VOLUME:15 JUNE 2018 - Karma Management Consultants

VOLUME:15   JUNE 2018

IN THIS EDITION

RECKONER FOR JUNE 2018                From the Director’s Desk

                                      Compliance
  Payment of Stipend to Apprentices   - Pension schemes need strong sense
  on or before 10.06.18                 of purpose

                                      Payroll
  Submit PF on or before 15.06.18
                                      - How to integrate HR management
                                        and payroll systems
  Pay ESIC on or before 15.06.18      Human Resources
                                      HR and Payroll in India:
  Pay PT on or before 30.06.18        10 Best Practices for Employers

                                      Humour

The labour law scenario is constantly changing. No
sooner have we come to terms with one new
enforcement does a new one take its place. The
government on its part has done plenty to offer a
signicant deal to employers and employees. However,
it always assumes the role of a double-edged sword.
Through Sanwad, the mouthpiece of HR and
compliance, we hope to begin discussion and debate
and really engage in what may bring meaningful clarity
and method to the madness. Enjoy the read!

     Best Regards,
     Pratik Vaidya

Pension schemes need strong sense of purpose

India needs to dene and review the purpose of the different so-called retirement plans that salaried
employees are eligible for, and possibly scrap pension under the Employees' Provident Fund (Employees'
Pension Scheme 1995, or EPS95). However, we recently saw the Employees' Provident Fund Organisation
(EPFO) embroiled in a matter where salaried employees' EPS95 pension has the potential of increasing
signicantly. There are several factors and ramications that need to be considered.

Employers: As on 31 March 2016, there were over 900,000 unique PF codes from establishments
registered with the EPFO. Of these about 4,365 unique codes were from about 1,500 establishments with
exempt private PF trusts. While, in the context of the current discussion around EPS95, there are no
signicant additional costs or liabilities that the employer will bear, a lot of communication to the employees
to explain a complex issue and additional administrative work around recalculating contributions will be
required. Exempt trusts too could be burdened with more record keeping, administrative challenges and
investment issues.

Employees: Those who joined the EPFO before September 2014 are potentially the biggest gainers as
they could get a guaranteed pension from EPS based on uncapped PF wages (currently limited to
Rs15,000 per month). Let's take an employee who joined the EPF at the age of 25 in 1996 with a monthly
basic salary of Rs10,000 (and gets reasonable salary increases). His projected eligibility for the maximum
monthly pension is Rs7,500 at age of 58 under the capped arrangement of EPS95. However, the pension
amount would increase sharply if the cap on salary is removed. Assuming an annual salary hike of 6%, the
uncapped monthly EPS95 pension for the same employee increases to about Rs29,000 per month. At 8%
per annum salary increase, it would be over Rs50,000 per month (if the employee remains in EPF until age
58).
In exchange for the higher amount, the EPFO would need to calculate retroactive EPS95 contributions on
the uncapped salary. Employees who have already taken their PF benets will need to nd a considerable
amount of cash to contribute back to the EPFO for these retroactive contributions. Employees still working
and in the EPF may not need to pay anything additional. Their retroactive higher contributions will come
from a notional “transfer” from their existing main EPF account.

EPFO: With employees gaining so much and employers not impacted, who picks up the cost of the much
higher EPS95 pension?
The main point is whether 8.33% contribution to EPS is enough to fund the EPS95 benet obligation. Based
on some simple assumptions and actuarial models, the answer is a denite no.
Let's estimate the “cost” of our sample employee electing the EPS95 option, to the EPFO. The “present
value” of pension payments that EPFO will need to pay, less the value of the notional accumulated EPS95
corpus of the member. If the value of the projected pension payments is more than the projected notional
EPS95 corpus, then EPFO pays (and the employee gains). To calculate the pension stream value, let's also
take an assumed cost to purchase an annuity. Making suitable assumptions, the net present value
(assuming 8.5% per annum) of the shortfalls roughly work out to Rs3.9 lakh, Rs12.5 lakh and Rs28.5 lakh
under salary increase assumptions of 6%, 8% and 10% per annum, respectively.
This is the cost to be borne by the system for just one person. The vast range of salaries makes it difcult to
extrapolate to the broader membership of EPFO. However, it would be very large due to high earners.
If these huge costs emerge over time, they will either need to be covered by increasing the 8.33%
contribution rate or reducing the benets or even asking employers and employees to pay more than the
12% total EPF contribution or funds from the government. Notably, the existing EPFO contribution of 1.16%
of wages contribution for EPS95 will cover that part of the cost too.

