Labour & Employment

LegalKart - Download the app for consumer App

Download LegalKart

  • Trusted
  • Affordable
  • Secure
Download Now!
Labour Codes - All You Need To Know About
Labour & Employment

Labour Codes - All You Need To Know About

Almost 90% of the India’s workers amounting to 50 crores are in the unorganized sector which previously had 44 central labor codes to protect their rights like minimum wages and social security. These 44 central labor codes will be replaced by these four labor codes: Code on wages, Industrial relations code, social security code and occupational safety and health and working conditions code. On important thing to note is that labor is a part of concurrent list implying that both centre and the state can make laws on this topic, the centre had already notified these rules in September 2020 but just 12 states have published the draft rules so far and no state has notified the requisite rules under these codes. Thus, the centre aims to implement these rules by the next financial year 2022-23.

New Labour Codes

The new labour codes will change certain aspects relating to work culture and employment in the country, first there will be a significant in the take home salaries of the employees and that will be contributed towards provident fund. This means that the employees' contribution in their PF will increase every month and the in-hand salary would reduce.This restriction would be 50% of the allowances which means half of the salary would be basic wages and contribution to the provident fund is to be calculated as a part per cent of the basic pay and DA (dearness allowance). Here, DA refers to the allowance which is a calculation on inflation and allowance paid to government employees and pensioners in India, Bangladesh and Pakistan and is calculated as a percentage of an Indian citizen's basic salary to mitigate the impact of inflation on people. Second, the labor ministry has made it clear that the 4 day work week will be implemented mandatorily instead of the 5 day work week currently in practice.

People Also Read This: Termination of Service, Layoffs and Retrenchments - Legal Viewpoint

The Code of Wages

The Code of Wages applies to all establishments whether organized or not and aims to ensure timely payment of wages and guarantees minimum wages to all workers. Additionally, it also introduces the concept of floor wage which will be decided by the government after taking into account the minimum standard of living of the workers and will vary according to the geographical areas. Thus, a state under no case is allowed to fix a minimum guarantee which is lower than the floor wage rate determined by the centre.

The Code on Social Security

The Code on Social Security specifically empowers the centre to frame any schemes like EPF, EPS etc for the self employed, unorganized, gig and platform workers and their families for improving their living conditions. Also, this code places an obligation on the firms with more than 20 employees to mandatorily place their vacancies online. Additionally, the central government will setup a ‘social security fund’ for the unorganized workers which will require contributions from the employer companies (called aggregators) and these contributions will be about 1-2% of their annual turnover.

The Code on Industrial Relations

The Code on Industrial relations seeks to expand the definition of worker, thus including persons employed in skilled, unskilled, manual, technical, operational, and clerical capacity. This code also introduced a new provision of fixed term employment, thus now the employers can engage a worker based on a written contract. These fixed term employees will get the same benefits as the permanent employees. Furthermore, these codes also improve the ease of doing business by allowing the firms with up to 300 workers to lay off some of the employees and go for retrenchment and closure without the government’s permission.

People Also Read This: Decoding a Fixed Term Employment Contract

The Occupational Safety, Health and Working Conditions Code

The Occupational Safety, Health and Working Conditions code applies to factories having at least 20 workers if the manufacturing process is being carried out with the aid of power and 40 if the process is being carried out without power. This code places some obligations on the employers. For example, make sure that the workplace is free from hazards that may cause injury or occupational disease to the employees, provide free annual health examinations, etc. It also contains a provision wherein the employers must provide the allowance to the inter-state migrant workers to cover his travel expenses. Moreover, this code provides a very important provision wherein under the One Nation One Ration Card, an inter-state migrant worker would get the ration facility in the state in which he is working and the remaining family members can get the ration in the countries in which they reside.

These codes have been welcomed by the employers so far with the hopes that they will make the business atmosphere more competitive. Still, many unions and groups have criticized these codes for putting the workers at the mercy of the employers, especially in the new Industrial Relations Code. Most of the provisions remain same as before. However, the biggest change is the inclusion of gig workers in employment protection.

Employee Stock Option Scheme
Labour & Employment

Employee Stock Option Scheme

What is Employee Stock Option Scheme?

