Fixed-term employment contracts are formalised across India Fixed-term employment contracts are formalised across India

Fixed-term employment contracts are formalised across India
30 May 2018

On 16 March 2018, India’s federal labour department announced an amendment to the Industrial Employment (Standing Orders) Central Rules 1946, which formalised fixed-term employment.

The amended Rules now enable all types of firms across all industries to hire workers for a specific time period, depending on their requirements. Previously, this option was only available to apparel manufacturers.

The new law is intended to improve working conditions for short-term workers and provide more hiring flexibility for employers – a move that is, in turn, expected to formalise the country’s employment practices. The goal is that more workers in the unorganised sector will come under a formal legal arrangement.

This is important as the unorganised sector accounts for more than 80% of India’s economy and is often under-regulated. As a result, daily wage and contract workers are often deprived of decent and secure working conditions as they are outside of the regulatory purview.

In an attempt to redress these long-standing grievances and prevent the exploitation of temporary labour, the federal government proposed extending the fixed-term labour provision to all sectors in its 2018 Union Budget.

What is fixed-term employment?

The fixed-term employee category has been added to existing categories of workers laid out in the Industrial Employment (Standing Orders) Central Rules. These Rules provide the framework for implementing the Industrial Employment (Standing Orders) Act

The Central Rules regulate companies’ employment policies in relation to:

  • Permanent or temporary workers;
  • Apprentices;
  • Probationers; and
  • ‘Badli’ workers (temporary workers who are employed in place of an absent permanent worker).

These Rules provide information about classifying workers, periods and hours of work, holidays, paydays, wage rates, and other conditions of employment. But they must also conform with all other federal laws in India such as The Minimum Wage Act of 1948, and state legislation such as the Maharashtra Shops and Establishments Rules 2018.

Moreover, if the number of employees in any given company exceeds 100 (the number may differ on a state-by-state basis), it may set its own policies as long as it complies with federal employment and labour regulations. This is done via a tripartite agreement (standing order) between an employer, a government representative or state labour commission, and employees in the form of trade unions. Standing orders can only be certified once all three parties are happy with the arrangement.

Impact on India’s hiring practices

Seasonality and variation in patterns of demand are a cause of concern for most companies in India. As a result, legalising fixed-term employment has the potential to introduce more flexibility into hiring practices and match supply with demand.

Employing workers on such contracts will also enable employers to cut costs during lean seasons. In the past, third party contractors were taken on via intermediaries for short-term arrangements.

But now, employers will be able to hire direct from the market, thereby reducing intermediary costs and, most importantly, making the employment process more transparent. They will no longer be required to pay contractors in lieu of termination for not renewing their contracts or if their term of employment expires.

The law is also considered positive for workers too. It should enable them to take control of their employment terms and obligations, under regulated conditions. Formalised fixed-term hiring should also ease short-term unemployment in the country.

It is worth noting that permanent employees will also be protected as the amendment prohibits companies from moving them onto fixed-term contracts without their consent.

Other key features of the reform include the fact that:

  • Fixed-term workers must receive benefits such as the minimum wage, provident fund contributions and other statutory benefits and allowances;
  • These benefits must be on a par with those offered to permanent employees and be paid on a proportional (pro-rata) basis, depending on the length of an individual’s employment.
  • Employers can now hire any number of employees based on the duration of a project or for any temporary assignment under a fixed-term contract without fear of legal repercussions;
  • Fixed-term employees will not be entitled to any compensation for redundancy or given a notice period, other than that provided in their contract.

Labour law compliance in India

Foreign companies, especially those operating in labour-intensive industries such as manufacturing or those planning to expand into India, should be particularly careful to:

  • Ensure they stay up to date with the latest laws and amendments. These are expected to change again during 2018-2019 as the federal government intends to consolidate multiple employment laws into four main legal codes;
  • Update HR policies accordingly to avoid staff confusion, strikes or legal challenges. Periodic newsletters are useful here to explain any resultant company policy changes;
  • Brief new recruits comprehensively on the organisation’s HR rules, hiring practices and policies to ensure transparency;
  • Introduce formal procedures for communicating with trade unions or workplace representatives;
  • Ensure that all clauses in employment contracts conform to the law.

Conclusion

The change in the Industrial Employment (Standing Orders) Central Rules comes at a time when the Bharatiya Janata Party (BJP)-led federal government is facing criticism for failing to create enough jobs and improve working conditions, as promised in its 2014 election manifesto. As another general election is approaching next year, labour reform is therefore being viewed as a priority to bring down unemployment rates. Whether or not such reforms will actually improve the reality on the ground remains to be seen, however.

National trade unions oppose the fixed-term amendment, claiming that the government made an arbitrary decision to push through reform without any discussion. They fear that the job security of permanent employees could be at risk if the law is not executed properly.

But the government insists the amendment will make it easier to do business in India and encourage greater foreign investment. It also believes both employers and employees will be better able to cope with the complexities of a changing business environment, enabling job seekers to tap into short-term opportunities with greater confidence.

