International Employment Law “Quick Facts”: India

Mariana Villa da Costa – Littler Mendelson

Hello Readers! Sorry about the radio silence, but I am back with another edition of our  “International Employment Law Quick Facts”! Based on our readers requests, I have chosen India for the next in this series.

India is a place of exotic food, beautiful architecture and Bollywood! But, it’s also a developing country with the world’s second largest labor force and an economy that is taking over many others, and becoming one of the best places for global companies to invest. One important observation – Indian Labour and Employment Law is among one of the most complex in the world, so while I know the outline that follows is a good start, it is always a great idea to consult a lawyer.

Q. What are the definitions of employee, employer and independent contractor?

A. In India there are different definition of  employer and employee depending upon the piece of legislation at issue.

If we consider the IDA (Industrial Dispute Act, 1947) the employer will be either the authority that is the head of a Central Government or a State Government, mainly for public employment. Or in relation to a local industry, the chief executive officer of that authority.

An employee for the IDA, called a workman, will be any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied.

But it is important to mention that under the IDA, a person who is employed mainly in a managerial or administrative capacity, or a supervisor who draws a monthly salary exceeding Indian rupee (INR) 1,600 will not be considered a workman.

Also, in 2009 a new bill was introduced to widen the definition of “employee” and bring in more people under the ambit of the Payment of Gratuity Act. (a new amendment was done to this bill in 2009). In both the bills, the definition of “employee” has been widened to include any person who is employed for wages, other than an apprentice.

There is no separate definition of an independent contractor under Indian labor laws. The relationship with an independent contractor will therefore be governed by the provisions of the Indian Contract Act, 1872 (ICA).

Q. Is it necessary to have written employment contracts in India?

A. There is no particular requirement under the centrally enacted labor laws to have written employment contracts. However, certain state-specific statutes require the employer to issue an appointment order.  The appointment order primarily includes the name and address of the establishment and the employer, name of the employee and the employee’s postal and permanent address, father’s/husband’s name, date of birth, date of entry into employment, designation, nature of work entrusted to the employee, serial number in the register of employment and the rates of wages payable.

We would definitively advise companies to execute employment contracts with their employees, especially with the most senior employees and executives.

Q. Are there any specific rules in regards to the duration of employment contracts?

A. Most likely in India, employment contracts will be for an indeterminate period of time. However, it is also feasible to have employment contracts that are either project-specific or for a fixed period, depending on the necessities of the companies. However, employers should be ready to justify to the courts the necessity of a fixed-term contract as opposed to a contract for continuous employment

Q. Are there any rules in regards to discrimination in employment?

A. In addition to the constitutional provisions under articles, an important statute is the Equal Remuneration Act, 1976 (ERA).  The ERA provides for payment of equal remuneration to men and women workers. The ERA also states that no employer shall, while recruiting for the same work, discriminate against women except where the employment of women in such work is prohibited or restricted by or under any law.

However, it is still common in India to have discrimination against women.

We do advise that companies doing business in India take strict precaution and necessary actions against any discrimination in the workplace –  on the basis of race, religious creed, color, age, sex, sexual orientation, gender identity, national origin, religion, marital status, medical condition, disability, pregnancy, childbirth and related medical conditions, or any other similar classifications. Company policies, codes of conducts and manuals are great instruments to have those discrimination issues delineated.

Q. What are the rules regarding working hours?

A. The maximum number of working hours for an adult worker should not exceed 48 hours in a week and nine hours in a day, while for a child the working hours should not exceed 4-1/2 hours in a day. No child below the age of 14 years can be employed in a factory. In addition, no worker, whether an adult or child, can be employed on any day on which he has already worked in any other factory. Any worker working for more than the maximum prescribed time is entitled to wages in respect of such overtime work at twice the ordinary rate of wages. Total working hours should not exceed 60 in a week and the total overtime hours should not exceed 50 in a quarter.

Every worker must be allowed one holiday in a week, on any day. Whenever a worker is required to work on a weekly holiday, a compensatory holiday is provided for each holiday so lost, within the same month or within two months immediately following that month. Every woman employee is entitled to a maternity leave of not more than 12 weeks

Q. Are there any minimum wage requirements in India?

A. Yes.  The State Government is responsible for the administration of the minimum rates of wages for different classes of employees.

Q. What are the rules regarding the termination of employment?

A. Indian labor law does not envisage an “at-will” employment relationship. Dismissal of an employee’s employment may be for a reasonable cause or on account of misconduct.

Q. What benefits must employers furnish to employees?

A. There are many important regulations that determine the benefits that should be provided to employees.  Some of the most important ones include:

1) The Employees’ State Insurance Act, 1948 (the “ESIA) seeks to guarantee reasonably good medical care to workers and their immediate dependents.

– applies to all factories and establishments where 10 or more persons are employed and to such other establishments as are notified by the Central Government in the official Gazette.

– wage limit for coverage under the ESIA is INR 10,000 per month (proposed to be increased to INR 15,000 per month). The contribution payable to the Employees’ State Insurance Corporation with respect to each employee shall be comprised of the employer’s contribution and the employee’s contribution at the specified rates, which are revised from time to time.

2) The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (the “EPFA”) – this is the social security legislation to provide for a provident fund, family pension and insurance to employees. EPFA is probably the most important social security legislation in India.

– EPRA is applicable to establishments where 20 or more employees are employed, as specified in the schedule to the EPFA and also to establishments that are voluntarily covered under the EPFA by a Central Government notification.

– Both the employer and employees are required to contribute a certain percentage of the wages to the Provident Fund Commissioner for deposit to the respective accounts of the employees.

3) Payment of Gratuity Act, 1972 (POGA): The POGA provides for the payment of gratuities (lump sum payment to the employee when the employee resigns or retires, or the employee’s services are terminated by the employer) to employees in certain establishments.

In addition to the above-mentioned benefits, companies usually provide for several other allowances/benefits in order to reduce the tax burden on employees; for example medical reimbursement/allowance.

Q. What kind of a visa should a foreigner obtain to work in India?

A. A foreign national can work in India only if he or she has a valid Indian employment visa (“‘E’ visa”), unless the foreigner is already holding a valid Person of Indian Origin (PIO) card or a Overseas Citizen of India (OCI) card.

I hope this quick summary can be used as a road map for employers doing business in India.  Please post your questions and comments.

Important Note:  This posting is intended to provide a brief overview of employment law in India.  It is not intended as a substitute for professional legal advice and counsel.

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