Startups And Labour Law Compliances : What Are The Exemptions?

INTRODUCTION

Compliance norms are statutory required standards and regulations that a company must observe. Compliance with labour regulations in India must be done in line with the laws of the nation. The Indian government has announced steps to make it simpler for start-ups in the nation to comply. One of these solutions is enabling start-ups that satisfy specific criteria to be exempt from some employment restrictions for up to three years. The goal is to allow start-ups to focus on growth and development rather than compliance concerns.[i]

It is vital to stress that start-ups will still be required to follow certain key labour rules, such as those governing minimum salaries and workplace safety.However, the destiny of startups has always been contentious. Some of them survived, while others perished. Ideally, entrepreneurs who understood how to use low-cost skilled labour and money from national and international investors rose to the top. India presently has one of the world’s largest startup ecosystems. The Make in India initiative has surely inspired a number of young entrepreneurs to embark on their entrepreneurial path.

[Image sources: Shutter stock]

While it is thrilling to create a new firm, it is important to remember that startups, like other business organisations, must follow a few legal requirements. These enterprises are not free from such duties simply because they are new to the market. Furthermore, adhering to such regulations would only enable companies to remain stronger and more stable in a dynamic industry. For example, one of the most important criteria that must be followed in new enterprises is labour rules.

This would also assure staff safety and well-being. Knowing the labour regulations in depth would be beneficial in running the company without facing any legal ramifications. The Ministry of Labour and Employment has advised the states, union territories, and central labour enforcement agencies to implement a compliance regime based only on self-certification. It also advised that start-ups be regulated in accordance with existing labour laws.

The benefit of adhering to these standards is that start-ups that provide a self-declaration for conformity with the prescribed labour laws within the first year of operation will not be investigated under the corresponding legislations.

DEFINITION OF START UP

A notification released by the Department for Promotion of Industry and Internal Trade of Ministry of Commerce and Industry; an entity shall be considered as a Startup if it satisfies all the following conditions:

“….

1. Only for the ten years from its date or incorporation or registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.
2. Turnover of the entity for any of the financial years since its incorporation/registration has not exceeded one hundred crore rupees.
3. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

However, that an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup.”[ii]

EXEMPTION FROM LABOUR LAW COMPLIANCES TO THE STARTUPS

It has been suggested that if such start-ups produce self-declaration for conformity with nine labour rules within the first year of operation, there would be no examination under these labour laws, wherever applicable. The labour laws that will be discussed are as follows:

1. The 1996 Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act:

The Act is focused with regulating the employment and working conditions of construction employees. It focuses mostly on the safety measures that must be implemented for the wellbeing of the workers.[iii]

2. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979:

The Act was drafted to provide an overview of interstate worker circumstances. The purpose of the Act is to protect and safeguard employees who provide services outside of their own countries. The Act has two primary functions. First, it protects the interests of migrant interstate workers, and second, it allows companies to engage employees from outside the state when qualified or unskilled labour is scarce inside the same state.[iv]

3. The Payment of Gratuity Act, 1972:

When an employee’s services are ended, a gratuity payment is made to the employee. It is a one-time payment made as a symbol of gratitude for services performed by the employee to the employer. The gratuity payment must be made within 30 days of the employee’s last day of work.[v]

4. The Contract Labour (Regulation and Abolition) Act, 1970:

The Act’s goal is to control the working conditions of contract labourers in factories and industries. The Act also discourages and seeks to eliminate hazardous working situations. The Act requires the major employer to offer different amenities to employees such as canteens, restrooms, adequately illuminated and ventilated places for employees who are forced to halt at night on the job site, separate latrines and urinals for men and women, first-aid facilities, and so on.[vi]

5. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952:

This statute essentially mandates that an employee contribute to a fund for his or her future after retirement. However, according to the Act, the workers’ provident fund is required for all employees earning less than $15,000 a month. Both parties contribute 12% of the base wage to the Provident Fund.[vii]

6. The Employees’ State Insurance Act, 1948:

The Act provides guidance to employees in times of sickness, accident, or maternity leave. The Act applies to factories that employ more than ten people at any given time. Both the company and the employee contribute to the insurance here. To build the insurance fund, the employer contributes 4.75% and the employee bears 1.75% of total compensation. The Act formerly applied to employees earning less than Rs. 15,000 per month, but it has recently been raised to Rs. 20,000.[viii]

These start-ups must file self-certification using the Startup mobile app, which allows entrepreneurs to fill out the necessary forms and facts on the application itself or on the internet portal. Returns will only be reviewed after the second year, for a period of up to five years after the units are founded, provided a credible and verifiable grievance of violation has been made in writing and authorisation has been received from higher authorities.

Such start-ups are obliged to produce self-certified reports from the second year onwards, up to 5 years after the units are established, and will be examined only when a genuine and verifiable complaint of violation is lodged in writing and authorisation has been received from higher authorities.

Author: Kaustubh Kumar, 4^th Year law student at the National University of Study and Research in Law, Ranchi, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing

[i]Sustained Government efforts result in increasing the   number of recognized Startups from 452 in 2016 to 84,012 in 2022, Ministry of Commerce and Industry, PIB (Dec, 07, 2022), https://pib.gov.in/PressReleasePage.aspx?PRID=1881495.

[ii] Notification G.S.R. 127(E), available at: https://dpiit.gov.in/sites/default/files/notification_Definition_StartupIndia_06July2021.pdf (last visited on Aug. 09, 2023).

[iii]The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979.

[iv]The Payment of Gratuity Act, 1972.

[v]The Contract Labour (Regulation and Abolition) Act, 1970.

[vi]The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

[vii]The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

[viii]The Employees’ State Insurance Act, 1948.