In the words of Richard Branson “It is not clients who come first, but the employees of your business. If you as an employer take care of the needs of your employees, they will take care of your business clients in return”. Undoubtedly, Employees are the most important part of an organization who work hard and manage the day-to-day operations from one end to the other from the factory to the office.
But, what is the definition of an employee? An employee is a person who works on the instructions or advice from the other officers/employers within the company under the terms of his employment. Traditionally, employees are the persons who ‘work for hire’ and receive payments as salaries /wages, and their employers practice a certain level of control over their behaviors, finances, and benefits. Getting the right employees on the board ensures that they ensure they grow with you, contributing to your overall success as a business and reducing the expenses of hiring and training again and again for each new leadership position you may develop down the line.
Speaking of hiring employees for a business, it is a normal day-to-day process for a business organization to hire employees for them. For every new employee entering the office the first time, there are a lot of procedures to be completed that also include some paperwork & documentation (that also includes signing agreements). While some of the measures are necessary to protect the interest of the business organization, others offer compensation & benefits to the employees. It becomes necessary for an employer considering hiring more manpower to follow applicable compliances & social security measures to save his business from unnecessary costs, and litigation battles and above all ensure peace & stable growth of the business. These social security measures comprise the employment agreement defining the rights & obligations of the employee in pursuance of his employment, medical benefits in case of illness or accidents, and family & retirement benefits.
Some of the essential agreements and policies required are to be signed by a new employee include-
i. Employment Agreements/Contracts
An employment agreement is an agreement effected between an employee and his employer for the purpose of exchange of services necessary to be performed by the employee under the terms of his employment and receiving compensation in return. For the creation of a valid & effective employment agreement these elements must be completed – offer and acceptance, free consent, legal object, competent contracting parties, and consideration as per the Indian Contract Act, 1872. Any failure to fulfill any of the elements of the contract shall render the agreement void under contract laws. Some other terms and conditions regulated through the agreements included the structure of wages/payments, any additional benefits in pursuance of employment, work hours & regular timings, overtime work & payments, employment bonds (in some cases), and equity stock option (ESOPs), etc.
The employment contract should also include a ‘Non-Compete Clause’ which prevents the employee to join a rival profession immediately after termination of employment. This is especially relevant for certain professionals who have trade secrets, company information, etc in their possession, and doing so could directly benefit a competitor.
Similarly, putting a Non-Solicitation clause protects the business interests of the employer by placing a prohibition on the employee from poaching either business clients or customers to its rival businesses or for his benefit post the termination of his employment. If required, the employer could require the employee to sign the Non-solicitation clause in a separate clause.
Finally, a clause or a separate agreement determining the rights to Intellectual Property is to be provided. This clause defines the intellectual property and the ownership of the IPR so developed and registered during the term of employment of the employee. Often, it is the business organization that holds the ownership of IPR developed during the employment of the employee.
ii. A Non-Disclosure Agreement (NDA)-
A Non-Disclosure Agreement (NDA) is a crucial legal document that is required to be agreed upon and signed by a new employee into the business organization. Confidential information means any trade secrets or unique business strategies or any financial information, etc. related to the business which is of utmost importance to a business and could not afford to be disclosed to the public at any costs.
It could be anything from the list of regular business clients to customer data, business insights, technical data, sales strategies, or anything else that isn’t considered to be generally in public knowledge. The definition of confidential information may vary for each organization, but they are legally enforceable under the law.
Therefore, an employee should be required to sign a Non-Disclosure Agreement or a Confidentiality Agreement that defines confidential information for the organization, which might come into his knowledge in pursuance of his employment for the business and his obligation to protect and non-disclosed the information during and after the termination of his employment.
Further, such an NDA Agreement agreed upon and signed by the employee must be attested and signed on the letterhead of the business organization and registered to become legally binding and enforceable under the Indian Stamp Act, 1899. Though it is not compulsory to register the agreement if the business organization does so, it could be advantageous in case of a breach.
iii. Human Resources (HR) Policies & Procedures
Every business organization has a dedicated HR professional or a dedicated official to manage HR-related policies & compliances. The policies & procedures are the framework & guidelines governing the management of employees in the organization. There is a whole list of compliances applicable to the business for making it compliant with the applicable government laws. These policies and procedures are formed to encourage productivity and avoid disputes between the employers & the employee. It is also the responsibility of every employer of the business organization to maintain a register and documents of the employees being employed apart from other compliances.
The policies include established guidelines for handling the training, employment, recruitment, promotion, compensation, etc., and similar provisions for the employees of a business organization. It is compulsory for every business organization having more than 20 employees to have an HR policy in place before hiring employees for your company.
Normally, the HR policy & procedures include-
a. Compensation and Benefits
b. Health, Safety, and Security
c. Human Resources Information Systems
d. Training and Development
e. Employee and Labor Relations
f. Employment Practices & Placement
g. Human Resource Research
iv. Employee Provident Fund Organization (EPFO)
The Employee Provident Fund Organization (EPFO) is a governmental organization responsible for the application & administration of employee social security measures like PF, pension & insurance schemes available to the employees post their retirement or in cases, they leave their employment. In case of the death of the employee, the benefits will be extended to the dependents of the deceased employee.
