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Addressing Labor Law Implications in the Era of Digital Transformation



Simplifying the labor law to synchronize with the digital transformation is necessary for India the movement towers global leader. Over 1.51 million registered companies operate in India, and the over $4 trillion stock market in India, attracts billions of dollars in domestic and foreign investments.

India ranked 5th in GDP and economy, with a growth of 7.3% year on year. Multinational companies and Indian investors are willing to invest in India, but they are worried about the complex issues involved in Indian labor law implications.

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Labor law is a concurrent subject of the Indian Constitution; the state and central governments of India are empowered to regulate labor-related matters. The regulatory legislation is not common across India; it differs from state to state to adhere to the rules and regulations framed thereunder.

The Government of India, on September 22, 2021, launched the National Single-Window System for investors and businesses. Published that, the Single-Window portal will integrate the existing clearance systems of the Central Departments and the States and will become a “one-stop-shop” for approvals and clearances needed by investors, entrepreneurs, and businesses in India. Over 644 Central and 6113 State-level approvals are enabled to apply by using the portal, but still, many of the state-level regulatory approvals of labor matters are manual processes not synchronized with the Single-Window portal.

The maximum number of states in India do not digitize labor law compliances, starting with registration, display of abstracts, maintenance of registers, periodical intimations, health and safety-related intimations, return submissions, and inspections. Today, many of the state-level registrations, register maintenance, and filing of returns are required to be physically filed on paper.

The global investors are willing to move the business towards simplified compliance, auto-approvals, self-certification, and more. Indian labor laws required immediate attention towards the ease of complying with labor laws and making one single pattern across the country to simplify investor compliance and risk.

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The state-level compliances make a huge complication for the companies, assuming a missed renewal of registration under the S&E Act in Mumbai will lead to a fine of Rs. 50,000/-. Non-maintenance of one register will lead to a fine of Rs. 10,000/-, and some labour laws recommend jail imprisonment for employers on minor non-compliances.

The following areas are recommended by the experts to act on an immediate basis to align with digital transformation.

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Auto registration and approval for regulatory registrations and licenses. As of today, in many of the states, the applications are filed manually, and a physical visit is required to submit the applications. Automation and digitization are required to simplify the approval process for various registrations and licenses, like those for shops and establishments, contract labor, building and other construction workers, interstate migrant workers-related registrations, and more.

Implement the integrated registers: There are multiple registers required to be maintained under various labor laws, which are replicas of the information in different formats. For example, a company that operates in Rajasthan is required to maintain four types of muster rolls, the same for many of the states. Simplification by way of the introduction of integrated registers will avoid maintaining the information in duplicate.

Filing of various returns and remittances: Filing of periodical returns under various applicable laws makes it more complicated to submit similar information under different Acts to different authorities. Some states still follow the pattern of filing the physical paper copy of the returns. Eg. a Commercial Establishment branch that operates in Tamil Nadu to files 22 returns and 7 remittances for a calendar year; many of them are paper-based returns and physical remittances.

Inspections: There are multiple authorities assigned to each act for compliance. Approximately 19+ authorities are tagged against each branch under the Labour laws under various Acts. The assigned 19+ authorities were allowed to do surprise inspections and were empowered to ask for documents for an unlimited period. Failure to submit the demanded information, the legislation authorizes the inspector to proceed with penal provisions against the employers. There is a requirement to simplify the inspection process digitally.

The state and central governments should align with the online inspection patterns in advance notice. The companies are to be provided with the option of self-certification to avoid inspections. Third-party inspections are required to be implemented periodically to avoid inspector visits. One single inspection to cover all the relevant acts and authorities to simplify the inspection covers the required compliances.

The manual process and powers of the inspectors are to be reduced by increasing the use of digital transformation in labor laws. Implementation of an auto-approval process for various registrations and licenses will encourage companies to comply with Indian labor laws. Simplifying the maintenance of registers and the submission of online integrated returns will help reduce the cost of compliance. Increased inspections and criminal penal consequences for non-compliance are a threat to employers, which needs to be revisited by way of removing the criminal penal charges for labor laws. In general, the Labour laws are required to be revisited with a vision of digitizing and simplifying the compliances and implications to proceed with our move as the world leader.


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Munab Ali Beik
Munab Ali Beik
Munab Ali Beik, Head - Compliance Advisory Practices, Core Integra

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