What are the guidelines specific to ITES for Incentives for extra hrs of work by employees?

Some queries - please help if any statutory/legal insights:

- What are the guidelines specific to ITES for incentives for extra hours of work by employees? What are the statutory/legal obligations involved?
- In a case where we have already been paying incentives for extra hours for the last 2 years, does the withdrawal of it in subsequent years lead to any risks such as penalties for non-payment?
- Can there be a withdrawal of senior managers (higher salary band) from incentive eligibility? Can this be done following an internal communication with these managers as part of a management decision?

Hi Nithya,

As you know, most of the IT/ITeS industry falls under the purview of the states' Shops & Commercial Estts Acts. The provisions of these acts and rules enacted under them govern the payment of overtime (OT) allowance. Incentives, which may be provided in lieu of OT allowance, are prevalent in many of these units. There are no legal provisions to regulate the payment of incentives. It is possible for both OT and incentive payments to coexist without restrictions.

The withdrawal of any employee benefits is likely to create complications. While there may not be a legal threat of penalties, it poses potential industrial relations (IR) and human resources (HR) challenges that need to be managed.

Similarly, senior managers are likely to raise concerns if there is a proposal to withdraw any employee benefits, including incentives or any reductions in emoluments/benefits.

If you are genuinely considering the proposed reduction or withdrawal, it is essential to present convincing reasons for such actions. It would be beneficial to discuss this in an informal meeting, although success cannot be guaranteed. One potential approach could be to implement these changes alongside increments, salary raises, wage revisions, or promotions. This timing may offer the opportunity to adjust emoluments in a way that appears more rational.

Thank you.

Thank you, Prof. Kumar. This is very helpful.

Kind Regards, Nithya

Hi Nithya,

1) As you know, most of the IT/ITeS sector is covered under the states' Shops & Commercial Estts Acts. Provisions of acts and rules enacted under such acts would govern with respect to the payment of OT allowance. Incentives (which may be in lieu of OT allowance) are prevalent in most of these units. There are no legal provisions to regulate the payment of incentives. There can be both OT as well as incentive payments, with no restrictions. However, if you attempt a wholesome revision of your 'Incentive Schemes,' possibly you can make some adjustments.

2) The withdrawal of any employees' benefits is sure to create complications, though there is no threat of any penalty from a legal angle; it's only IR/HR issues to be handled.

3) Similar to the above, senior managers will also raise concerns if you propose to withdraw any employees' benefits in vogue, not only incentives but also any cuts in emoluments/benefits. If you are serious about the proposed reduction/withdrawal, you should provide convincing grounds for the proposed action and discuss it in an informal meeting, though it cannot be guaranteed. Perhaps you could consider doing it when increments/raises in salary/revision of wages/promotions are implemented, during which you will have the possibility to camouflage by rationalizing the emoluments.

At this juncture, it's also necessary to consider changes to be brought in with the introduction of the 'Code on Wages 2019,' maybe in the new year or so with regards to the applicability of the new definitions, coverage, quantum, methodology, etc., which will have an impact on the IT/ITeS sector as well.

It is a well-settled myth that employees working in IT / ITES are not covered by labor laws. The Industrial Disputes Act, as well as the Shops and Establishments Act, and the Trade Union Act, etc., all apply to employees in the IT / ITES industry. If these employees work as individual contributors and not in a "supervisory capacity," then all the protections available to a worker in a factory are equally available to such employees in the IT / ITES industry. The same applies to overtime (OT) payment. Any work done that exceeds either 9 hours a day or 48 hours a week falls into overtime, for which wages at double the rate must be paid.

Unfortunately, there is a lot of ignorance regarding this "right of employees," and employers end up taking advantage of the situation. Not paying due overtime at double the rate is an offense.