While the EPS95 development is no doubt good for employees, it does beg the question: at what cost?
We may be going back to a dened benet regime that goes against the long-term direction that India
has implemented for dened contribution pensions.

We need to assess the impact and determine if long-term costs are well spent on a long-term dened
benet scheme or on incentivizing a dened contribution environment and social security for those who
really need it. This should be considered further while the Labour Code on Social Security is also being
developed.

                              Latest Compliance Update
  Haryana
  Updated minimum wages for the state of Haryana have been released, and are effective January
  1st, 2018. View the notication at http://comply4hr.com/noti/2016/HAMWA2018May15.pdf

  Provident Fund Scheme
     -   Effective June 1st, 2018, admin charges have been revised to 0.5 percent under the EPF
                                                                  st
         Scheme. Change will not impact fees paid on or before 31 May, 2018. Get this notication
         at http://comply4hr.com/noti/2016/EPFS2018May21.pdf

     -   EPF ofce announces rate of interest for members to be credit at 8.55 percent, to be
         credited into the members' accounts. This is for the year 2017-18, under provision 60 of the
         Scheme. View this notication at http://comply4hr.com/noti/2016/EPFS2018May25.pdf

  Tamil Nadu
  Professional Tax in Tamil Nadu has been amended effective April 1, 2018. Please view the
  notication at http://comply4hr.com/noti/2016/TNPTR2018May23.pdf

How to integrate HR management and payroll systems

Whether you are an ofcer in your company or a supervisor of a department, you have probably
experienced a few incidents where you had to dig through volumes of information to determine whether
someone had a history of absences or warrants a raise.

If you are fortunate enough to have a human resources professional to go to, then life gets a little easier.
However, the trend today to put more and more operational hats on the HR departments is making it even
tougher to manage information.

Mid-size and small businesses are losing valuable productivity by facing excess paperwork and
duplication of efforts, in addition to the confusion of accessing information. Is there actually a way to
integrate, for an example, an HRIS (Human Resource Information Systems) and a payroll system?

As usual, the cost of technology is rolled out as a viable option for large organizations, but seldom makes
sense for a business of 25 or 50 employees. We are nding though that if a smaller company does its
homework, it will nd vendors who can make such a system feasible.

As with any new technology solution, you must do quite a bit of analysis of your needs and be able to
explain how your human resources and payroll departments work to make good decisions.

The rst question is to nd out if and how the system could work for a company with small employee
populations. Why is that the rst question? As you know, a lot of technology-based companies look at
number of seats in a business to determine their pricing.

As a benets professional, we hear horror stories about documentation of new hires, FMLA, and all the
other critical aspects of data. The need for accuracy is critical.

Having more employees handle data input and other database management tasks can increase the
number of errors introduced into your administrative information. Imagine how often employees in payroll
and human resources accidentally register the wrong information in the database, causing problems
across departments.

Here are a few questions you should ask your management team to determine the value of an integrated
system for handling all (or most) of your employee assets.

How would reducedlabor affect productivity for your payroll system and human resources personnel? Do
you have a reliable source in-house to continue being the expert on a new system once the training has
been completed?

How will your employees' work change if you integrated such functions as performance, time-keeping and
attendance tracking, pay history, benets management and other functions?

You will want to determine if the vendor has a single point of contact for you. This way you won't have to
reiterate your specic needs and related issues every time you seek advice. Additionally, make sure they
have an after-hours call center staffed with trained benet specialists who can help no matter which
technology platform is being used.

It takes considerable work for two applications to integrate successfully. Be sure to do your research on
the experience of the developers and ask for client references or examples of clients that are similar to
your industry and employee population.

HR and Payroll in India: 10 Best Practices for Employers
As India integrates into the global market, foreign rms entering the country have to strike a balance
between following their own best practices while adapting to local norms and having a rm understanding
of legal requirements in the country.
Good human resource (HR) practices streamline organizational functions and ensure low attrition rates
while growing workforce capabilities and driving value within an organization. In-company policies play as
important a role as other legal factors.
Here we briey discuss 10 key areas that foreign employers should pay attention to when handling staff in
India.

1. Employment Contracts
India does not mandate a written employment contract. However, it is advisable for companies to establish
at least basic contracts to ensure easy establishment of terms and conditions of employment.
Indian employment laws are diverse and form a complex framework that employers must navigate
carefully. Apart from labor laws, there are industrial laws, The Companies Act, and the Contract Act, 1872
that govern employment conditions in India.

