Doing business in India – complying with employment and immigration rules

November 2014 | EXPERT BRIEFING | EMPLOYMENT LAW

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‘Make in India’, the new Indian tag line promoted by the Indian Prime Minister, has certainly struck a chord with domestic and foreign investors alike. If ever India found itself out of favour with foreign investors over the past couple of years, its fortunes seem to finally be taking a turn for the better.

Keeping true to his election promises of lifting India out of its paralytic state and restoring investor confidence, Indian Prime Minister Narendra Modi has forged ahead with his visionary reforms. Labour reforms, always a controversial and politically sensitive hot topic, have been debated for years, with no real progress bringing them in line with the needs of modern India. Over the past few years, India has only experienced piecemeal reforms, often as a knee jerk reaction to industry requirements, employee agitation or social pressures.

The recent slew of amendments to various archaic acts is expected to help improve the ease of doing business, specifically by benefitting employers. Enabling employers to manage their business operations and reduce the workforce with fewer bureaucratic and legal restraints will help encourage foreign employers to set up shop in India. Streamlining compliance requirements and eradicating discretionary powers of local inspectors and authorities will no doubt go a long way toward increasing transparency and minimising opportunities for corruption to rear its ugly head.

In today’s world of increasing global mobility, moving personnel across international borders is commonplace; however, the challenges of finding optimum global mobility solutions are not always as easily forthcoming. It is thus critical for all those engaged in transferring personnel, whether from a legal, HR or immigration law perspective, to consider the impact of local and international rules and regulations. With increased global mobility of talent also comes a higher risk for businesses, to not only ensure that business gets done but also to remain compliant across borders.

Immigration rules & considerations

Indian immigration laws have been constantly evolving and changing; mainly as a reaction to events in India and around the world in general. A few years have now elapsed since many changes were instituted to longstanding immigration policies, rules and procedures. These were mainly a reaction to some critical problems facing India, such as an increased threat to security, illegal immigrants and protectionist attitudes. A raft of changes were announced within a short span of time.

A good starting point for foreign companies deploying personnel to India is to strategise on the purpose and objective of deployment of their foreign national employees to India. This includes an assessment of the nature of deployment and the activities to be undertaken whilst in India, irrespective of the amount of time spent on the ground in India.

The Indian government is also becoming stricter in issuing employment visas and, unlike previous years, is scrutinising applications in greater detail. Justification needs to be presented to the Indian authorities as to why a specific employee is being sent to work in India. Although there is no formal process requiring employers to attempt local recruitment prior to posting an expat to India, the objective behind the scrutiny of applications is to assess whether a local Indian employee could fill the job requirement.

Another area that causes major difficulties for visitors is the presumption that visa categories can be converted with ease. If entering India on a specific visa, there should be no presumption that one can convert from one visa category to another. The most difficult conversions that are almost impossible to achieve are from a visitor or business visa to employment. Extensions of existing employment visas must be applied for in India, leaving adequate processing time.

Employment laws

Foreign nationals can be employed by an Indian incorporated entity in India or can be employed overseas and seconded or deputed to an Indian company. Foreign companies can also consider employing consultants directly in India. Hiring employees and a consideration of the appropriate structure, employing entity and employment relationship must all be carefully considered.

A unique feature of Indian law is the distinction drawn between so called protected employees and those that do not qualify for additional protection under Indian labour laws. A distinction is drawn between categories of employees, namely ‘workmen’ who are entitled to various statutory protection and ‘non-workmen’ who receive no additional statutory protection other than what is provided for in their contracts of employment. Employers must thus clearly ascertain obligations vis-à-vis its employees and meet minimum statutory requirements.

India has specific legislation in relation to part time contract labour. Employers have certain obligations towards part time employees and may be held liable even though such employees are hired through an agent.

It is also critical for foreign companies to ensure that the on-boarding documentation executed is fit for purpose in India. The tendency is often to err on the side of consistency, and use templates that may have been rolled out across several other jurisdictions. This can leave companies at risk of non-compliance with local laws. A thorough review of contractual documentation, including company handbooks and policies, is highly advisable. Often companies offer benefits that are over and above the statutory minimum that must be offered to employees, not realising the exposure this can create in the event of a disputed exit.

Compliance with central and state laws is important, and if foreign companies have multiple operations across India, contracts and policies may need to be amended in line with local requirements. Employers also need to take heed of the number of employees they employ in India, as many statutes apply based on the number of employees working in an organisation.

Additionally, employers need to take note of legislative changes to dealing with sexual harassment in the workplace. The number of women in the workforce in India has grown significantly in recent years. Previously social stigma and lack of legal and social support resulted in very few complaints being made. Social attitudes have, however, changed in relation to the treatment of women in India and the recent enactment of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (Act) has given much needed direction in dealing with such issues. Under this Act, employers are now obliged to treat any such complaints of sexual harassment with the seriousness such an issue deserves; furthermore, there is an express obligation on employers to ensure they have the mandatory committees and grievance redressal policies in place.

Employers are required to form an Internal Complaints Committee at each office or branch of an organisation employing 10 or more employees. If an employer fails to form an Internal Complaints Committee or contravenes the Act it may be fined up to INR 50,000. A repetition of the offence can be penalised with the fine being doubled, the entity being deregistered or the entity’s statutory business licences being cancelled.

Against this backdrop and the changing socio-cultural landscape in India, it is imperative that employers comply fully with their obligations under the Act, not only to avoid incurring fines and suffering reputational damage, but also to embrace what the Act is seeking to achieve.

Undoubtedly, the concept of data privacy and protection is at a nascent stage in India, when compared to the plethora of rules and legislation in western economies. However, the Information Technology Act 2000 was amended to provide for the protection of individuals’ sensitive personal data and information. Under this Act, companies possessing, dealing with or handling sensitive personal data or information must implement and maintain reasonable security practices and procedures. Express consent of employees, whose data is being gathered, stored or transferred, must also be obtained under the new rules.

Conclusion

In an increasingly global and mobile world, where companies need to move personnel swiftly and efficiently between jurisdictions, it is critical to have a fundamental understanding of how national laws can have far reaching implications for international operations.

India presents its own challenges. Apart from a host of cultural challenges, those wanting to do business in India need to navigate through a plethora of Indian employment laws, deal with often inconsistently applied immigration rules and processes and understand a complex and often opaque tax regime. Forewarned is truly forearmed and can facilitate the ease of doing business in India.

Shalini Agarwal is a partner at In Se Legal. She can be contacted on +44 79 4057 5001 or by email: sagarwal@inselegal.com.

Shalini Agarwal

In Se Legal