Labour Reforms and Safety Net

Labour Reforms

and Safety Net

Y N Kaushal

Industry has been demanding changes in Labour laws so that it is easy to hire and easy to fire. It is easy to start a business and it is easy to close down. As these reforms are allowed, the economy will become more dynamic and we can expect greater inflow of investment in Indian Economy. However, it is opposed by some who have valid concerns about its adverse effect on the employees. The employees will experience further reduction in job security. In the last few months of recession like environment these are acutely felt and experienced by many who have lost jobs. As a matter of fact, job security for employees in private sector is practically non-existent today.

I advocate the labour reforms that are accompanied with safety net as I see greater overall advantage in moving in that direction. Here I am outlining the three pillars of safety net that need to be created so that change process is beneficial to all the stakeholders.

Actually these reforms should not be called as Labour Reforms; they should be called Employment Reforms. The word ‘Labour’ connotes the non-executive and blue-collar employees. As the employment pattern is now more skewed towards service sector and the issues are equally pertinent to Executive category as well, we are going to use the phrase ‘Employment Reforms’. What we are outlining here is applicable to all categories of employees.

Unemployment Allowance: Every employee whose job is terminated should get an unemployment allowance till he/she is able to find another job. However, it should be at the most for upto 9 months after the loss of job. In the first three months, rate should be 50% of the salary, next three months 35% and last three months it should be 20% of the salary.

Next issue that comes up is who should pay, from where the money will come and how should it be paid.

Employment tax: Every employer should be taxed on employees’ salary on the lines of Service tax. As for every service that a business uses from a vendor, it pays a service tax; similarly for services rendered by the employees, which are paid as salary, the employer needs to pay an Employment Tax. This will be a central tax. We propose the rate at 10% of the employees’ salary. This employment tax is not in lieu of Employers’ contribution to the provident fund. It is separate and distinct. The money thus collected should go to ‘Employment Corpus’. This corpus can be managed by Employee Provident Fund Organization. EPFO will need to be suitably enlarged and renamed.

Employability Assurance: Many times when the services of an employee are terminated, it is because the utility of the skill set possessed by the employee has reduced for his current employer. Immediate question that pops up is that “Is he employable elsewhere?”

We need to assure that each employee retains a high level of ‘Employability’. Obsolescence of skills is very fast in our age. Continuous training is a must. We need to mandate through laws to be enacted for the purpose that every employee should be given short duration and long duration training.

Short duration training may mean minimum one week’s during each year to keep the job skills sharp. This training should be financed by the employer (and could be provided by the employer.)

Long duration training should be given at intervals of 10 years in the career. Every employee should be trained in an alternative profession of his choice. First such training may come around the age of 32 to 35 years; second may come around the age of 42 to 45 years, third being around the age of 52 to 55 years. I envisage that people are going to be economically active and productive till the age of 70. Each of these trainings will be six to nine months long. For example, many officers in Government are opting for a one-year long mid career Post Graduate Program in Management at IIMs.

Financing of the training should be partly by the employee and partly by the employer/ Government. Every employer who wants to retain the employee after this long training should pay half the cost of training and half salary for the duration of the training. Employee foregoes half the salary and pays half the training cost as a demonstration of the commitment make the training a success. In this case employer can ask the employee to sign a bond to serve for another two years on completion of the training. For conducting this training, employing organizations may lack the wherewithal except a few very large Corporates. This training will necessarily be provided independent training institutes in order to have acceptability and recognition not only within the country but internationally as well.

In case the employer does not want to retain the employee after this training, the employee can be relieved at the start of the training and three fourth of the training cost and 50% salary for the duration of training should be paid from the Employment Corpus fund. In case of need, the employee can be offered a soft loan to cover this period.

If any employee shows unwillingness to train himself/herself, there should be a penalty of 10% of salary after a waiting period of one year from the date of eligibility for the long-term training that is from the 11th year, 21st year and 31st year respectively.

These provisions should cover all the companies incorporated under Companies Act, Partnership firms, Proprietorship firms, Societies, Trusts and autonomous institutions, while keeping central government, state government and local self-government bodies out of the purview of these provisions.

We need to initiate a dialogue between Employers’ organizations and the Government to create a plan of action for bringing appropriate legislation and achieve the above in a time bound manner.

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