As India increasingly integrates itself into the global market, foreign companies operating in the country find they need to strike a balance between following their own best practice and adapting to local norms and legal requirements. Here are nine key areas that employers should be aware of when dealing with staff in India:
- Employment contracts
Although India does not mandate written employment contracts, it is advisable for employers to ensure that at least basic agreements are in place, laying out individual’s terms and conditions of employment.
Indian employment legislation is diverse and forms a complex framework that must be navigated carefully. Employment conditions in the country are also governed by industrial laws, The Companies Act and the Contract Act, 1872.
As both state and federal governments create and enforce this employment law, it means compliance can be a complicated business.
- Wages
Under the Minimum Wages Act, 1948, all employers in the organised sector must provide “the basic cost of living” to all employee categories specified within the Act. Remuneration should reflect this requirement and be written into an individual’s employment contract.
The Equal Remuneration Act, 1976, mandates that the wages paid to both men and women should not be discriminatory, while The Payment of Wages Act, 1936, requires the timely disbursement of wages to staff. Wages that are below minimum levels are considered to amount to forced labour, which is prohibited under the Bonded Labour System (Abolition) Act, 1976.
- Termination of employment
Employees in India may only have their employment terminated as per the terms and conditions of their employment contract. All employers must adhere to federal and state labour laws when laying off or terminating workers – conditions drafted into company contracts cannot supersede these legal statues.
Moreover, termination without notice is prohibited. Termination periods vary based on function and length of employment.
- Maternity and paternity leave
The Maternity Benefits (Amendment) Act, 2017, applies to all shops and any establishments that employ more than 10 workers. Under the Act, women must be paid 26 weeks of leave for their first two children, and 12 weeks subsequently. Companies employing more than 50 people must also provide crèche services.
The aim is also to discuss a new Paternity Benefits Bill, 2017, in the next parliamentary session. But a significant number of organisations, especially foreign companies such as Microsoft and IKEA, already include a mutually-agreeable paternity leave clause within their company policies. This practice has generally been well-received by the Indian workforce.
- Preventing sexual harassment in the workplace
The Indian government has brought the safety of women in the workplace to the forefront of its law-making activities. As a result, employers with more than 10 workers must set up an Internal Complaints Committee in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013.
All complaints should be actively pursued, evidenced and addressed immediately. To guarantee employee safety, appropriate HR policies must be drafted and communicated clearly to all personnel. Workshops or sensitisation programmes are also encouraged to allow discussion and promote the creation of an organisational culture that provides a fair and safe working environment for all.
- Public holidays and working weeks
India observes three national holidays: Republic Day (26 January), Independence Day (15 August) and Gandhi Jayanti (2 October). On these days, all organisations, both public and private, must remain closed and government approval is required should they wish to stay open.
Doing so is only permitted for establishments such as factories, or industries where work is considered to be continuous like hospitals or travel agencies, although staff who work on these days must be given additional wages.
Employers must also inform their workers about the annual list of holidays and what weekly time off is available to them during the year. The amount of leave and categories of leave permissible should ideally be laid out in each individual’s employment contract.
A number of laws in India such as the Factories Act, 1948, also mandate the maximum number of work hours and the amount of overtime wages that must be paid to each employee.
- Restrictive clauses in employment contracts
Employers should note that including restrictive clauses in an employment contract may not be enforceable in the Indian courts. The Contract Act, 1872, indicates the fundamental right of all citizens to carry out their profession, trade, or business.
As a result, non-compete, non-disclosure, non-solicitation and ‘gardening leave’ clauses are deemed examples of restrictive clauses that the courts will only allow if there are plausible grounds relating to time-periods and the nature of activities involved.
The best way to ensure that a given clause is enforceable would be to restrict its scope as much as possible within acceptable dimensions, but doing so does not guarantee employers legal protection.
- Gratuities and the Provident Fund
The Payment of Gratuity Act, 1972 provides guidelines for paying employees the gratuities they are owed. Calculating how much they are entitled to is based on an employee’s length of service, but payment is compulsory.
The minimum amount must be given to employees in these circumstances:
- Retirement;
- Resignation;
- Disablement due to accident or illness; or,
- Death of the employee (the gratuity is paid to a nominee).
But if they are dismissed for proven criminal or moral reasons, no gratuity is due.
In a similar vein, the Employees Provident Fund Organisation of India (EPFO) oversees and regulates the Employee’s Provident Fund (EPF). Under this scheme, employers and employees contribute an equal amount to the Fund every month, which staff members can access at certain points during their career.
The EPF scheme is mandatory for everyone on a salary of below Rs 15,000 (US$220), but is voluntary thereafter.
- Flexible working culture
Indian employers are increasingly moving away from traditional ‘9-to-5’ working hours and gradually incorporating the idea of positive work-life balance into their corporate culture. As a result, many Indian multinational companies are moving to flexi-time or introducing working-from-home options to boost employee retention and loyalty.
By Rohini Singh
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.
