Here's how can govt. incentivize business owners
The current lockdown that has brought the entire country to a hold is an unprecedented event. To revive the economy, it is crucial for the government to intervene by offering financial assistance to encourage business owners to use personal wealth to continue regular payment of the salaries and wages of their employees during these difficult times.
For the purpose of this article, we have only dealt with the entities which may not be generating enough revenue or have free reserves to be able to cope with the cost of bearing full salaries or continue with the employment of the original number of employees. There are entities who barring minimal deductions have continued to pay the salaries without termination of employment.
Though merely advisory and suggestive guidelines have been issued by the central government (reference MHA order of 29.03.2020), the power to make relevant rules and regulations have been delegated to respective state governments. No notification having the force of applicable law has been prescribed (including in the state of Maharashtra) which makes it mandatory for the management to not deduct salary or terminate the employment during the lockdown period and few months following the starting of business post lockdown.
Many entities also seem to be taking this crisis as an excuse to close down businesses altogether to seek protection under the garb of the crises. Since the courts and law firms are operating with limited capacities, there is not much scope of challenging such terminations and pay cuts on an immediate basis. Even if the concerned employees challenge, the workforce belonging to the junior-most level may not be able to incur the legal cost associated with challenging such terminations or arbitrary pay cuts. The promoters and investors of many of these entities have even made deductions in the month of March as well.
There is suddenly a clamor from many of these wealthy and affluent promoters, who also have a louder voice with the media and certain governmental agencies and political parties, asking for the government to bring indoles and offer financial support to the industries in order to make them survive this crisis. Whilst the same is definitely required, considering that India has always been working within a frame of financial prudence and does not just go ahead printing money and distributing the same as many in the west are doing, the government needs to decide which industry and what segment needs such assistance the most. At such time, the onus of, at the least, making payment of salary and wages, should be shifted to such promoters who have taken home and made huge personal wealth.
There needs to be a financial scheme or assistance prescribed by the governments making it mandatory for the personal accountability of the promoters in these circumstances. Promoter friendly schemes need to be prescribed to enable investments by the promoters in their personal capacities only for the restricted end-use of payment of the salaries and wages of the employees during these times.
Here is a list of suggestions below as to how this can be taken forward. Promoters/ Owners (as per the applicable definition of the SEBI laws in case of a Company, Partners in case of the partnership firms and sole proprietors in case of sole proprietorships) should be mandated to put in money in the entities in their personal capacities only for the limited purposes of payment of the salaries till the period of crises. Some silent features can include:
- The Promoters/Owners Loan to carry an interest rate @ 6% p.a.
- No repayment till the expiry of 6 months of the notified end of the crises;
- A specific current account to be opened for such a loan and the end-use of payment of the salary to be certified by an independent chartered accountant firm;
- The loan to be an unsecured loan ranking pari passu along with the other unsecured loans;
- Repayment of the interest not to be taxed and accordingly Section 10 of the IT Act, dealing with exempt income tax, to be amended that only to the extent that the income in the hands of the promoter from the repayment of the specified loan to be not taxed;
- If any promoter/owner is not willing to put in the money then a personal declaration to be given by such a promoter along with its personal audited accounts stating that due to financial constraint it is unable to invest as debt for payment of salaries;
- As an addition to the reliefs, all future increments and bonus would stand suspended for a period of one financial year post the end of the crisis. However, the management may take its own decision if they wish to offer
- For entities unable to bear the salaries or deducting 50% or more of salary, the incidental facilities and other perquisites as extended to the promoters/owners such as rent-free accommodation, car, allowances, etc should be suspended.
- As a way to encourage it depending on CIBIL rating of the promoter/owner and the entity, nationalized bank can give low interest-bearing loans equivalent to the amount the promoter is willing to put as loan for the specific purpose of the payment of the salaries; Such loan may be unsecured and interest free/low interest for a period of one year from the time of its disbursement. All the employees must open their account with this bank and the salary can be directly transferred to the employees’ accounts. The total amount of loan may be repaid in the form of EMI within 1 to 2 years.
- Each and every entity _______ to file with the applicable statutory authority (ROC / ROF) a written plan towards payment of the salaries and wages along with the declaration if there are any pay cuts in detail. Such filing to be mandatory as a part of the annual filing. (Such plan may be filed with their jurisdictional income tax officer)
- An immediate law by way of an ordinance be passed by all the state governments, where if 10% or more of the original workforce is terminated then such employees being a minimum of 10% or more to be allowed to challenge the termination as a class action. The reliefs if are to be granted shall be retrospectively and of monetary nature.
- For salaries paid to employees, other than directors, promoters, their relatives and key managerial people, during the period of lockdown, a weighted deduction of up to 125% from their total taxable income could also be considered as an alternative. For ex: If the salary paid during this period is Rs. 100,000/-, the deduction from taxable income will be to the extent of Rs. 125,000/-.
Action is required on this front today to ensure that we do not fall into an impending employment crisis while we overcome the ongoing COVID-19 pandemic.