India’s Growing Start-up and SME Sector: Importance of Labour Law Compliance
India is well-positioned to become a global leader in start-ups and entrepreneur-driven organizations by 2030. This growth is driven by government benefits and schemes, technological innovations, and high domestic demand. At the same time, the small and medium-sized enterprises (SMEs) are experiencing rapid growth across the manufacturing and services sector, with the government offering privileges and benefits to attract more participants and ensure agility.
While there are numerous benefits offered to this sector, such as reduced interest rates, collateral-free loans, tax exemptions, and protection against delayed payments, there is no discount or subsidy from the government when it comes to compliance. Non-compliance is viewed seriously and could result in heavy penalties, including imprisonment, thereby affecting the reputation and business continuity.
Labour law compliances extend beyond workforce-related matters to include establishment compliances, factory compliances for the manufacturing sector, as well as environment, health, safety compliances, contractor compliances, and more. These compliances are applicable to start-ups and SMEs irrespective of their scale of operations, vintage, revenue size, or profitability.
Key areas of labour law compliance relevant to start-ups and SMEs include licenses and registrations under various labor laws, statutory benefits, maintenance of registers, filing of returns, and adherence to important laws such as Minimum Wages, POSH, and Industrial Disputes.
For new organizations, the first and most important step in adherence to labour law compliances is to understand the applicable laws and acts under state and central laws, followed by procuring the necessary licenses and registrations. Post obtaining the requisite licenses and registrations, it is essential to make appropriate deductions and payments to respective authorities and maintain acknowledgments for future records.
Compliance with labor laws is critical for start-ups and SMEs, especially as they seek to raise capital for growth. The due diligence process involved in raising capital captures every element of compliance adherence, and gaps could result in issues detrimental to the growth and reputation of the entity.
Overall, while compliance with labor laws may seem elaborate and cumbersome, there are professional firms and software available in the market at affordable prices that can simplify the process for start-ups and SMEs. By utilizing these options, organizations can focus their time and efforts on core business activities while ensuring compliance is taken care of by professionals or software.
Historically, India has seen a surge in entrepreneurial activity and the growth of SMEs as the government continues to prioritize the sector’s development through various schemes and initiatives. This growth has brought to light the importance of labor law compliance for the sustained success and reputation of these organizations.
In conclusion, as India’s start-up and SME sector continues to experience rapid growth, adherence to labor law compliance will be crucial for the long-term success and sustainability of these organizations.
Authored By Mahesh Krishnamoorthy, Managing Director, Core Integra
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