1. Introduction
India in the past was not always considered to be the easiest destination to commence and conduct business operations. However, India today has emerged as a compelling destination for businesses across the globe. This has been a combination of multiple factors like market size, availability of a rich talent pool, improvement in ease of doing business benchmarks and various Government schemes and policies in furtherance of economic liberalisation.
One of the critical elements of evaluation before starting operations anywhere in the world is the labour and employment law structure and the trends around workforce management. When it comes to labour and employment, the Indian Constitution provides both the Central government and the respective State governments powers to legislate and implement laws and regulations. While the overall relationship between an employer and employee is typically governed by Central legislations (e.g. disputes, employee classifications, harassment etc), the operational part of the relationship is generally addressed by State laws (e.g. working hours, overtime, leaves, holidays etc).
One of the major developments in the labour and employment space in recent times has been the Government’s effort to codify, simplify and amalgamate 29 central legislations into 4 standalone Labour Codes (“Codes”). While the Codes are yet to be brought into effect, it is anticipated that once they become statutory law, the burden of statutory compliances and filings will be considerably diminished for businesses.
INDUSLAW is a multi-speciality law firm, with offices in Bangalore, Delhi, Mumbai, Hyderabad and Chennai. We have a market-leading dedicated Labour and Employment Practice Group that is highly experienced in advising foreign corporations in entering Indian markets and setting up their local operations across the country. We assist and advise on all aspects of employment law, including dispute resolution, transactional, advisory matters, and day to day statutory compliances. The Team also assists them with management of employment risks at all levels in addition to providing strategic, board-level advice on crucial employment related and compliance issues, and variety of other services ranging from drafting contracts, organisational policies, conducting standalone internal disciplinary procedures, conducting compliance audit exercises, assisting with collective bargaining negotiations providing exhaustive legal opinions on specific points of employment law and assisting the HR and IR departments and in-house counsels of businesses with their day-to-day operations and management.
We have provided an indicative list of compliances below which will assist any employer in evaluating the legal and regulatory framework for commencing business operations in India. While we have attempted to cover the significant requirements under the Central laws and some of the common requirements under all State laws, this is however not an exhaustive list and there are additional requirements for businesses in different States or sectors.
2. Labour and Employment Law Requirements
1. Background- Categories of Employees
Indian labour and employment legislations categorise employees into “workmen” and ‘non-workmen. The service conditions of workmen employees (mostly, individual contributors) are subject to far greater statutory protection under Indian law. Non-workmen employees are typically employees in a managerial and administrative role. The service conditions of non-workmen are typically governed by the terms of the employment contracts and internal policies of the organisation.
While the Industrial Disputes Act, 1947 (“ID Act”) defines a ‘workman’, determining whether a particular employee is a workman or not, has to be undertaken on a case-by-case basis. It does not depend on the level of their education or their designation. Various judicial precedents have laid down that in order to determine an employee’s status as a ‘workman’, the actual, substantial and predominant work being performed by her/him is decisive rather than the employee’s remuneration or designation. The other factors that are useful to determine whether an employee is a workman or a non-workman, is by taking into account whether the employee had any managerial responsibilities and whether she/he had any authority to take any decision on behalf of the employer.
Employers are generally required to undertake certain additional statutory compliances with respect to their workmen employees. While the terms of service of non-workmen are ordinarily governed by the terms of the employment contracts and the internal policies of the organisation, certain State specific shops and establishments legislations (“S & E Act”) also regulate the service conditions of non-workmen employees. Additionally, there are other legislations which cover both categories of employees. These legislations address topics such as prevention of sexual harassment at the workplace, maternity benefits, equal opportunity principles, payment of post-retiral benefits and rights of transgender persons.
2. Compliances
An indicative list of the compliance requirements having a universal character have been listed below.
- State specific S &E registrations for businesses.
- Certain statutory filings and comply with certain record keeping obligations provided under the S &E Act.
- Compliances under legislations such as: (a) the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952; (b) Employees’ State Insurance Act, 1948; (c) the Equal Remuneration Act, 1976; (d) The Maternity Benefit Act, 1961; (e) Minimum Wages Act, 1948; (f) Payment of Gratuity Act, 1972; (g) The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act; (h) Payment of Bonus Act, 1965; (i) Payment of Wages Act, 1936; (j) applicable professional tax legislations; (k) Rights of Persons with Disabilities Act, 2016; (l) Transgender Persons (Protection of Rights) Act, 2019.
