on July 13, 2016
From time to time, concerns have been
raised by entrepreneurs and various Indian and international surveys about the
challenges faced by start-ups and other companies doing business in India.
India has also been rated very low on charts concerning ease of doing business.
India is a vast country with several
states and union territories, which presents differences in culture, language,
faith and food habits. But doing business in India also means complying with a
long list of Central (Federal) and State statutes and their varied
interpretations. In addition, judicial pronouncements of concerned High Courts
and the Hon’ble Supreme Court of India must be taken into consideration.
Regulatory compliance with several laws
is time consuming and complicated, adding to the financial and intellectual burden
on start-ups. This, in turn, shifts their focus from development and growth of
the core business to ensuring compliance with laws.
As a result, laws, rather than acting as
a catapult and augmenting the growth of businesses, force several start-ups to
reconsider their plans/strategies concerning doing business in India.
Two Types of Labour and Employment Laws
Apart from several tax, environmental
and real estate laws, employment laws in India (commonly referred to as
Industrial Laws) are a source of great concern for start-ups in India.
In India, various Central and State
level labour and employment legislations govern conditions of employment,
social security, health, safety, welfare, wages, trade unions and industrial
disputes, etc. Several labour and employment statutes become applicable only
upon fulfillment of prescribed thresholds, which could be wages of an
employee(s), strength of employees in an organisation, etc. Some other
statutes, meanwhile, may become applicable to specific/specified industries or
to certain types of employees.
This means that a start-up needs to be
on a constant vigil regarding applicability of a statute(s) [whether Central
(Federal) or State or both], including the stage at which any one or more
statutes may become applicable. Some non-compliances may not only pose a
limited financial risk but also loss of goodwill and may become a source of
continuous inconvenience due to inspections by the concerned authorities and
actions as a result thereof.
Difference in Basic Concepts in
Legislations
Lack of uniformity in some of the common
terms used across labour and employment laws applicable to an organisation pose
a practical challenge and inconvenience to start-ups. For example, a large
number of labour and employment legislations have different: (i) applicability
criteria; (ii) definitions of ‘employee’; (iii) definitions of ‘wages’ and also
what is included or excluded from the wages; and (iv) manners of calculation
thereof. Some basic aspects, such as the components that need to be taken into
consideration while computing wages for the purposes of identifying provident
fund contributions, could be different from components taken into account while
calculating bonus entitlement of an employee, etc.
There is a real need for laws that allow start-ups to agree short or long-term arrangements/ engagements with individuals, without being worried about the possibility of such individuals making burdensome demands
Relationship Matters
Currently, most start-ups not only hire
employees on their own payrolls, but until they are certain of their growth and
business needs, also use independent consultants, direct or indirect contract
employees and various other vendors, etc., to meet with their manpower needs.
In the absence of labour and employment
laws addressing each manpower arrangement, companies depend upon professional
guidance to ensure that any such arrangement does not expose it to risk of
claims or demands of compensation (severance, etc.) and/or permanent
employment.
There is a real need for laws that allow
start-ups to agree short or long-term arrangements/ engagements with
individuals, without being worried about the possibility of such individuals
making burdensome demands.
Conclusion
Recently, realising the above and
intending to ease doing business for start-ups,, the Prime Minister of India
launched Start-up India Action Plan (Plan), in January, 2016 , to
provide a conducive growth environment and a friendly, flexible regulatory
regime for business start-ups.
As per the Plan, a start-up is, “an entity, incorporated or registered in India
not prior to 5 (five) years, with annual turnover not exceeding INR 250,000,000
(Rupees Two Hundred Fifty Million only) (approximately USD 3,500,000) in any
preceding financial year, and working towards innovation, development,
deployment or commercialization of new products, processes or services driven
by technology or intellectual property.”
The Plan provides for a flexible and
less time consuming compliance regime for start-ups. Start-ups are allowed to
self-certify compliance with certain identified labour and employment laws.
Further, start-ups are exempt from inspections under labour and employment laws
for a period of three years unless authorities are in receipt of trustworthy
and certifiable complaints of violation, filed in writing and approved by at
least one official superior to the level of inspection officer.
While beneficial results of the Plan are
yet to be seen, this seems to be a step in the right direction and shows the
government’s keen interest in creating a growth focused plan for start-ups.
Nonetheless, to stay focused on core
business, start-ups need to set up programmes to attain the minimum knowledge
of labour and employment laws that may be relevant to them for their short term
to long term business needs. This will not only allow the smooth operation of
business but also lead to growth and profitability.
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