The ESOP is an employee benefit plan that gives the workers ownership interest in the company in shares of stocks. ESOPs are usually setup as trust funds which can be funded by either putting in newly issued shares or by putting cash in to buy existing company shares or borrowing money through the entity to buy company shares. They are used by companies to all sizes be it smaller firms or large publicly traded corporations. Meanwhile, the employees can keep on investing in the company’s shares and this bundle of shares can increase depending on their employment term. Later, these shares can be sold at the time of retirement or termination of the employee.

Who can Employee stock ownership scheme be offered to?

According to the Rule 12 para 1 of the Companies (Share Capital and Debentures) Rules, 2014, for an employee to enjoy the ESOP scheme, he/she must be considered an employee of the company. Here, the employee refers to a permanent employee (whether working in India or not) or director of the company (whether is a whole time director or not and/or working in India or not). But, any independent directors or those who do not have any financial relationship with the company or hold more than 10% of the company's shares or any employee who is just a promoter are not entitled to receive the ESOP scheme.

People Also Read This: Knowing ESOPs and how it can help in retaining talent

How are ESOPs taxed?

Typically the ESOPs are taxed at 2 instances,[A] At the time of exercise- i.e. the date on which the employee buys the ESOP and the difference between the FMV (existing Fair Market Value) and the exercise price (the price at which the employee exercises the option) is being taxed and called a perquisite and TDS (Tax Deducted at Source) is also deducted on this perquisite. One important thing to note is that this harms the cash flow as a higher amount of tax is deducted from the employee's salary without any incremental inflow. The instance of tax deductibility arises only on the allotment of shares. Rule 3 para 8 of the Income Tax Rules, 1962 states that the FMV is calculated as the average of the opening and closing price as of that date in the case of a listed company. But, in the cases of unlisted companies, the FMV on a particular date is decided to the price to be taxed so decided by a merchant banker.

 [B] At the time of sales by the employee- as a capital gain, it is taxed on the difference between the sale price and FMV the date on which ESOPs are sold.  Here, the capital gains are further divided into short term capital and long term capital gains. The short term capital gains are those gains from the sales of the shares held for 12 months or less and therefore taxed at 15% according to Section 111A of the IT Act, 1961. On the other hand, long term capital gains are those gains from the sales of the shares retained for 12 months or more and therefore taxed at 10% according to Section 112A of the IT Act.

However, in the cases wherein the employees receives the ESOPs from an eligible startup, then the ‘perquisite’ will be deductible on earlier of either [a] after the expiry of 5 years from ESOPs allotment or [b] on the date of sales of ESOPs [c] on the date of exit from the company. In simple terms, an eligible startup refers to a company or LLP incorporated after 1st April 2016 but before 1st April 2022. It should also have the turnover of INR 100 crores or less to meet the condition. One of the major benefits for the ESOP owners in startups is that the employees do not need to pay taxes as soon as the shares are allotted to him under the ESOP scheme by an eligible startup. A new scheme of delayed taxation of such benefit has been made applicable from the ESOP allotted on/after 1st April 2020, the taxes will now need to be withheld by the employers on such ESOP benefits after four years.

People Also Read This: Guide to Employee Provident Fund (EPF) – Registration & Compliance

What are the benefits of ESOPs?

These ESOPs forms a part of the employees’ pay thus enabling the companies to use ESOPs to keep the participants focused on the corporate performance and share price appreciation. Thus, the participants see the value in the performance of the company’s stock thereby encouraging them to do what’s best for the shareholders since the participants themselves are a part of the shareholders.  ESOPs are designed to align the interests and motivations of the employees to that of the company’s shareholders. Through ESOPs the companies have found a way through which the company's talent be retained and promoting the employees' performance at the same time. ESOPs also enable the companies to pay relatively less salaries while offering such options as an incentive in the bargain. ESOP are majorly used by the startups who cannot afford to pay huge pay to their employees to provide a feeling of ownership to the employees and thus motivate them to perform their task with a vested interest in the company. There are a lot of times when family business are on the verge of closing due to reasons like loss, pandemic, etc., but these aging owners can avoid selling their business to a third party by setting up a ESOP scheme. The information can also remain private and confidential with the employees who will now be the owner of these ESOPs. There are a lot of tax advantages for both the company and the employees, for the C-corporations (corporations who are taxed separately from the owners) the contributions made to the ESOP are tax deductible, and for S-corporations (corporations and owners taxed jointly) the portioned owned by ESOP is exempt. For the employees they are exempted to pay the tax at the time when they receive the shares, they only have to pay the tax at the time they decide to withdraw the money after retiring.