As India increasingly integrates itself into the global market, foreign companies operating in the country find they need to strike a balance between following their own best practice and adapting to local norms and legal requirements. Here are nine key areas that employers should be aware of when dealing with staff in India:
- Employment contracts
Although India does not mandate written employment contracts, it is advisable for employers to ensure that at least basic agreements are in place, laying out individual’s terms and conditions of employment.
Indian employment legislation is diverse and forms a complex framework that must be navigated carefully. Employment conditions in the country are also governed by industrial laws, The Companies Act and the Contract Act, 1872.
As both state and federal governments create and enforce this employment law, it means compliance can be a complicated business.
- Wages
Under the Minimum Wages Act, 1948, all employers in the organised sector must provide “the basic cost of living” to all employee categories specified within the Act. Remuneration should reflect this requirement and be written into an individual’s employment contract.
The Equal Remuneration Act, 1976, mandates that the wages paid to both men and women should not be discriminatory, while The Payment of Wages Act, 1936, requires the timely disbursement of wages to staff. Wages that are below minimum levels are considered to amount to forced labour, which is prohibited under the Bonded Labour System (Abolition) Act, 1976.
- Termination of employment
Employees in India may only have their employment terminated as per the terms and conditions of their employment contract. All employers must adhere to federal and state labour laws when laying off or terminating workers – conditions drafted into company contracts cannot supersede these legal statues.
Moreover, termination without notice is prohibited. Termination periods vary based on function and length of employment.
- Maternity and paternity leave
The Maternity Benefits (Amendment) Act, 2017, applies to all shops and any establishments that employ more than 10 workers. Under the Act, women must be paid 26 weeks of leave for their first two children, and 12 weeks subsequently. Companies employing more than 50 people must also provide crèche services.
The aim is also to discuss a new Paternity Benefits Bill, 2017, in the next parliamentary session. But a significant number of organisations, especially foreign companies such as Microsoft and IKEA, already include a mutually-agreeable paternity leave clause within their company policies. This practice has generally been well-received by the Indian workforce.
- Preventing sexual harassment in the workplace
The Indian government has brought the safety of women in the workplace to the forefront of its law-making activities. As a result, employers with more than 10 workers must set up an Internal Complaints Committee in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013.
All complaints should be actively pursued, evidenced and addressed immediately. To guarantee employee safety, appropriate HR policies must be drafted and communicated clearly to all personnel. Workshops or sensitisation programmes are also encouraged to allow discussion and promote the creation of an organisational culture that provides a fair and safe working environment for all.
- Public holidays and working weeks
India observes three national holidays: Republic Day (26 January), Independence Day (15 August) and Gandhi Jayanti (2 October). On these days, all organisations, both public and private, must remain closed and government approval is required should they wish to stay open.
Doing so is only permitted for establishments such as factories, or industries where work is considered to be continuous like hospitals or travel agencies, although staff who work on these days must be given additional wages.
Employers must also inform their workers about the annual list of holidays and what weekly time off is available to them during the year. The amount of leave and categories of leave permissible should ideally be laid out in each individual’s employment contract.
A number of laws in India such as the Factories Act, 1948, also mandate the maximum number of work hours and the amount of overtime wages that must be paid to each employee.
- Restrictive clauses in employment contracts
Employers should note that including restrictive clauses in an employment contract may not be enforceable in the Indian courts. The Contract Act, 1872, indicates the fundamental right of all citizens to carry out their profession, trade, or business.
As a result, non-compete, non-disclosure, non-solicitation and ‘gardening leave’ clauses are deemed examples of restrictive clauses that the courts will only allow if there are plausible grounds relating to time-periods and the nature of activities involved.
The best way to ensure that a given clause is enforceable would be to restrict its scope as much as possible within acceptable dimensions, but doing so does not guarantee employers legal protection.
- Gratuities and the Provident Fund
The Payment of Gratuity Act, 1972 provides guidelines for paying employees the gratuities they are owed. Calculating how much they are entitled to is based on an employee’s length of service, but payment is compulsory.
The minimum amount must be given to employees in these circumstances:
- Retirement;
- Resignation;
- Disablement due to accident or illness; or,
- Death of the employee (the gratuity is paid to a nominee).
But if they are dismissed for proven criminal or moral reasons, no gratuity is due.
In a similar vein, the Employees Provident Fund Organisation of India (EPFO) oversees and regulates the Employee’s Provident Fund (EPF). Under this scheme, employers and employees contribute an equal amount to the Fund every month, which staff members can access at certain points during their career.
The EPF scheme is mandatory for everyone on a salary of below Rs 15,000 (US$220), but is voluntary thereafter.
- Flexible working culture
Indian employers are increasingly moving away from traditional ‘9-to-5’ working hours and gradually incorporating the idea of positive work-life balance into their corporate culture. As a result, many Indian multinational companies are moving to flexi-time or introducing working-from-home options to boost employee retention and loyalty.
By Rohini Singh
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.
