiations. This act also lays down the provisions for the payment of compensation to the workmen for the unfair labour practices on the part of the employer or a trade union.

In the case of environmental Laws, startups falling under the white category as defined by The central pollution control board would be able to self-certify compliance only random checks would be carried out in such cases.

Environmental laws from which exemption is provided under the current scheme:

  1. The Water (Prevention & Control of Pollution) Act, 1974.
  2. The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003.
  3. The Air (Prevention & Control of Pollution) Act, 1981.

CLRA compliance

CLRA compliance or the Contract Labour Regulation & Abolition Act which was passed to raise the standard of working conditions & prevent exploitation of Employees & is applicable to all organisations employing 20 or more people. The provisions under this act help to regulate the employment of contract labour in all the factories & industries & this act also provides for its abolition in certain circumstances. This act also provides a responsibility to the principal employer to provide the workers with canteens, restrooms, first aid facilities, payment of wages, etc. It ensures to provide the workers with all the basic amenities such as access to the canteen, drinking water, restrooms, etc. A landmark Case of Standard Vacuum Refining Company Vs its Workmen, AIR 1961 SC 895 laid the foundation of the CLRA Act. In this case, the court issued guidelines & laid down specific regulations to which every company should adhere now.

Government initiatives

The Indian government has created a single Shram Suvidha Portal to make reporting inspections and submitting yearly reports for compliance with labour rules easier. Startups can use the online system to file self-certification under applicable labour regulations and avoid inspections for up to 5 years. The following are the labour laws that will be covered:

Further, the advisory has been issued to all the State and Union Territories to provide the facility of online self-certification to Startups under the applicable State laws. In this respect, 27 States have already complied with the advisory.

Conclusion

Labour law compliance is required of all companies and sectors, yet it is a source of harassment for new enterprises. So, with the express purpose of supporting and promoting startups, the government devised a strategy to self-certify nine labour laws and environmental regulations for a period of three years, ensuring that new entrepreneurs have fewer obstacles and get familiar with all labour law compliances during that time. The government’s decision to support startups in India is a wise one, as it will help to strengthen the startup industry, resulting in more job prospects.


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