India: Labour Reforms For Indian Start-Ups – EPFO Shows The Way

Introduction

The Employees Provident Fund Organisation (EPFO) has issued a circular dated 21 January 2016 (Circular) exempting start-ups from inspection under the Employees' Provident Funds and Miscellaneous & Provisions Act, 1952 and also permitting start-ups to submit self-certified returns.

This Circular, further to the Ministry of Labour and Employment (Ministry) direction dated 12 January 2016 (Direction), is aimed at incentivising start-ups by easing their compliance requirements.

Who can benefit from the Circular?

The Circular is applicable only in respect of "start-ups" which have been defined as: "entities incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 Crores in any preceding financial year working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property".

What are the incentives as per the Direction?

The Direction provides that start-ups may be allowed to self-certify compliance with multiple Labour Laws, thereby:

Exempting them from inspection of establishments: The Ministry has stated that start-ups may not be inspected under these labour laws in the first year of setting up and instead, the start-ups may be asked to submit an online self-declaration instead.

Self-certified returns: The Ministry has also stated that start-ups will be allowed to file self-certified returns and further, from second year of setting up onwards, up to 3 (three) years from setting up of the unit, such start-ups will be inspected only when a very credible and verifiable complaint of violation is filed in writing with approval from the Central Analysis and Intelligence Unit.

"Labour laws" covered by the Direction?

The Direction applies to a total of 9 (nine) labour laws (collectively, Labour Laws), namely: The Industrial Disputes Act, 1947; The Trade Unions Act, 1926; Building and Other Construction Workers' (Regulation of Employment and Conditions of Service) Act, 1996; Industrial Employment (Standing Orders) Act, 1946; Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979; Payment of Gratuity Act, 1972; Contract labour (Regulation and Abolition) Act, 1970; Employees' Provident Funds and Miscellaneous & Provisions Act, 1952; and Employees' State Insurance Act, 1948.

Comment

The Direction is pursuant to the ambitious 'Make in India' and the 'Start-up India Action Plan' conceptualised by the Government of India. This Direction is one of the many regulatory changes sought to be introduced encouraging start-ups and entrepreneurs.

This Direction is a step in the right direction and would help ease compliance for start-ups which face inevitable delay in normal circumstances due to long and cumbersome process of inspection and filing of returns. In addition to the various other incentives already announced or on the anvil, the Government is facilitating the emergence of India as a major 'Start-up' centre.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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