Labour Laws 101 For Startups
Deconstructing the numerous State and Central laws governing labour and employment can be a time-consuming process for startups. So, how can they ensure compliance while simplifying the process? A good start can be to go through the provisions listed under the Startup India Action Plan.
As an entrepreneur, you’ve successfully completed the first steps of rolling out your idea into the market. Eventually, as your consumers begin to take notice, you find the need to expand your team beyond just the founders to say, a business development executive or a salesperson. But hiring an employee, even a contractor for that matter requires that your terms of employment comply with your State’s labour laws. Herein lies your first barrier; where do I start?
Typically, analysing labour laws can be a time consuming process, and often companies can be caught by surprise about issues pertaining to such laws; more so in India, where there are over 200 laws at the State and Central level, with laws not stemming from a single legislation.
A classic example of this is the 2013 verdict delivered by the Chennai Court to HCL Technologies, when it sacked an employee on grounds of unsatisfactory performance. When the employee, a senior programmer at the company, filed a case against this move, the Court declared that the employee be reinstated into the company with full wages and seniority. Why? Because, HCL didn’t comply with the procedures detailed under the Industrial Disputes Act, which states that the employee should be givena 30-day notice or one month’s salary in lieu of notice without assigning any reasons. Added to this, HCL on its part, failed to clarify in the appointment order that failure to perform is tantamount to misconduct.
Hence, with such issues on the anvil, how can startups or even growth companies understand and tackle labour laws the right way, while also dedicating as much time to grow their business?
The Simplified Approach
In January 2016, the present Government released a Startup India Action Plan which enables startups to comply with regulatory policies through a self-certification approach. In other words, the Government has setup a mobile application and web portal, where startups can complete the self-certification process.
Under the Action Plan, specifically pertaining to labour laws, startups now have the provision to self-certify compliance with six labour laws (see Fig.1). And, no inspections will be conducted for a period of three years, unless there is a written receipt of a credible and viable complaint.
Infographic 1: Six Labour Laws Under Startup India Action Plan
- The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
- The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
- The Payment of Gratuity Act, 1972
- The Contract Labour (Regulation and Abolition) Act, 1970
- The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
- The Employees’ State Insurance Act, 1948
Who Qualifies as A Startup?
That being said, for companies to take advantage of this provision and commence operations, it needs to register with the relevant regulatory authorities and be classified as a ‘startup’. In India, for example, a company can be classified as a startup if it is a Private Limited Company, LLP or Partnership Firm, is not more than five years old (from the date of incorporation), doesn’t have a turnover of more than Rs. 25 crore, has secured DIPP approval that the startup is ‘innovative’ and more.
The Action Plan also clearly states that; delays or lack of clarity in registration process may lead to delays in establishment and operations of Startups, thereby reducing the ability of the business to get bank loans, employ workers and generate incomes.
In all, whether your company is forming its HR policies or seeking funding from an institutional investor, constructing employment laws and complying with procedures detailed by the State or Federal Government becomes of paramount importance, for, failing to do so can cost your company dearly.