2. Wages
Under the Minimum Wages Act, 1948, all employers in the organized sector must provide 'the basic cost of
living' to employee categories specied within the act.
Companies should ensure that employment contracts consider this while deciding remuneration for
employees.
The Equal Remuneration Act, 1976, mandates non-discrimination for payment of wages to men and
women while ThePayment of Wages Act, 1936 orders the timely disbursement of wages to employees.
Payment of wages below the minimum wage limits amounts to forced labor. This is prohibited under the
Bonded Labor System (Abolition) Act, 1976.

3. Termination of employment
Employees in India may only be terminated as per the terms and conditions within their employment
contract.
However, companies should note that all employers must adhere to the federal and state labor laws when
laying off or terminating workers – the conditions drafted in company contracts cannot supersede these
legal statues.
Finally, termination without notice is prohibited in India. Termination periods vary by function and length of
employment.

4. Maternity and paternity leave
The Maternity Benets (Amendment) Act, 2017, applies to all shops and any establishments that employ
over 10 workers.
Under the Act, 26 weeks of paid leave is available for women for the rst two children, and 12 weeks
subsequently.
Companies employing more than 50 people must also provide crèche services.
The Paternity Benets Bill, 2017 is set to be up for discussion in the next parliamentary session. However,
a signicant number of organizations, especially foreign companies like Microsoft and IKEA, already
include a mutually decided paternity leave clause within their company policy.
This practice has been well received by the Indian workforce and lauded as a good HR move.

5. Prevention of sexual harassment in the workplace
The Indian government has brought the safety of women in the workplace at the forefront of law making.
An Internal Complaints Committee must be set up by all organizations with more than 10 employees in
accordance with the norms laid out in the Sexual Harassment of Women at Workplace (Prevention,
Prohibition, and Redressal) Act, 2013.
All complaints should be actively pursued, evidenced, and redressed immediately.
To guarantee employee safety, companies must draft appropriate HR policies within the rm, and ensure
they are clearly communicated to all personnel.
HR personnel should organize workshops or sensitization programs and encourage communication to
promote an organizational culture that provides for a fair and safe working environment for all its
employees.

6. Public holidays and work weeks
India observes three national holidays – Republic Day (January 26), Independence Day (August 15), and
Gandhi Jayanti (October 2).
On these days, all institutions, whether public or private, must remain closed.
Government approval is necessary for any organization to function on these days. Only certain
establishments such as factories and industries where the work process is considered to be continuous,
hospitals, and travel agencies are allowed to operate 365 days/24 hours – subject to additional wages and
staff deployed for work on those days.

7. Restrictive clauses in employment contracts
Employers should note that including restrictive clauses into a contract might not be enforceable through
the Indian courts. The Contract Act, 1872, necessitates the fundamental right of all citizens to carry on any
profession, trade, or business.
Non-compete, non-disclosure, non-solicitation, and 'garden leave' clauses are examples of restrictive
clauses that can only be imposed by the courts if plausible grounds – with respect to time-period and
nature of activities involved – are provided.
The best way to ensure enforceability is to restrict the scope of the clauses as much as possible within
these dimensions. However, this does not guarantee legal protection to employers.

8. Gratuity and Provident Fund
The Payment of Gratuity Act, 1972 provides the guidelines for gratuity owed to an employee.
The number of years of service of the employee is the criteria for deciding the amount of gratuity owed,
and this payment by the company is obligatory by law.
The minimum amount (more may be approved) must be given to an employee in case of the following
circumstances:
   ·   Retirement;
   ·   Resignation;
   ·   Disablement due to accident or illness; or,
   ·   Death of the employee (gratuity paid to employee's nominees).
However, if an employee is dismissed for proven criminal or moral reasons, no gratuity is owed to him.
Similarly, the Employees Provident Fund Organization of India (EPFO) oversees and regulates 'the
Employees Provident Fund (EPF).
Under this scheme, the employer and employee contribute an equal amount to the fund every month,
which is accessible to the employee at certain points in their career.
The EPF scheme is mandatory for a salary below Rs 15,000 (US$220) and voluntary thereafter.

9. Adaptive work culture
Job seekers in India are moving away from traditional work modes, such as a '9 to 5' time pattern – to a
holistic view of building careers.
Organizations are also gradually incorporating the idea of work-life balance into their corporate culture.
Adaptive and sensitized HR departments are key to improving these organizational values, and fostering a
balance between employee satisfaction and productivity.
Working conditions in Indian multinational companies are also changing to incorporate exi-time or work
from home options into employment contracts to boost employee retention and loyalty.

We all knew it
  isn't easy to
 land a job in
   Google…..
now you know
      why!