MENU

Published on 17/11/2020 12:34:31 PM | Source: Motilal Oswal Financial Services Ltd

IT Sector Update - Labor reforms to drive formalization in industry By Motilal Oswal

Posted in Broking Firm Views - Sector Report| #IT Sector #Sector Report #Motilal Oswal Financial Services Ltd

Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel  https://t.me/InvestmentGuruIndia 

Download Telegram App before Joining the Channel

Labor reforms to drive formalization in industry

* The Upper House of the Parliament has passed the three labor codes, i.e., Industrial Relations, Social Security and Occupational Safety, and Health and Working Conditions.

* The government has been undertaking various initiatives to improve the ease of doing business in India. Labor reforms should help improve the same further as they would attract investments across sectors and support job creation.

* These labor reforms provide operational freedom to employers, while also protecting the interests of the employees.

* These laws should accelerate the formalization of the Staffing industry; we expect TeamLease and Quess to be the key beneficiaries of the same.

 

Labor reforms have been long pending

* In 2014, the government decided to consolidate / simplify 44 central labor laws into four labor codes – [1] Wage, [2] Industrial Relations, [3] Social Security, and [4] Occupational Safety, Health and Working Conditions.

* The parliament had passed the Code on Wages last year (2019), aimed at regulating wages / bonus payments. This is yet to be implemented.

* The parliament has now passed the other three labor codes as well. The labor ministry is expected to implement these codes early next year.

 

Attract investments for job creation; simplified compliance

* Improving the ease of doing business in India: The government has been undertaking many initiatives to improve the ease of doing business in the country. In 2020, India ranked 63rd in ease-of-doing-business rankings (improved by 14 ranks). While these labor reforms do provide benefits to employers, they protect the interests of the laborers at the same time. This should drive investments across sectors and aid job creation.

* Making compliance easy for companies: Currently, compliance with complex, archaic labor laws is practically challenging. Simplified laws would enable easy compliance for companies and reduce overall cost for the same.

 

Operational freedom to employers; social security benefits to employees

Code on Industrial Relations:

* Hiring and downsizing of employees made easy: This would benefit SMEs (employers) as they would not require approval to downsize employees / close down units. Earlier, companies with upto 100 employees did not need any approval for the same; this threshold has now been increased to upto 300 employees.

* It also provides a legal framework for fixed-term employment and ease of downsizing of contractual workers.

* The operational freedom afforded to employers is expected to drive job creation across sectors (existing and new businesses), which would benefit staffing companies as well.

Code on Social Security:

* As companies receive operational freedom, the government has also included provisions to protect the interests of fixed-term contractual workers / gig workers / unorganized workers.

* Gratuity-linked benefits have been introduced for each type of worker. While this is expected to increase employers’ costs, staffing companies would pass on such costs to their clients.

Code on Occupational Safety, Health and Working Conditions:

* Single license allowed for all contract hiring: The government has allowed staffing firms to hire on contract across different locations v/s multiple licenses required earlier. This would simplify the way staffing firms function and help ease the compliance process for them.

 

TeamLease, Quess to be key beneficiaries of labor reforms

* Fixed-term contract-based employment would only see increased demand, driven by the evolving nature of the businesses; these labor reforms should benefit both employers and employees. These laws should accelerate the formalization of the Staffing industry as well, and drive long-term growth. We expect TeamLease and Quess, leaders in this space, to be the key beneficiaries of the same.

 

To Read Complete Report & Disclaimer Click Here

 

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

 

Above views are of the author and not of the website kindly read disclaimer