Accordingly, any organization employing either 20 or more employees shall mandatorily register themselves under the provisions of the Employees Provident Fund and Miscellaneous Provisions Act of 1952 and create a PF account for every new employee under which equal monthly payments will be submitted by the employer and the employee.
Furthermore, the EPFO organization mandates three schemes namely-The Employees Provident Fund Scheme(EPF) 1952, the Employees’ Pension Scheme 1995 (EPS), and the Employee Deposited Linked Insurance Scheme1976 (EDIL).
Hence, the employer & employee are required to make contributions to the Pension Fund which could be availed by the employee after his retirement. Thus, in case your business organization has more than 20 employees, then the employer must ensure that his company fulfills all the applicable provisions.
v. Employee State Insurance Scheme
The Employee State insurance scheme is a social security measure designed for the protection and well-being of the employees against certain events (i.e. disability, sickness, maternity, or death) who are working in the organized sector by offering medical care and/or compensation to the employee or his dependant family. The scheme specifies a fixed assured sum in such events for which the employer-employee contributes a fixed percentage of wages paid to the ESI. The ESI Act applies to any establishment including hotels and restaurants engaged in sales only, shops, cinemas, private educational institutions, newspaper establishments, and road motor transport establishments employing either ten or more than 10 people. Since ESI is a state Act, the requirement varies from state to state (in some states the minimum number of employees required is 20).
Every employer having ten or more employees in his company must obtain an insurance policy in the name of the new employee.
vi. Sexual Harassment Policy
Whenever a new employee joins a new business organization, he must be free from any fear of sexual harassment or abuse either by their respective colleagues or seniors during their term of employment. Therefore, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (the PoSH Act) and Rules are applicable in every business organization having either 10 or more employees.
These rules require an anti-sexual harassment policy to be formed and notified in the workplace including a mechanism to deal with the cases where an employee reports harassment or abuse at the workplace. The policy should also prescribe the rights of employees and the obligation of the employer to report any offense because it amounts to a criminal offense punishable under the IPC.
Further, it shall be the responsibility of the employer to set up a grievance committee for looking into the matters of sexual harassment in the workplace. Any failure to adhere to the policy and procedures or failure to set up a grievance committee would attract penalty & prosecution to the employer and the business organization.
vii. Maternity Leave
The Maternity Benefit Act, of 1961, prescribes that a female employee could not be forced to leave her job due to her pregnancy and should be entitled to maternity benefits in cases where she has worked for more than a period of 180 days in the previous year. It entitles women employees to ‘maternity benefits’ which include fully paid wages during the absence from work and taking care of her child with other benefits such as crèche facilities, breaks during work hours, etc. The Act applies to every business organization employing either ten or more employees.
viii. Termination Compensation
Not every employer-employee relationship goes smoothly. There may be instances where the services of an employee may be terminated under any disciplinarian action, however, the employee may be entitled to get compensation as provided under the Industrial Disputes Act, 1947. The Act provides for the framework and procedures for the employment provisions applicable in case of termination of employees such as re-employment of terminated workers, termination sequence, retrenchment, pursuant obligations of the employer, etc.
ix. Workmen’s Compensation
Unfortunate events like accidents resulting in either partial or complete disability to do work or even leading to death could happen to anyone or at any time. Therefore, there must be provisions for adequate compensation for an employee who suffers such injury in the course of his employment from his employer under the Workmen’s Compensation Act, 1923.
The provisions of this Act generally apply to a person being dismembered, amputated, or meeting death during employment while working in railways, mines, plantations, and construction or manufacturing factories. This act ensures the protection of the rights of the employees or their families even after they meet any partial or complete disability or death due to such accidents.
x. Minimum Wages
The primary objective of this Act is to assure that every employee/worker receives the minimum wages prescribed for the particular job and doesn’t face exploitation and abuse from their employers. It is the right of every employee working in a business organization to receive at least a minimum standard payment for the services provided by him in the course of his employment. Therefore, the Minimum Wages Act, of 1947 fixes minimum payments for skilled & unskilled laborers and provides other important provisions such as a minimum number of breaks, leaves, and offs (at least once a week).
xi. Equal Remuneration
The Equal remuneration Act 1976, is an act to mandate equality in payments for equal work to every employee irrespective of their gender including no discrimination from the employer in terms of recruitment, appointment, appraisals, promotion, wages, etc. The Act further prescribes the obligation of the employer to maintain a register of employees with all the details of their remuneration including their basic wages, any additional emoluments payable, either in cash or in kind to an employee in case the other terms & conditions of the contract of employment were fulfilled.
Therefore, it is important for a business organization to ensure that all the agreements as provided above are read out to the new employee, explained to him, and agreed upon by him before starting his employment. These agreements and policies provide a sense of security, they feel respected and are treated fairly by the employees, and a focused approach and dedication towards work by employees to the benefit of the business organization. Further, these policies also create an understanding between the employer-employee to avoid problems or disputes and even if they exist, a mechanism to how to solve them appropriately, ultimately creating a win-win situation for the success of the business.
