Startups are synonymous with a contemporary work environment characterized by innovation, addressing modern-day challenges, fostering new ideas, and exuding positive energy. However, both employers and employees within such environments are bound by labour laws that have remained largely unchanged for centuries. While these regulations have undergone amendments, they still fall short of adapting to the dynamics of the modern workplace.
Recognizing the pressing need to align labour regulations with the rapidly evolving conditions of the modern work environment is crucial. Employers must be well-informed about their responsibilities towards their workforce, achieved through compliance with the pertinent labour laws and regulations. This encompasses adherence to the Payment of Wages Act, provisions for gratuity, provident fund management, maternity benefits, prevention of sexual harassment at the workplace, ensuring favourable working conditions, and facilitating medical, retirement, and other associated benefits.
In this blog, we are going to discuss the labour law compliances required for startups in India.
Startup India & labour law compliances:
The Ministry of Labour and Employment, in its endeavor to foster the promotion and growth of startups in India, has streamlined compliance procedures by introducing self-certification options for startups across various labor laws. This initiative aims to make the inspection process more meaningful and straightforward.
Startups can utilize the Startup mobile app to engage in self-certification under six labor laws. Furthermore, there will be no inspections conducted for a period of three years. Inspections will only be triggered by credible and verifiable complaints of violations, submitted in writing and approved by an authority at least one level senior to the inspecting officer.
For central acts, startups can undertake self-certification by applying on or logging into the Shram Suvidha Portal. The following labor laws are covered under this self-certification process:
• 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.
As of now, 27 states and Union territories have implemented the self-certification process for startups under these six labor laws. Nine states (Haryana, Madhya Pradesh, Maharashtra, Rajasthan, Gujarat, Uttar Pradesh, Punjab, Uttarakhand, and Delhi) have integrated their portals with the Shram Suvidha Portal. Overall, 169 startups recognized by DPIIT have availed the benefits of self-certification. This not only enhances the startup sector but also encourages adherence to necessary laws, promoting a disciplined approach.
The Building and Other Constructions Workers (Regulation of Employment & Conditions of Service) Act, 1996:
This act regulates the employment and conditions of service of building and other construction workers. It provides for their safety, health and welfare measures and other related matters.
Chapter VI of this act is extremely important which is about work hours, welfare conditions, and other conditions of service. It further provides details about registration of establishments, registration of building workers as beneficiaries, safety and health measures, inspections, responsibilities of employers, and responsibilities for payment of wages and compensation.
A startup during the construction of its workspace or office premises has to self-certify by complying with this act.
The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979:
This act regulates the employment of inter-State migrant workmen. It provides for their conditions of service and for matters connected therewith.
It applies to all the establishments employing five or more migrant workmen from other states in the last or preceding twelve months and also to contractors who have employed five or more inter-State workmen in the last or preceding 12 months.
It is also required that the establishment must be registered with the local authority while employing migrant workers. This also applies to contractors employing workers from one state and deploying them in other states.
So startups having a registered office in one state, and having migrant employees(five or more than five) working in it from other states in the last or preceding twelve months have to provide self-certification by complying with this act.
Payment of gratuity act, 1972:
This act is applicable to startups in which ten or more persons are employed or were employed, on any day of the preceding twelve months. Further, after the application of this act to a particular startup having more than ten or more employees or once a startup is governed under this act then even if the number of employees working under that particular startup falls below ten, still this act will be applicable to such startup operating with employees less than ten.
Gratuity is a payment made to an employee on the termination of his employment or service after rendering continuous service for five years or more. The maximum gratuity amount payable shall not exceed twenty lakhs.
Further gratuity has to be paid at the rate of 15 days per year of service of the last drawn salary, with the years of service rounded down to the nearest whole number.
Gratuity is payable within 30 days of the last date of employment. It is advised to the startups that they provide gratuity benefits on their balance sheets, at the end of each financial year.
Contract Labour (Regulation and Abolition) Act, 1970:
This act is to regulate the employment of contract labour in certain establishments and to provide for its abolition in certain circumstances.
In the context of startups, this act is applicable, if it has employed twenty or more employees or workmen on a contract labour basis in the last or preceding twelve months(in the case of Maharashtra, Andhra Pradesh and Uttar Pradesh, it is fifty or more workmen or employees).
