Starting a business is not at all a cake walk. Even if you have plenty of experience in a particular industry, you still need to take care of numerous things regarding business, raw material, legal compliance for startups in India, and whatnot!!
There is something on this page that could help relieve the startup owners or future entrepreneurs. One can find below the labour law compliances for startups in India. The blog below explains what type of companies are eligible for startup scheme, and its benefits. It also lays a route map of labour law exemption for startups. Get a thorough idea of startup compliance formalities in India.
What Type of Companies are Eligible for Startup Scheme?
Before going through the labour law exemptions for startups, it is better to understand which companies fall under the definition of startups as per authorities. The types of companies eligible for startup scheme are as follows:
- Incorporation as a Pvt. Ltd or LLP or a registered firm.
- Turnover less than INR 100 Crore in any of the preceding financial years.
- Considered as a ‘startup’ upto 10 years from the date of incorporation.
- As per government orders, an entity “working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation” shall be recognized as a startup.
Hence, a startup entity which has completed 10 years of incorporation or if its turnover exceeds INR 100 Cr in any financial year, it shall cease to be considered a startup in India. For certain benefits, the bar over startup compliance benefits limits to a turnover of INR 25 Cr only. It may be noted that for being recognized as a startup in India, there is some documentation and formalities to be taken care of with the government. Due to technicality involved, startup legal services help ease the due process.
What is the Benefit of Startup Schemes?
Starting a business is a challenging task. It's not like you start a product or service based entity and the world welcomes you with open arms. You have to make an effort at every step. There are legal compliances as well which need to be taken care of, based on which industry you enter into.
That is why the government comes up with various schemes to ease the process of establishing a business, especially small businesses. Supporting small and middle business entities helps strengthen the economy in a longer run. Coming back to startups, given below are the benefits when it comes to startup compliance:
- Simplified process through mobile applications
- Reduction in costs including trademarks and patent processes
- Easily accessible funds as venture capital
- Tax exemptions for a limited period in the initial years
- Eligibility to apply for government tenders without complying with the criteria related to prior experience or turnover
- Facilities for Research and Development (R&D) sector
- Time and money saving compliance process
- Tax savings for startup investors
- Easy exit/ windup for startups from the business world
Still, there are some labour law compliances for startups in India which need to be duly complied with as required by the authorities.
Labour Laws for Startups in India
There are various types of labour law which an organisation has to ordinarily abide by and comply with. There are some general rules which need to be taken care of even by startups which follow:
Taxation Rebate
Startups recognized by law may enjoy tax rebate under section 80 IAC of the Income Tax Act, 1961. Taxability of any organisation depends upon the industry it is indulged in, and the yearly turnover as well.
Prevention of Sexual Harassment
Provisions of Sexual Harassment of Women at Workplace Act, 2013 are duly applicable at any organisation employing more than 10 employees regardless of the industry or location. The aim of POSH Act is to protect and redress sexual harassment of women at workplaces, which can not be avoided in established or startup organisations. That is why the labour law compliances for startups in India does not exempt or relieve POSH requirements in any way.
Minimum Wages
A start-up may be a start of the business with limited resources and team, the employees’ right to wage can not be avoided. The Minimum Wages Act, 1948 makes it mandatory to pay the minimum wages set by the state authorities to the workers before the 7th day of the following month.
Working Hours
A startup may require a non-stop workforce struggling day and night to elevate the business to new heights. But the same can not be achieved while keeping the health of workers at stake. If an employee is forced to work beyond the usual working hours or those fixed by the government on a daily or weekly basis, employees may bring the matter in light through labour lawyers.
Safety and Health
Even if it's a startup organisation, the health and safety of the employees has to be given due care. There must be safe work conditions and proper arrangements at a workplace allowing people to work in a healthy and safe environment. The labour law compliances for startups in India seek due care when it comes to health and safety measures at a workplace.
Against Discrimination
The formula of equal pay for equal work needs to be respected everywhere regardless of whether it's a corporate office or a factory. The Equal Remuneration Act, 1976 requires employers not to discriminate among workmen based on the fact that they are males or females. Even entrepreneurs of a startup can not discriminate based on a person’s gender.
It may be noted that the list above is not exhaustive but only gives an idea of the kind of compliance for startups in India. There may be industry specific requirements as well which need to be taken care of through professionals.
Labour Law Exemption for Startups
Given below are the laws which startups are exempted from detailed compliance with the ease of process. It may be noted that these are those statutes under which, statutory compliance for companies in India needs to be conformed, and inspections are also conducted. The legal compliance for startups in India allows startups to self-certify for up to 3 years unless there is some grave and reliable complaint against them, in which case an inspection may be conducted.
Industrial Disputes Act, 1947
As the name suggests, this Act concerns the relationship among employers and workmen in the organised sector, mainly protecting the rights of persons who are engaged in an industry except those in managerial or administrative position, among others. Since industrial employment affects hundreds of people, there are specific provisions related to layoffs, retrenchment and closure of an organisation. It also includes provisions for investigating, resolving and setting industrial disputes, unfair trade practices, etc.
Industrial Employment (Standing Orders) Act, 1946
The purpose of this Act is to define employment conditions to the employers at an organisation employing more than 100 employees. The aim is to give the employees a clear idea of terms of employment with regards to working hours, shifts, attendance, grant of leave, and so on.
The Payment of Gratuity Act, 1972
Loyalty and consistency towards an employment should be rewarded as focused upon under this Act. It lays provisions for payment of gratuity (a certain amount of money) at the termination of employment for an employee who has served for 5 or more years.
Contract Labour (Regulation and Abolition) Act, 1970 (CLRA)
The provisions of this Act lay for the regulation and termination of contractual labour in specific circumstances. The aim is to protect the rights of employees as per Labour laws in terms of contract of employment seasonal or otherwise in nature.
Trade Unions Act, 1926
Trade unions are the representing units of workmen in an industry or organisation. It gives voice to the individual workmen against any kind of injustice or discrimination. The Act provides for due registration of the union with the government to protect and promote the interests of workers.
Employees' State Insurance Act, 1948
In today’s uncertain times, insurance is a must for one and all. There are certain workplaces whereby employers are bound by social security laws to provide insurance for their employees. It grants protection to workers against health related contingencies like sickness, injury, maternity, etc. The labour law compliances for startups in India are also exempted from ESI provisions.
Building and Other Constructions Workers' (Regulation of Employment and Conditions of Service) Act, 1996
The Act lays for regulation of employment and service conditions for building and construction workers in India. It affirms safety, health and welfare measures for the workers.
Employees' Provident Funds and Miscellaneous Provisions Act, 1952
Worrying about what comes in the future is a human tendency. The Employees Provident Fund Scheme, 1952 lays future planning through employers and employees working as a team contributing towards a common account which matures after the employee retires and gives him/ her the much needed financial support at retirement. Startup compliance is exempt for a certain period as leveraged by the authorities.
Inter-State Migrant Workmen Act, 1979
Migration is not easy when you have to leave your native place for the sake of employment ultimately aiming for survival. This Act regulates the work conditions for migrant workmen in inter-state establishments. The legal compliance for startups in India leverages strict adherence with this as well until self certification is duly followed.
If you are planning for a startup in Kolkata, a corporate lawyer in Kolkata may assist with the procedural technicalities. This helps the founding partners to focus upon their building their business while the compliance for startups in India is taken care of by professionals.
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