Article: Is your company labour law compliant?

Legal & Compliance Outsourcing

Is your company labour law compliant?

There are complex rules that an HR manager has to abide by but it is anyones guess if most of them are being followed.
Is your company labour law compliant?


The HR industry is fast moving towards tech-enabled initiatives. It is heartening to see some companies implementing serious tech in their HR processes like automation of hiring, payroll, virtual interviews, etc. Another big change that tech can enable is to make sure all companies are labour law compliant. 

Being an HR professional for more than 3 decades, I can safely say that labour laws are by far the most complicated piece of policies/processes any HR professional would come across. The labour laws change from state to city to tehsil to taluka to a village, and that is what adds to the complexity. The question now is how one makes sure that their company is labour law compliant. There are complex rules that an HR manager has to abide by but it is anyone’s guess if most of them are being followed. The cause for this is not lack of intent but lack of understanding and complex nature of such laws. 

Let’s look at a few examples to understand the issue better. 

Most companies use yearly bonus as a retention tool. There are two types of Bonuses, one is individual performance based and second is Statutory Bonus. In a recent announcement, the government has brought an amendment to Payment of Bonus Act. First, the ceiling on wages (Basic plus DA) on which bonus is calculated, has been raised to Rs 21,000 from Rs 10,000. This means that more workers with wages (Basic plus DA) less than Rs 21000 would now come under the purview of payment of bonus. Second, the way the bonus would be calculated would now be advantageous to employees. The ceiling on the bonus amount has been raised to Rs 7000 or the minimum wages, whichever is higher. But that’s where the good news ends and the HR managers’ nightmare begins. 

This amendment is to be implemented in retrospect from April 2014. This means, companies will have to provision for higher cash outflow in the quarter. There is widespread confusion among HR heads of various companies about calculation of bonus, budgeting of bonus expense, and filing of returns. The inclusion of minimum wage increases the possibility of erroneous calculation, especially since the minimum wages would change at least twice during the bonus calculation period. Also, the fact that minimum wages vary across city/districts/talukas in each state adds another dimension of complexity to the issue of retrospective calculation. 

The only temporary relief to companies is that the Kerala High Court has put an interim stay on the retrospective nature of the amendment. But if this were to be implemented, many HR managers would be literally burning the midnight oil to make sure the calculations are right and they are not defaulting on any payments. However, if labour laws were kept simple, with little room for interpretation, confusion could have been avoided. While it’s great to see that government is making an effort to bring more people under bonus purview, they should not lose the sight of its effect on companies who are required to implement this policy. 

Either the retrospect angle should be dropped on a base amount or minimum wages should be specified to facilitate correct calculations. 

While companies struggle to make sense of the amendment to the Bonus Act, here is another bouncer for them. As a rule, every company is required to deposit the PF contributions with the EPFO authority. It gets a grace period of 5 days to make the payment without any penalty. However, that cushioning is gone too. In a recent circular by EPFO, the 5-day grace period has been withdrawn from Feb 2016 onwards. Currently, all employers are required to pay the PF contributions and administrative charges within fifteen days of the close of every month. A further grace period of 5 days was allowed to employers to remit the contributions in the bank taking into consideration the manual work involved in the calculation and remittance. In the present era of electronic computing and remittance, the time taken by employers has reduced drastically. Accordingly, the EPFO has withdrawn the concession of grace period of 5 days from February 2016. 

This would be applicable for contributions for the month of January 2016 and payable in the month of February 2016.

The circular came around mid Feb, which means companies had only a few - days to make the final payment to avoid any penalty or action. One can only imagine how many companies were able to meet the deadline.

In a move to ease the PF withdrawal process for employees, EPFO has allowed its subscribers to file their withdrawal claim applications directly to the EPFO without the employer’s attestation. Currently, the subscribers submit their provident fund withdrawal claims manually through their employers with a mandatory attestation from the employer.  

The EPFO announced that employees whose details like Aadhaar Number and Bank Account Number have been seeded in their UAN and whose UAN have been activated, may submit claims in Form-19, Form-lOC and Form 31 directly to the Commissioner without attestation of their employers for fast settlement of claims. However, the claims would continue to be submitted physically to the PF Commissioners. 

This move is seen as a step towards filing online withdrawal claims directly to the EPFO.

Read full story

Topics: Legal & Compliance Outsourcing, #Hiring

Did you find this story helpful?



How do you envision AI transforming your work?