This is also applicable in the same way as above to the contractors providing labour on a contract basis to the startups.
Further, this act is not applicable to startups in which work only of an intermittent or casual nature is performed. Here intermittent work means that work which is performed for less than 120 days or not more than 120 days in the last or preceding 12-month period.
Also if such work is of seasonal nature then it is intermittent work if it is performed for less than 60 days or not more than 60 days in the last or preceding 12 months.
Further decision as to whether a work is intermittent or not is to be decided, in case of confusion or doubt, by the appropriate government which can be the central government or state government by consulting the central board or state board.
Further, this act provides details about the registration of establishments(startups in our case) employing startup labour, welfare and health of contract labour etc.
A startup has to provide self-certification by ensuring complete compliance with this act if it is hiring employees on a contract basis subject to the above.
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952:
This act provides for the institution of provident funds, pension funds and deposit-linked insurance funds for employees in factories and other establishments. A startup is governed by this act if it employs 20 or more people or employees for work.
Further, once a startup is governed by this act even if the number of employees working in that startup becomes less than 20, then also this act will continue to regulate such a startup. This act makes it mandatory for an employee to contribute funds for the future of an employee after his retirement. Employers and employees both shall contribute 12% of wages in EPF. EPF contributions are mandatory for employees earning less than Rs. 15,000 per month.
For employees earning more, employees and employers may mutually agree to PF contribution, but it is not mandatory.
The Employee State Insurance Act, 1948:
This Act provides certain benefits to employees in case of sickness, maternity employment injury and other related matters. A startup is governed by this act if it employs 10 or more persons or employees for work. Further, once a startup is governed by this act even if the number of employees working in that startup becomes less than 10, then also this act will continue to regulate such a startup Contributions are made both from the employer and employee in the ESI fund.
Such contributions are mandatory for employees earning less than Rs. 15,000 or less. Currently, the employee’s contribution rate is 0.75% of the wages and that of employers is 3.25% of the wages paid/payable in respect of the employees in every wage period. Employees in receipt of a daily average wage up to Rs.137/- are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.
Conclusion:
So this blog will help readers, entrepreneurs planning to launch a startup and startup enthusiasts to understand the labour laws for which they have to comply and provide self-certification.
It will provide them with background knowledge before undergoing the self – certification process. In the next blog, we will take a look at some important labour regulations relating to women employees and other important labour regulations to which compliance is essential for every startup. We will also look at important legal documentation relating to the labour laws.
FAQ: Startups and Labour Law Compliances in India
Q: What steps has the Ministry of Labour and Employment taken to facilitate labor law compliances for startups in India?
A: The Ministry has simplified compliance procedures for startups by introducing self-certification options under various labor laws. This allows startups to certify their compliance through the Startup mobile app and undergo inspections only in response to credible complaints filed in writing and approved by a senior authority.
Q: Which labor laws can startups self-certify under, and how is the process facilitated?
A: Startups can self-certify compliance under six central labor laws, including acts such as The Payment of Gratuity Act, 1972, and The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The self-certification process for central acts is done through the Shram Suvidha Portal, where startups can apply or log in to certify their compliance.
Q: Are there any exemptions from inspections for startups, and if so, for how long?
A: Yes, startups are exempt from inspections for a period of three years. Inspections will only be initiated if there are credible and verifiable complaints of violations, filed in writing and approved by an authority at least one level senior to the inspecting officer.
Q: How many states and Union territories have implemented the process of self-certification for startups under labor laws?
A: Currently, 27 states and Union territories have implemented the process of self-certification for startups under six labor laws. Additionally, nine states, including Haryana, Madhya Pradesh, Maharashtra, Rajasthan, Gujarat, Uttar Pradesh, Punjab, Uttarakhand, and Delhi, have integrated their portals with the Shram Suvidha Portal.
Q: How many startups have availed the benefits of self-certification, and what impact does it have on the startup sector?
A: As of now, 169 startups recognized by DPIIT have availed the benefits of self-certification. This initiative not only streamlines compliance for startups but also encourages a disciplined approach, contributing to the growth and development of the startup sector in India.
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