VOLUME:15 JUNE 2018

IN THIS EDITION

From the Director’s Desk

Compliance

- Pension schemes need strong sense of purpose

Payroll

- How to integrate HR management and payroll systems

Human Resources

HR and Payroll in India:

10 Best Practices for Employers

Humour

RECKONER FOR JUNE 2018

Payment of Stipend to Apprentices on or before 10.06.18

Submit PF on or before 15.06.18

Pay ESIC on or before 15.06.18

Pay PT on or before 30.06.18

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 signicant 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 dene 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 signicantly. There are several factors and ramications 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 signicant 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 benets 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 benet obligation. Based on some simple assumptions and actuarial models, the answer is a denite 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 difcult 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 benets 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 dened benet regime that goes against the long-term direction that India has implemented for dened contribution pensions.

We need to assess the impact and determine if long-term costs are well spent on a long-term dened benet scheme or on incentivizing a dened 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.

Haryana

Updated minimum wages for the state of Haryana have been released, and are effective January st1 , 2018. View the notication at http://comply4hr.com/noti/2016/HAMWA2018May15.pdf

Provident Fund Schemest- Effective June 1 , 2018, admin charges have been revised to 0.5 percent under the EPF

stScheme. Change will not impact fees paid on or before 31 May, 2018. Get this notication at http://comply4hr.com/noti/2016/EPFS2018May21.pdf

- EPF ofce 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 notication 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 notication at http://comply4hr.com/noti/2016/TNPTR2018May23.pdf

Latest Compliance Update

How to integrate HR management and payroll systems

Whether you are an ofcer 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 benets 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, benets 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 specic needs and related issues every time you seek advice. Additionally, make sure they

have an after-hours call center staffed with trained benet 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 briey 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 . However, it is advisable for companies to establish employment contract

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, , and the The Companies Act Contract Act, 1872that govern employment conditions in India.

2. Wages

Under the , all employers in the organized sector must provide 'the basic cost of Minimum Wages Act, 1948

living' to employee categories specied 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 orders the timely disbursement of wages to employees. ThePayment of Wages Act, 1936

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 as per the terms and conditions within their employment terminated

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 Benets (Amendment) Act, 2017, applies to all shops and any establishments that employ

over 10 workers.

Under the , 26 weeks of paid leave is available for women for the rst two children, and 12 weeks Act

subsequently.

Companies employing more than 50 people must also provide crèche services.

The Paternity Benets Bill, 2017 is set to be up for discussion in the next parliamentary session. However,

a signicant 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 at the forefront of .women in the workplace 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 into a contract might not be enforceable through restrictive clauses

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 gratuity provides the guidelines for 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 (EPFO) oversees and regulates Employees Provident Fund Organization of India 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!