Employment Laws’ Applicability And Audit In An Organization

Published by MBA Skool Team, Published on December 24, 2011

Employment law is the body of laws, administrative rulings, and precedents which addresses the relationship between and among employers, employees and labour organizations, often dealing with issues of public law. It also includes employment contracts, workplace discrimination with the objective of ensuring smooth flow of industry and conceals differences between employers and employees.

Employment Laws

India has more than 45 such lawsaddressing various areas of employment and employee/labour relations in organizations, a few of which along with their applications are provided below:

1) Laws related to Industrial Relations

a) Trade Unions Act,1926: registration and functioning of Trade Unions

b) Industrial Disputes Act, 1947: industrial dispute settlement,strikes/ lockouts, unfair labour practice

c) Industrial Employment (Standing Orders) Act, 1946: employers to formally define conditions of employment and communicate the same clearly to workmen employed

2) Laws related to Wages

a) Payment of Wages Act, 1936: regulates payment of wages , deductions, time of payment, etc

b) Minimum Wages Act,1948: payment of minimum rate of wages as fixed by State Governments

c) Payment of Bonus Act, 1965 : payment of bonus on the basis of profits/productivity, etc

3) Laws related to specific industries

a) Factories Act, 1948:regulateshours of work, overtime, safety, health, welfare, leave with wages

b) Contract Labour Act, 1970: contract labour employment, welfare, liability of principal employer

c) Sales Promotion Employees’ Act, 1976: regulates conditions of service like leave, holidays

d) Shops and Establishment Act, 1963: regulates leave, weekly closure, hours of work, wage payment, issue of letters to employees, registration of establishments, etc

4) Laws related to equality/empowerment of women

a) Maternity Benefit Act, 1961: benefits to women before and after childbirth/ process of the same

b) Equal Remuneration Act, 1976: equal payment for equal work to both men & women, no discrimination in case of promotion, training, etc

5) Laws related to disadvantaged sections of the society

a) Bonded Labour System(Abolition)Act 1976 : to abolish bonded labour system through law

b) Child Labour ( Prohibition and Regulation) Act, 1986 : prohibits child employment in 60 processes/ 13 occupations and regulates conditions of work ( hours, rest period, leave,etc)

6) Laws related to Social Security

a) ESI Act, 1948: Medical, sickness benefit, maternity, disablement benefits upon contribution

b) EPF and Misc. Provisions Act, 1952: Ensures contribution of employers & employees in funds to be used by employees in old age or during acute need during employment.

c) Payment of Gratuity Act, 1972: lumpsum payment to an employee on separation after minimum 5 years of employment.

7) Laws related to employment and training

a) Employment Exchanges Act, 1959: compulsory notification of vacancies, manpower details in quarterly/biennial returns

b) Apprentices Act, 1961: practical training and employment of apprentices in factories

There have been a few demands for change in provisions of namely The Industrial Disputes Act (IDA) and Contract Labour Act (CLA).

If we look at the pharmaceutical industry, it is heavily dependent on R&D, automation through technological breakthroughs which require lesser but highly trained manpower. Companies in these sectors with manufacturing facilities may require to retrench workmen and to retain the best of them to reduce cost and improve productivity along with automation. Employers are not free to retrench since that order can be revoked by the Labour Court.

Hiring contract labour is a cost-saving policy too, but there are restrictions on that here in India.

The most debatable areas of IDA are provided below:

1)      Sec 11A – that it permits Labour Courts to modify retrenchment orders dealt to an employee, including when the worker is retrenched on disciplinary grounds.

2)      Sec 25G – Following LIFO method based on length of service may deprive employers to keep their best people on board. It violates employer’s rights to select the best workers, younger and better trained in some cases.

For CLA, it is Sec 10which prevents firms from outsourcing most functions on hiring people on temporary contracts for more than 240 days. Anyone so employed can demand permanent employment.

Also we find workplace discrimination in terms of promotions, pay, etc though MNCs are better on these than Indian companies. Organizations themselves should have policies to have a healthy gender-ratio, women’s participation in management and an unbiased leadership development approach.

In addition to the above, the minimum wages set by the authorities are far less when we compare the same with a “Decent Living Wage”(DLW). Organizations should rise above statutory legislations and provideDLW and break the cycle of poverty. In developing countries, parents with higher wage are less likely to send their children to work, which also controls child labour. Also Living Wages attract more skilled, loyal & productive employees.

Again, with so many enactments, it becomes difficult to keep a tab of everything and hence there is an urgent need to simplify, rationalize the legislations into a comprehensive but simple code that allows for employment adjustments with adequate income and social security for employees after detailed consultation among employers, trade unions, government and employment law experts.

A lot of labour unrest happens due to adoption of unfair labour practices, discrimination, illegal strikes and lockouts, political arm-twisting by Trade Unions, etc. Organizations can do better by implementing internal systems to ensure adherence to employment laws, one of which is an in-depth audit of the same, known as the Employment Audit. These are periodic audits done by internal staff/ external agencies to evaluate the organization’s compliance to employment laws applicable to it. These provide a systematic means for Management to determine their exposure to lawsuits, unrest and take preventive measures.

At present most companies in India do not have such audits done and hence there are critical non-compliances exposing them to law-suits. Also there is no such enactment to make such audits compulsory by an external agency.

The following steps may be followed while doing an internal Employment Audit

1) Team Formation: people from HR, a legal advisor, safety specialist, a Sr. Manager

2) Goal formulation: adherence standard assessment, improve communication, safety, employee morale, minimize risks, high ethical standards

3) Current snapshot of organization : desires, needs, size, type of workforce, future developments

4) Documentation of current policies/practices : personnel, pay structure, travel, expense, benefits, safety, confidentiality, open-door, anti-discrimination, anti-harassment, conflict resolution mechanisms, etc

5) Checking compliance of the above with applicable employment laws/legal requirements

6) Gap analysis: indicate areas of non-compliance and prescribe methods to make it “zero-defect”

7) Implementation team:Management should immediately assign these tasks as a top-priority project to a team with deadlines for each task/element of the task(s).

8) Reassessment Audit: After completion of the deadline, another Reassessment Audit to be done to ensure compliance.

9) Employee Handbook: This as an off-shoot of a thorough Employment Audit is a logical step for any organization which does not have the same.

Adaptability and appropriate reforms in employment laws and in its implementation procedures are necessary for the continued existence of a legal system which supports inclusive growth. The challenges of the contemporary world (economic, political and social) can be successfully met by either discarding or by adjusting employment regulations. With huge expansion in cross-border capital, trade, technology and information flows becoming a defining feature of the economy, addressing labour concerns for making conditions more investor-friendly would be the next rational step.

This article has been authored by Deepankar Sadhukhan from GIM

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