Home Guest post Payroll disclosure regulations in India : an unaddressed issue

Payroll disclosure regulations in India : an unaddressed issue

September 26, 2021

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This article is written by Parth Jain and Priyam Agarwal.

Table of Contents

Introduction

Oftentimes, people say that they can live without money or rather money is just a piece of materialistic paper. However, the other side of the coin is a little different. Money forms the basis of livelihood in a clustered family. Earlier, generations may have lived through by exchanging goods for goods but in a modern society where everything is measured through wealth, money plays a very significant role. It is with money that a ‘quality life’ is accompanied by good education and thereafter business begins. A subject often sacred or rather personal when becomes the parameter to secure employment, becomes debatable when disclosed in a place most irrelevant.

Salary disclosure history is one of the most controversial policies in the private sector around the world. Although this common practice of the companies has caused disputes between employers and employees, the companies have presented a favourable argument in this case, that, these policies are conducive to the determination of salaries according to the expectations of the candidates, to which employees believe that disclosing payroll history is the main cause of the wage disparity and gender pay gap. In order to discuss this further, firstly we need to understand the definition of Payroll disclosure which is three-fold.

First, where an employer is required by a state, country, or city agency to provide information about the salary of a particular employee (usually an officer). Another definition of this term is for future employees who may be demanded to disclose their payroll record in a job interview, as a measure to screen, rate and compare applicants, to set compensations, or negotiate salaries. Disclosure of salary can also mean the revelation of salaries and earnings among colleagues; however, such practices are barred by the companies under non-disclosure policies.

While such practice of inquiring potential candidates about their previous salary may seem conventional and harmless superficially, it may have, although inadvertent but harmful consequences, including debarring qualified candidates from job opportunities structurally relegating women to lower pay which has already been persisting due to discrimination and employers relying on salary history for hiring and determining compensation, is a quintessence of systematic bias. Inquiries about future applicants’ pay history are causing controversy for the role of these inequalities in the broader discussion of the fairness of men and women wages. Using previous inputs to determine remuneration, wage discrimination for women is likely to persist.

Salary disclosure

In order to contemplate the issue in question, it is important to acknowledge the viewpoint of the people concerned in this matter i.e, employer and employee., as to what they think should be done and what is correct in this situation. As per the survey conducted in 2015, by Randstad workforce 360, it was observed that most people changed their jobs with the aim of receiving a better pay, likewise, Linkedin members expressed similar views explaining that job changes may sometimes stem from a desire to correct compensation. However, when the HR manager asks for the current payroll, it will weaken the enthusiasm of the employees and create a vicious circle that is difficult for the employees to break, and it also destroys the reasons for changing jobs. Many cartels also believe that businessmen who indisputably demand pressure from candidates are shortsighted. Many people also pointed out that this is no longer a practice in developed countries, it is outdated and should be phased out. In a contradicting statement, Amit Das, CHRO, Times group (BCCL), expressed that salary history is required for a correct estimate of what to pay the candidate.

“The organisation will not be able to pay the candidate as per the expectation in the absence of salary history. There will be a total mismatch in terms of expectations and what is given.” particularly emphasising on the matter that merely prohibiting the questions alone does not prevent employers from offering candidates a lower salary. It also does not protect employees who demand higher wages in their current or subsequent organizations. Also, historically low-paid women and men will not be able to estimate their value in the employment market in any manner. Therefore, the arguments in the previous parts clearly indicate that candidates cannot obtain the highest salary for a given position because disclosing salary history to the employer increases the possibility of bias.

Therefore, they accept the offer that the employer considers appropriate based on the previous salary Evaluation. This constitutes one of the major reasons for wage disparity and the gender pay gap. Due to such practices, employees who are receiving lower pay historically will end up receiving less than others in the same position, especially in the case of women. The foremost reason for this persisting problem is that there is no legal provision that allows the hiring manager to inquire about the current salary of a potential employee, and there is no legal provision that prevents him from doing so. But this has become a common practice in India and is also despised by many candidates. In addition, to reduce such practices, hiring managers should get quotes and must provide candidates with the best quotes and negotiate as best they can.

Why India needs a salary disclosure regulation?