 

This article was first published on India Briefing.

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.

 

On 16 March 2018, India’s federal labour department announced an amendment to the Industrial Employment (Standing Orders) Central Rules 1946, which formalised fixed-term employment.

The amended Rules now enable all types of firms across all industries to hire workers for a specific time period, depending on their requirements. Previously, this option was only available to apparel manufacturers.

The new law is intended to improve working conditions for short-term workers and provide more hiring flexibility for employers – a move that is, in turn, expected to formalise the country’s employment practices. The goal is that more workers in the unorganised sector will come under a formal legal arrangement.

This is important as the unorganised sector accounts for more than 80% of India’s economy and is often under-regulated. As a result, daily wage and contract workers are often deprived of decent and secure working conditions as they are outside of the regulatory purview.

In an attempt to redress these long-standing grievances and prevent the exploitation of temporary labour, the federal government proposed extending the fixed-term labour provision to all sectors in its 2018 Union Budget.

What is fixed-term employment?

The fixed-term employee category has been added to existing categories of workers laid out in the Industrial Employment (Standing Orders) Central Rules. These Rules provide the framework for implementing the Industrial Employment (Standing Orders) Act

The Central Rules regulate companies’ employment policies in relation to:

  • Permanent or temporary workers;
  • Apprentices;
  • Probationers; and
  • ‘Badli’ workers (temporary workers who are employed in place of an absent permanent worker).

These Rules provide information about classifying workers, periods and hours of work, holidays, paydays, wage rates, and other conditions of employment. But they must also conform with all other federal laws in India such as The Minimum Wage Act of 1948, and state legislation such as the Maharashtra Shops and Establishments Rules 2018.

Moreover, if the number of employees in any given company exceeds 100 (the number may differ on a state-by-state basis), it may set its own policies as long as it complies with federal employment and labour regulations. This is done via a tripartite agreement (standing order) between an employer, a government representative or state labour commission, and employees in the form of trade unions. Standing orders can only be certified once all three parties are happy with the arrangement.

Impact on India’s hiring practices

Seasonality and variation in patterns of demand are a cause of concern for most companies in India. As a result, legalising fixed-term employment has the potential to introduce more flexibility into hiring practices and match supply with demand.

Employing workers on such contracts will also enable employers to cut costs during lean seasons. In the past, third party contractors were taken on via intermediaries for short-term arrangements.

But now, employers will be able to hire direct from the market, thereby reducing intermediary costs and, most importantly, making the employment process more transparent. They will no longer be required to pay contractors in lieu of termination for not renewing their contracts or if their term of employment expires.

The law is also considered positive for workers too. It should enable them to take control of their employment terms and obligations, under regulated conditions. Formalised fixed-term hiring should also ease short-term unemployment in the country.

It is worth noting that permanent employees will also be protected as the amendment prohibits companies from moving them onto fixed-term contracts without their consent.

Other key features of the reform include the fact that:

  • Fixed-term workers must receive benefits such as the minimum wage, provident fund contributions and other statutory benefits and allowances;
  • These benefits must be on a par with those offered to permanent employees and be paid on a proportional (pro-rata) basis, depending on the length of an individual’s employment.
  • Employers can now hire any number of employees based on the duration of a project or for any temporary assignment under a fixed-term contract without fear of legal repercussions;
  • Fixed-term employees will not be entitled to any compensation for redundancy or given a notice period, other than that provided in their contract.

Labour law compliance in India

Foreign companies, especially those operating in labour-intensive industries such as manufacturing or those planning to expand into India, should be particularly careful to:

  • Ensure they stay up to date with the latest laws and amendments. These are expected to change again during 2018-2019 as the federal government intends to consolidate multiple employment laws into four main legal codes;
  • Update HR policies accordingly to avoid staff confusion, strikes or legal challenges. Periodic newsletters are useful here to explain any resultant company policy changes;
  • Brief new recruits comprehensively on the organisation’s HR rules, hiring practices and policies to ensure transparency;
  • Introduce formal procedures for communicating with trade unions or workplace representatives;
  • Ensure that all clauses in employment contracts conform to the law.

Conclusion

The change in the Industrial Employment (Standing Orders) Central Rules comes at a time when the Bharatiya Janata Party (BJP)-led federal government is facing criticism for failing to create enough jobs and improve working conditions, as promised in its 2014 election manifesto. As another general election is approaching next year, labour reform is therefore being viewed as a priority to bring down unemployment rates. Whether or not such reforms will actually improve the reality on the ground remains to be seen, however.

National trade unions oppose the fixed-term amendment, claiming that the government made an arbitrary decision to push through reform without any discussion. They fear that the job security of permanent employees could be at risk if the law is not executed properly.

But the government insists the amendment will make it easier to do business in India and encourage greater foreign investment. It also believes both employers and employees will be better able to cope with the complexities of a changing business environment, enabling job seekers to tap into short-term opportunities with greater confidence.

 

This article was first published on India Briefing.

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.