- Issue of offer letters, employment contracts and/or non-disclosure agreements that are equitable in nature and don’t impose conditions that are viewed by courts in India as unnecessary and burdensome obligations on the employees.
- Typically, an employer would be expected to have in place a code of conduct/employee handbook, equal opportunity policy, leave policy (including policy on maternity leave), anti-sexual harassment policy and transgender policy amongst others.
- An employer would do well to put in place robust processes governing whistle-blowers, acts of misconduct and/or sexual harassment and investigations surrounding such disclosures.
- Working conditions and benefits as prescribed under Central and State law.
3. Corporate Law Requirements
A. Incorporation
For the purpose of this proposal, we have assumed that you would like to establish a presence in India through a private limited company whereas there are a number of other available corporate structures. The incorporation of a company in India however is a step-by-step process involving the following compliances under the Companies Act, 2013:
- Every private limited company in India must have at least 2 directors on the board, one of whom is required to be a resident of India. The directors need to be identified and a Director Identification Number, which is issued by the Registrar of Companies, needs to be obtained for such directors (if they don’t already have one). A Digital Signature Certificate also needs to be obtained for each of the directors of the Company. There is no minimum and maximum capital requirement for the incorporation of a private limited company.
- The name of the proposed company needs to be approved by the Registrar of Companies.
- The charter documents and e-forms must be drafted and filed with the registrar of companies, along with other statutory forms disclosing relevant details such as the first directors of the company, consent of such directors to act as directors, criminal/conviction history of the directors, registered office address of the company.
- Statutory forms and other necessary documents need to be filed in respect of the foreign investments in the company with the authorised dealer banks and the Reserve Bank of India which is India’s central bank.
- While applying for the registration, an employer can also apply for the allotment of PAN (Permanent Account Number- required for tax filing purposes) and TAN (Tax Deduction Account Number- required for deducting tax at source for employees and other third parties).
INDUSLAW provides assistance and advice on all issues arising under the Companies Act, 2013 as well as the foreign exchange laws in India (including matters such as the approvals for investments, mode of investments, structuring of investments, filing of statutory forms, maintenance of statutory registers and records, obtaining certifications) ensuring continuous compliance with all requirements thereunder.
B. Post Incorporation Registrations
Once the entity is incorporated, certain registrations will be necessary for various operational purposes. Listed below are the common post-incorporation registrations required in India. There could of course be some variations depending on the exact nature of business.
- Goods and Services Tax (GST) registration for payment of taxes in respect of sale of goods and/or provision of services.
- Professional Tax registrations in each of the concerned states in respect of tax deductions made from payments made to employees in such states.
- Import and Export Code for carrying on the import or export of goods.
- Registrations/licenses under applicable labour legislations.
INDUSLAW has the required expertise to assist and advise your organisation in the procurement of the required licenses and permits.
4. Payroll and Benefits Providers
In India, the vast majority of smaller employers outsource payroll and benefit responsibilities to third party companies. The larger employers however have their own internal teams processing payroll and are responsible for all related compliance requirements. Depending on your preference, we would be happy to recommend payroll providers to fit your business requirements.
Other Considerations
In a move to tackle the concerns of the complexity of compliance with multiple labour legislations and for the purpose of ensuring ease of doing business in India, several extant labour legislations have been consolidated, and this lead up to the drafting of 4 Codes. The Codes are Code on Wages, 2019; Occupational Safety, Health, and Working Conditions Code, 2020; Industrial Relations Code, 2020; and Code on Social Security, 2020.
The Codes propose to take effect on a federal level, ensuring uniformity in its application and each of the Codes will have corresponding rules. Further, respective States are also in the process of notifying separate rules under each of the Labour Codes. Once the Codes are implemented and brought into effect, employers would need to take into account its implications and the steps and measures it needs to undertake to ensure compliance with the Codes.
INDUSLAW assists foreign corporations in structuring their entry and employment models in India. IndusLaw is pleased to offer its services to assist your organisation in commencing its operations in India.