The ban on asking a candidate seeking employment about their salary is a topic for fresh debate. Already 18 states in the United States have banned employers from asking candidates about their past salaries unless they voluntarily disclose the same. Germany follows a similar practice whereby employers are barred from taking information about a candidate’s past payrolls. The goal behind the move is to bring an end to gender disparity and unequal remuneration among employees in the same role. As far as India is concerned, we are not very good at copying institutional reforms. Given the Indian job market and concentrated powers enjoyed by the employer, there is a need for India to copy the legislation passed in the United States by the Massachusetts Government.

The law says mandating equal pay for equal work. In other words, when the candidate is hired, the company must pay based on the candidate’s worth and not past earnings. There can thus be no bias based on previous salaries and undervaluing the worth of employees. India must copy this without a second thought and put more money into the pockets of the middle man. This will boost buying and consumption capacity and an overall increase in the internal economic system will be witnessed. Further India must alter the existing wage and labour policy by enforcing minimum wages for manual casual labour. The challenge as always is the gap between policy on one end and its implementation and enforcement on the other. At the outset, a ban on asking salary history is only going to help employees in the junior to middle- management range. It is common for candidates who join to seek parity and compare their earnings with their batchmates or their fellow employees. This tendency has always existed, and starts from the time an individual bags the first job, and goes on till mid-managerial level. Compensation remains a benchmark of success or satisfaction.

Limitation to implement salary disclosure laws in India

Payroll confidentiality or secrecy is one of the difficult things to maintain in Indian workplaces. As in other nations, businesses take proper care to ensure that the payroll info of employees stays confidential. However, in India, a business has to go through a number of additional challenges when it comes to payroll confidentiality.

Policy implementation

The Prime Minister Narendra Modi himself acknowledged in his maiden Town Hall meeting that last-mile delivery is as important as policies. What is difficult to gauge is if that is a statement of intent to increase efficiency and accountability, or a statement of resignation that the last mile is often within the states. At any rate, the policy cannot be held hostage to delivery corruption and inefficiency. It must herald the future. These policies are no-brainers ripe for leverage. It can leap frog a society caught in the below net struggle. It is good for liberal economics. Good for labour. Good for the state, good for families.

Role of Culture

For a business venturing into Indian markets for the first time, there are certain considerations of Indian workplace culture that render payroll confidentiality as an integral and difficult thing compared to Western countries. Employees here in India are often more open when it comes to sharing their salary details than their counterparts in the West. In fact, it is quite common for a colleague to ask about the salary of his/her colleague, which is perceived by westerners as indiscreet. In addition, Indians lay greater emphasis on the hierarchy at workplaces than Westerners. In India, this often means that employees expect the differences in salary reflect years of experience or seniority rather than technical expertise or soft skills.

Tax & legal obligations

Many companies create a separate department for payroll, while others make it part of their human resources department. However, these two methods are often inefficient and can lead to costly, time-consuming and unnecessary errors. SMEs, in particular, may not have the time or capability to administer payroll across multiple time zones. These operational concerns alone motivate many multinational businesses to outsource payroll for international offices; however, there remain important compliances that further complicate payroll processing in India.

Complex Payroll Procedure

Payroll for India-based staff can be especially difficult because it requires administrators to comply with India’s challenging tax laws. The sometimes fluid nature of India’s regulatory. The environment requires administrators to adopt payroll procedures and systems that are flexible enough to allow for new compensation structures. Failure to comply with tax laws or new payroll regulations can invite unwanted attention from the authorities, while unanticipated changes to salary structures can demotivate and alienate staff.

Word of Caution

Businesses that outsource payroll take an important first step towards creating a culture of confidentiality in the office place. The trickle-down effect goes beyond payroll: employers that outsource payroll maintain the confidentiality of employees’ financial and personal information, but also help create a professional atmosphere where employees value confidentiality, which can in turn improve service provision. Businesses that outsource payroll keep employees’ salary details limited to a small number of Senior staff and the payroll service provider. The service provider will maintain critically information – such as employees’ salary structure, social security contribution, professional tax payable and tax deducted at the source – that is important for both salary payments and tax compliance.