Non-Disclosure Agreement after Resignation
Labour & Employment

Non-Disclosure Agreement after Resignation

What is an NDA?

A non-disclosure agreement (NDA) is a written contract between two parties (people or organizations) that forbid the disclosure of confidential information divulged to them. If you sign an NDA, you agree to keep any sensitive information supplied with you confidential.

Key clauses to consider:

  1. Properly identify the parties involved in the arrangement.
  2. Clearly define what is and is not deemed confidential information under the agreement.
  3. Define the reason and purpose for sharing confidential information.
  4. Define the proper extent to which the parties can utilize the information.
  5. Define the duration after which the confidential agreement will lapse.

Types of NDA

NDA are of three types:

  1. Unilateral- It involves two parties, one of whom only gives data to the other and expects it to be protected from further disclosure.
  2. Bilateral- It involves two parties, each of whom discloses data to a different party while ensuring that the information is not given to another.
  3. Multilateral- It involves three or more parties to the agreement, with one of the parties disclosing information to other parties and requesting that the information be protected from further disclosures.

People Also Read This: Elements and Types of Non-Disclosure Agreements

How to get an NDA signed

You can sign a NDA physically or digitally. The party demanding NDA should inform why NDA is there and what confidentiality information covers. Further, he should also indicate the manner of signing the NDA. Once signed, the NDA becomes enforceable against signee.

Non-Disclosure Agreement for Employee Leaving

Confidentiality agreements sometimes specify the length of time a worker cannot work for a competitor after leaving his or her workplace. Through this, the former employee cannot use the knowledge received from the previous company to benefit a new employer or earn profits.

You can use a confidentiality agreement for situations, such as permitting an employer to sign company-specific information or authorizing the signatory to utilize company-specific information.

Confidentiality Agreement upon Termination of Employment

Non-Disclosure Agreement after Termination

In the event of termination or resignation, it is usually the case the competitors try to poach an employee from the previous employer. It is because the competitors try to squeeze out the confidential information, business practices or any other information which is advantageous to the previous employer.

To safeguard against disclosure of such information, it is better to sign an NDA after termination of employment. If the employee has signed the NDA at joining, the same can be extended post-employment.  The same applies to non-disclosure agreement for resigned employee or when the employee leaving a job.

People Also Read This: Employee Confidentiality and Non-Disclosure Agreement for Employees

Signing Confidentiality Agreement after Employment

Signing NDA after Employment

In some instances, the employer may want to not disclose his business practices to competitors. It can also happen that confidentiality is required for a certain transaction or work. The employer has every right to ask the employee to sign an NDA in such instances. The employer can offer or not offer any consideration for signing such NDA.

How to break a non-disclosure agreement

  • Duration clause- The period of a good NDA will be split into two parts. First, there is a term for the NDA itself, which would be the duration of the agreement during which both parties will be contractually bound. A good agreement will include a second term that specifies how long secrecy duties will be in effect.
  • Termination clause- If the NDA is a mutual agreement and both parties having made disclosures that require confidentiality, both parties will most likely be bound by any confidentiality obligations for some time after the NDA is terminated, depending on the conditions of the NDA.

Reasons not to sign an NDA

  • Conflict of interest
  • Constrain on creativity
  • Showing lack of trust
  • Unneeded liability is created
  • Generally unenforceable

What happens if you break a non-disclosure agreement?

Breaching a non-disclosure agreement can have serious implications, and there are a few steps you can take if you discover that someone is breaking one of your agreements or misappropriating material in some way. You could, for example, initiate a lawsuit against the person who is disclosing your personal information.

In a breach of contract case, having a clearly stated contract will simplify you to be awarded damages. You may be eligible to sue for the following in addition to a breach of contract lawsuit:

  • Fiduciary responsibility has been breached.
  • Infringement on a copyright.
  • Theft of a company's trade secrets.

Various infringements on intellectual property rights.

Download Legalkart app now

Get 5 mins of talk time Free !
LegalKart Apps

LegalKart- Your Legal Advisor App is for general users who need to avail services like consulting a Lawyer on phone, document drafting, getting property verified by lawyers.