Every SME should know the top 5 compliance issues in India, as a country navigating the regulations becomes essential for business to thrive while upholding the highest standards.
1. Third-party risk
SMEs depend on engaging third parties for significant cost savings in Labour, scalability and flexibility in the management of the workforce. In India, third-party engaged has had significant growth in recent years across industries, in different occupations including skilled, semi-skilled and unskilled employment. SMEs, while engaging third parties, need to exercise caution and need to understand the laws that govern their relationship with third-party employees. In many instances, a lack of knowledge in managing third-party employees results in a high risk of legal consequences and payment of compensations. The SMEs become indispensable to instrumenting the robust technology for compliance assurance, audit, ascertaining the relationship and risk assessment of third-party employees to mitigate the risks involved in engagement.
2. Effective compliance monitoring
In India Labour are a subject in the Concurrence list under the Indian constitution, 45 national laws and another 200+ state laws, relevant rules, regulations in place to control the worker and the company and relationships between them. Regulatory compliance obligations multiply day by day, there are a number of amendments published across the nation on change in Regulatory compliance. A complete Compliance checklist and set of guidance procedures are required to be used by every SME to continue to comply with compliance. Even a register not maintained in the specified format by an SME, will lead to imprisonment to the employer of the SME in 5 States in India under the Shops and Establishment Acts. Understanding the change, impact, and requirements in compliance required a lot of effort and expertise. Every SME, to have an effective tracking mechanism, to stay continued in compliance for the purpose of gaining investments and various audits.
3. Compliance challenges on hybrid employment
Hybrid working is a flexible form of working that allows employees to split their time between working in the office and working remotely, usually from home. Despite the advantages, hybrid work models come with potential challenges. Principles of “Law of the Land” – The employee who works in the region is supposed to be compensated, facilitated, and taxed with the rules and regulations applicable in the region. SMEs generally withhold state employment taxes based on where the employee works. SMEs knowingly or unknowingly allowing the employees to work from abroad, will also lead to complications. Many Countries hold strict employment regulations and taxation laws, and data security and violation of the same will lead to complications for the employer. SMEs are required to hold a policy and procedure in place to stay away from compliance complications.
4. Unorganised sector workers
As per the Ministry of Labour and Employment in India, approximately 93 per cent of the workforce is in the unorganized sector. The individuals or Gig workers who work temporary or flexible jobs, often through direct or online platforms are out of the ambit of Labour law coverage in India. The Indian government introduced the eShram portal to register unorganised workers to cover them under Labour Laws and to facilitate social security benefits.
As of 18 July 2023, more than 28.96 crore workers registered under the portal to avail the social security benefits. The upcoming Labour code mandates the organizations / SMEs / Aggregators who are engaging unorganized workers to contribute 1 to 2 per cent of their annual turnover for the purpose of social security benefits. Once the Labour Code was notified of its effective date of implementation, the adequate compliance liability plunged on the SMEs to comply with.
5. Climate change and ESG
SEBI mandates the top 1000 listed companies to submit Business Responsibility and Sustainability Reporting (BRSR) to SEBI. It’s an initiative by the SEBI towards ensuring that investors have access to standardized disclosures on Environmental, Social and Governance (ESG) parameters. The SEBI provided an option to the companies who do not fall within the top 1000 companies, to submit the BEST on a voluntary basis. This BRSR is an indication by the Indian Government to the SMEs, to make provision to comply with the ESG requirements in advance. Every SMEs be aware of the requirements of environmental protection, Extended Producer’s Responsibility (EPR), PCB regulations related to Air, Water, Solid waste, E-waste, Plastic Waste & more is becoming essential for every business to comply with init.
Compliance is not just a cost or legal obligation, it’s a moral imperative. Every SME organization is required to uphold the highest standards of compliance, accountability and transparency to continue the growth, investments and business in India.
Munab Ali Beik ,Head Compliance Advisory Practices Core Integra