Starting a Small Outsourcing Firm in Bangalore: What Labor Laws Should We Follow?

Hi Everyone, We are about to incorporate an outsourcing organization (providing finance, HR, and ops support) in Bangalore, which will have only 3 staffers. I have a few labor law-related questions and request you to please help me out:

- Can we hire 3 people as "employees" and not as "consultants"?
- If we have all these 3 staffers as "employees" and not as "consultants," do we need to provide them with PF/ESI/Gratuity?
- Are there any mandatory labor laws/practices that we absolutely need to follow? For example, a sexual harassment policy.
- Are there any Bangalore-specific regulations that apply to us?

Thanks a lot for your help!!

Regards, Shilpa

If you are incorporating any organization in Bangalore, Karnataka, can we hire 3 people as "employees" and not as "consultants"? Yes, you can hire any number of employees or even consultants.

Employee Benefits: PF/ESI/Gratuity

If we have all these 3 staffers as "employees" and not as "consultants," do we need to provide them with PF/ESI/Gratuity? No, it is not applicable. For ESI, the minimum employee strength is 10, and for PF, it is 20.

Mandatory Labor Laws/Practices

Are there any mandatory labor laws/practices that we absolutely need to follow? For example, a sexual harassment policy. For below 10 employees, there are no major labor practices that have to be followed. The only thing is you may have to adhere to the Minimum Wages Act and the Leave with Wages Act.

Bangalore-Specific Regulations

Are there any Bangalore-specific regulations that apply to us? Yes, you may have to enroll with Professional Tax and the Shops & Commercial Establishment Act.

If you need any more information, please feel free to reach out to me.

Regards

Thanks a lot, Jeevarathnam! If we go ahead with contract staff only, do we still need to follow the Minimum Wages Act and the Leave Act? Or will there be other basic things that we'll need to take care of?

Also, in question number 2 above, I wanted to know if we have an employee-employer relationship with staff, don't we have to provide PF, ESI, and Gratuity? I understand for 10 or more employees, the employer absolutely has to provide PF and Gratuity.

Hi,

Even if you are employing contract staff, you have to ensure that they are being paid not less than the minimum wage as per the Minimum Wages Act.

Yes, if you have more than 10 employees, then there are provisions. Otherwise, it's not mandatory.

Regards,
Jeevarathnam P

Dear Shilpa,

You need to obtain the Karnataka shops and commercial establishments license and professional tax license as it is mandatory. Based on your current headcount, PF, ESI, Gratuity, and Maternity benefits will not be applicable.

Regards,
Govind Sagar
MPower HR and Labour Law Solutions
Bangalore
9036368502

Mr. Jeeva and Mr. Govind have provided the best solutions to you. But as far as I'm understanding your query, "You are about to incorporate an outsourcing organization (providing finance, HR & ops support)."

After you start outsourcing the staff for your company, if the personnel exceeds the desired number of any Act, please make sure the outsourcing agency must provide benefits to the individual (although they will claim all that from you in monthly/running bills). However, as the Principal Employer, the ultimate responsibility will be yours. If the outsourcing agency defaults in Statutory Compliance, MW Act, local state regulations, etc., you will also be held responsible.

Compliance with Labor Laws for Outsourcing Organizations in Bangalore

Our learned members have provided their opinions in the right manner. First, you need to register your establishment under the Shops and Establishments Act and indicate the maximum strength in the application, even if you are engaging fewer employees. Also, ensure that wages are paid in compliance with the Minimum Wages Act applicable to Karnataka. If the workforce exceeds the specified limit, regardless of executives, consultants, employees, or contractual basis, you must adhere to PF and other applicable regulations.

Regards,
Adoni Suguresh
Labour Laws Consultant

Thank you so much, everyone, for helping me with my query!

I am still confused about one thing - I understand that, as per the law, with 3 people in the team, we do not need to mandatorily provide PF, ESI, and Gratuity. My question is - If we would like to hire these 3 people as 'employees,' then irrespective of the law, do we need to provide the benefits just because we have hired them as "employees" and not as consultants?

Thanks for your time! Shilpa

If an employer wishes to give voluntary benefits, they can provide them; otherwise, it is not required. However, they must pay minimum wages and ensure that salaries are paid before the 7th of every subsequent month, as per the Karnataka Shops Act.

Required Registers and Forms

Employers are required to maintain the following registers and forms:
- APPOINTMENT LETTER IN FORM - Q
- Wage Cum muster roll, FORM - T
- LEAVE BOOK AND REGISTER, FORM - F AND H
- Equal Remuneration Act, FORM - D

Additionally, employers need to file a Quarterly Annual Return with the local employment exchange in FORM - ER - II and submit annual returns on Form - U before the 30th of January 16.

Regards,
Govind Sagar
MPower HR and Labour Law Solutions
Bangalore
[Phone Number Removed For Privacy Reasons]