It is essential for a company looking to hire manpower to have certain agreements in place and meet the required compliances established by the Government.
Some of the essential agreements and policies required are:
An employment agreement is an agreement executed between an employer and an employee for the exchange of services (personal service) in return for compensation. Any breach of contract by either of the parties will make the agreement void. In order for an employment contract or agreement to be valid, there should be: offer and acceptance, free consent, legal object, competent contracting parties and consideration as per the Indian Contract Act, 1872. Other terms and conditions regarding salary structure or wages, work timings, additional benefits, employment bonds (the legal validity of employment bonds in India is still debatable), equity stock option (ESOPs), etc. are also covered in an employment agreement.
- A non-compete clause in the employment agreement is essential for some professions to prevent an employee from joining a rival profession immediately after termination of employment. Such an employee could disclose important trade secrets, company information, etc. that would be beneficial to a competitor.
- A non-solicitation clause prevents an employee from poaching customers or clients for rival companies or for his/her personal benefit post-termination of an employment contract. Non-poaching agreements are also used as separate clauses or agreements.
- The Right To Intellectual Property can also be made into a separate agreement, or incorporated as a sub-clause in the Employment Agreement. This determines to whom the IP rights belong to if any were developed by the employee during his tenure. Indian Law states that IP belongs to the employer when it is unspecified.
Confidentiality Agreement (CA) or Non-Disclosure Agreement (NDA)
A Non-Disclosure Agreement (NDA) is important to protect any confidential company information, metrics or Intellectual Property. An employee cannot disclose sensitive information made accessible to him during the tenure of his employment with the company. These Agreements can be designed to protect the company and be enforceable even after an employee has changed his employer. The types of NDAs available are Unilateral NDA, Multilateral NDA and Bilateral NDA. Also, it is important to note that an NDA must be stamped (INR 20 – INR 100) and can be on a company letterhead, in order to be enforceable under the Indian Stamp Act, 1899. Registration is not compulsory, but an added advantage if a company does opt for registration of the NDA.
Human Resources (HR) Policy
HR policies are corporate established guidelines for handling the training, employment, recruitment, promotion, compensation, etc. of human resources or employees of an organization.
It is an absolute essential (alas! Not a compulsion unless the organization has above 20 employees) to have an HR policy in place before hiring employees for your company. Some of the tenants of an HR policy are:
- Compensation and Benefits
- Health, Safety and Security
- Human Resources Information Systems
- Training and Development
- Employee and Labor Relations
- Employment Practices & Placement
- Workplace Diversity
- Human Resource Research
Every employer must maintain a prescribed register and documents of the employees being employed by him.
Pension and Insurance
- Employee Provident Fund Organization (EPFO)
The EPFO mandates that any establishment or organization employing 20 or more employees register under the Employees Provident Fund and Miscellaneous Provisions Act of 1952. Any remittance made by an employer to an employee has to be done through the EPFO employer portal. An employer should also know how to upload the Electronic Challan-cum Return (ECR) in the prespecified format.
The EPFO operates three schemes, namely: The Employees provident Fund Scheme, 1952 (EPF), the Employees Pension Scheme, 1995 (EPS) and the Employee Deposited Linked Insurance Scheme, 1976 (EDIL). An employer, employee and the Government (as the case may be), all make contributions to the Pension Fund that is meant for retirement. If your company has more than 20 people, then as an employer one must check if their company needs to comply with any of the stated schemes.
- Employee State Insurance
The ESI scheme is a social security scheme designed to protect employees (against disablement, sickness, maternity or death) working in the organized sector by providing medical care and/or compensation to the insured and/or family members of the insured. The employer and the employee contribute a fixed percentage of wages paid to the ESI.
The Act is applicable to any establishment (hotels and restaurants engaged in sales only, shops, cinemas, private educational institutions, newspaper establishments and road motor transport establishments) employing 10 or more people and it is compulsory for such organizations to register under the ESI Act. (In some states the minimum number of employees required to register under the ESI Act is 20). For more information, log on to the ESIC FAQ’s.
Sexual Harassment Policy
A company employing more than 10 employees should have a sexual harassment policy in place which must adhere to the Sexual Harassment of Women at the WorkPlace Policy (Prevention, Prohibition and Redressal) Act, 2013. No woman can be sexually harassed at any workplace and employers are obligated to report any offense because it amounts to a criminal offense punishable under the IPC. Employers will also be required to set up grievance committees for sexual harassment. Noncompliance by companies in adhering to the sexual harassment Act or not setting up a grievance committee will attract a fine of INR 50,000 and higher amounts for subsequent violations.
The Maternity Benefit Act, 1961, was set up to entitle women to maternity benefit and is applicable to any establishment or organization employing 10 or more people.
Maternity benefits include cash, leaves, creche facility, etc. Organizations that need to comply with the Maternity Benefits Act can get more information on our article Amendments to the Maternity Benefit Act, 2016. A female employee cannot be dismissed and is entitled to maternity benefits if she has worked with the company for a period of 80 days in the preceding year.
The Industrial Disputes Act, 1947 states the procedure and framework (re-employment of terminated workers, termination sequence, employer obligations, concept of retrenchment, etc.) to be followed during termination of employee services (retrenchment). Retrenchment means disciplinary action in the form of termination as punishment and such employees being terminated are entitled to compensation as stated in the Act.
Any injury, disease or accident arising out of the course of employment needs to be compensated for under the Workmen’s Compensation Act, 1923. This Act generally applies to persons being dismembered or killed in employment in the railway, manufacturing, construction, mines, plantations, etc. (or any hazardous work).
The Minimum Wages Act, 1947 sets the minimum wages (for bare sustenance) payable to skilled and unskilled labourers. This Act also specifies the minimum number of breaks, leaves and offs (example 1 day per week) an employee is entitled to.
Equal remuneration for all employees irrespective of gender is governed by the Equal Remuneration Act, 1976. It is the duty of the employer to prohibit discrimination in recruitment, appointment, appraisals, promotion, wages, etc. This Act mandates that every employer maintains a register of employee details and documents.
How Can We Help?
Here at LegalDesk.com, we provide all the agreements required for a company to start hiring its employees. Right from employment contracts and preparation, stamping and registration of NDA, to sexual harassment policy. It is important to comply with the law while hiring employees to avoid any penalties or consequences because of noncompliance (knowingly or unknowingly). Any damages suffered will affect the business and the founder of the company.