Employment Laws Applicable for Services Sector in India

Employment Laws in India:

Complex employment laws in India have been major area of concern for multi-national companies entering into Indian market. With greater mobility and flexibility in the labour markets becoming the need of the hour, employers in India have been arguing and demanding for years for simplification of employment / labour laws. With focus on “Ease of Doing Business in India”, successive governments have been working tirelessly to improve upon overall business environment in India which has resulted in liberalized and stable regulatory framework, leaner licensing regime and simplified and balanced employment laws.

As part of labour laws reform initiatives, Government of India has undertaken the exercise of rationalization, integrating and consolidating around 44 labour/ employment laws into 4 labour codes viz. Code on Wages, Code on Industrial Relations, Code on Social Security and Code on Occupational Safety, Health and Working Conditions. The Codes are undergoing legislative process and the Government is very close to implementing these codes.

Employment Laws Applicable for Services Sector:

While above labour codes are yet to be implemented, below-listed employment laws would be applicable on any establishment in services sector:

Employees’ Provident Fund & Miscellaneous Provisions Act, 1952
Employees’ State Insurance Act, 1948
Payment of Bonus Act, 1965
Payment of Gratuity Act, 1972
Minimum Wages Act, 1948
Payment of Wages Act, 1936
Equal Remuneration Act, 1976
Maternity Benefit Act, 1961
Employees’ Compensation Act, 1923
Child and Adolescent Labour (Prohibition and Regulation) Act, 1986
Employment Exchange Compulsory Notification of Vacancies Act, 1959
Apprentices Act, 1961
Industrial Disputes Act, 1947
Contract Labour (Regulation and Abolition) Act, 1970
Industrial Employment (Standing Orders) Act, 1946
Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (commonly known as POSH Act)
State law on Shops and Commercial Establishments
State law on Labour Welfare Fund
State law on National and Festival Holidays
State law on Conferment of Permanent Status to Workmen
State law on Payment of Minimum House Rent Allowance
State law on Payment of Minimum Subsistence Allowance

General Conditions of Employment in Commercial Establishments in Services Sector:

Commercial establishments in a state are governed by Shops and Commercial Establishments law of the state concerned apart from other employment laws listed above. Following are the main employment conditions governing employment of employees in establishments in services sector:

Head	Governing Law
Opening & Closing Hours	State law on Shops and Commercial Establishments
Hours of Employment	State law on Shops and Commercial Establishments
Overtime & Overtime Wages	State law on Shops and Commercial Establishments
Intervals for Rest & Meal	State law on Shops and Commercial Establishments
Spread Over	State law on Shops and Commercial Establishments
Closed Day & Weekly off	State law on Shops and Commercial Establishments
Pay Day	State law on Shops and Commercial Establishments & Payment of Wages Act, 1936
Holidays	State law on Shops and Commercial Establishments & State law on National and Festival Holidays
Sick Leave [SL]	State law on Shops and Commercial Establishments
Casual Leave [CL]	State law on Shops and Commercial Establishments
Earned Leave/ Privileged Leave	State law on Shops and Commercial Establishments
Maternity Leave [ML]	Maternity Benefit Act, 1961
Paternity Leave [PL]	Not a legal requirement in India
Retirement Age	HR Policy of the Company or Model Standing Orders
Notice of Termination	As per contractual covenants subject to provisions of state law on Shops and Commercial Establishments
Policies & Procedures for Prevention, Prohibition and Redressal of Sexual Harassment of Women at Workplace	POSH Act

Compliance Obligations under Employment Laws:

Employers are under obligation to ensure regular compliances under above-listed laws. Major compliances under employment laws range from:

Obtaining registrations / licenses under as applicable
Ensuring deduction of statutory dues / taxes [EPF, ESI, LWF, TDS as applicable] from employees’ salaries
Remittance of statutory dues / taxes [EPF, ESI, LWF, TDS] to respective departments
Filing of periodical returns with labour authorities (monthly / quarterly/ annual as required under applicable laws)
Filing of statutory notices / disclosures with labour authorities as required from time to time under applicable laws
Maintenance of statutory registers and records on monthly basis
Display of statutory notices / policies / information at the establishment
Ensuring employment conditions at the establishment as discussed above
Ensuring various employment benefits to employees available under above-listed laws
Formation of committees under applicable laws

Employment Contracts:

Employment documents play pivotal role in the Employer-Employee engagements. Typically, employee engagement documents start with Offer Letter / LOI by the employer followed by Appointment Letter + Employment Contract or Employment Contract-cum-Appointment Letter. As employment contract serves as a base for all terms & future relationship between employer and the employee, an employer has to be very careful in setting up appropriate type of employment contracts in order to engage workforce in India. Depending upon business requirements and nature of specific employment role, employers pick up employment contracts from amongst below:

Open-ended Contract (OEC) – Employment under an OEC continues to subsist and be in operation for indefinite period of time and is ended upon superannuation or death of the employee or is terminated by the parties as per terms of the contract.
Fixed Term Contract (FTC) – If not renewed for further term, employment under an FTC is designed to end automatically upon expiry of the term of the contract.
Project-specific Contract (PSC) – Employment envisaged under PSC is designed to end automatically upon completion of the project.

Firing of Employees:

Termination of services of workmen by the employer for any reason, otherwise than continued ill health or punishment inflicted by way of disciplinary action, amounts to “retrenchment” under Industrial Disputes Act, 1947 (ID Act). However, termination of service of a workman as a result of non-renewal of his/ her contract of employment does not amount to retrenchment.

Further, it is pertinent to note that persons employed mainly in managerial or administrative capacity or in a supervisory capacity have been excluded from the definition of “workmen” covered under ID Act.

Conditions Precedent to Retrenchment of Workmen – As per requirements of Section 25F of ID Act, no workman employed in any industry who has been in continuous service for not less than one year (read 240 days) under an employer shall be retrenched by that employer until:

the workman has been given one month’s notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid wages in lieu of such notice period;
the workman has been paid, at the time of retrenchment, retrenchment compensation which shall be equivalent to fifteen days’ average pay for every completed year of continuous service;
notice in the prescribed manner is served onto the State Government.

Procedure for Retrenchment – Seniority list of category / class of employees is prepared to which the retrenchment is targeted and displayed at the establishment. While proceeding with retrenchment, LIFO (LAST IN FIRST OUT) method is employed, i.e. the employee who joined last in his category / class will go first.