INDIA Trends and Developments Contributed by: Pooja Ramchandani, Kriti Kaushik, Suruchi Kumar and Suryansh Gupta, Shardul Amarchand Mangaldas & Co.
Employment-Linked Incentive Scheme: The New Era of Social Security India is at a pivotal stage of transformation of its social protection landscape. Securing second rank in the world for its social security coverage, India continues on its expansion trajectory in the form of the new Employment-Linked Incentive (ELI) Scheme announced by the Indian Government. The objective of the ELI Scheme is job creation and the amplification of social security coverage with respect to provident funds. The scheme provides benefits to both employers and employees, namely: • Employees who are first-time entrants into formal employment earning up to INR1 lakh per month are entitled to an incentive equivalent to one month’s wage (capped at INR15,000). The incentive will be disbursed in two tranches, the first after six months of continuous employment and the second after 12 months. The incentive is also conditional upon receiving financial literacy training. A portion of the second instalment is required to be placed in a fixed deposit or equivalent, encouraging financial discipline. • Employers creating “net new jobs” are entitled to monthly subsidies linked to wage bands. These are: (a) INR1,000 for employees earning up to INR10,000, (b) INR2,000 for employees earn - ing between INR10,001 and INR20,000, and (c) INR3,000 for employees earning between INR20,001 and INR1,00,000. • A minimum of two recruits should be hired by establishments with fewer than 50 employees and at least five by establishments with 50 or more employees. These benefits are available for two years for non-manufacturing employers, and four years for manufacturing entities. In order to avail themselves of these benefits, employ - ers are required to demonstrate the creation of sus - tained new jobs and cannot merely replace existing staff. Accurate payroll records and headcount data are therefore critical. Since registration with the Employ - ees’ Provident Fund Organisation is mandatory, cas - ual labour will not qualify. Fixed-term and contractual employees can be considered so long as the duration of their employment aligns with the expectations of the
scheme; however, indirect employees hired through agencies are not permitted to be considered. Fur - ther, since disbursements would be via Aadhaar and PAN-linked accounts, data transparency and know- your-customer (KYC) accuracy becomes imperative to avoid delay or forfeiture of benefits. The scheme has the potential to reduce wage costs in labour-intensive sectors such as manufacturing, retail, logistics and services. However, employers would need to be mindful of compliance requirements under the scheme to continue to receive benefits. A proactive compliance strategy including compliance auditing and the leveraging of technology-driven HR processes could go a long way. Employers should consider facilitating employee financial literacy pro - grammes to educate their employees to fully gain from the scheme. Employment contracts and HR manuals may also require amendments to incorporate scheme- specific obligations. The ELI Scheme, once implemented, is likely to reshape the approach towards workforce participa - tion and employer responsibility. ESOPs for IPO-Bound Companies: Trends and Key Considerations The Indian market is witnessing an increase in the number of initial public offerings (IPOs), resulting in the need to have robust and well-structured employ - ee stock option plans (ESOPs). ESOPs are no longer seen as just a retention tool, but also as a strategic mechanism to align a company’s growth objectives with the interests of its employees. It ensures that the contributions of employees driving the growth of the company are both recognised by employers and translated into wealth creation that is shared with employees. However, while the intent behind an ESOP may purely be to reward or retain talent, for an IPO- bound company, it becomes critical to ensure that the structure of ESOPs is in line with the regulatory requirements and meets the standards expected by investors and other stakeholders. In this context, the guidelines laid down by proxy advisory firms become particularly important. Most institutional investors rely on the recommendations of proxy advisory firms while taking decisions on
269 CHAMBERS.COM
Powered by FlippingBook