TeamLease: Employee Salary Choice- Budget 2015's most Important Labour Reform

- The petition to the Ministry of Labour is signed by 500+companies and requests giving all employees three individual choices in deciding how they are paid their salary - a) 12% PF contribution to be made optional b) right to choose whether 12% employer contribution should go to EPS or NPS and c) whether to pay their ESI contribution to the ESI corporation or purchase insurance from any IRDA regulated insurance company. These choices will greatly impact take home pay and reduce informal employment.

Expectations from the annual budget to be announced in February this year are obviously high as it will play a key role in understanding the real intent of the new government in nation building. All sectors have their own wish list and how much of it will be accommodated in terms of tax breaks, subsidies, labour and industrial reforms, duties, etc. is to be seen. Millions of jobs need to be created if our aspirations and domestic demand are to be met. However, all these initiatives are still likely to fail the nation and its people if our ‘salary confiscation’ regime does not change. India has one of the highest ‘salary confiscation’ regimes in the world and giving employees the choice to decide how their salaries are paid is by far the most important reform that can be undertaken in Budget 2015.      

India’s labour laws mandate the highest salary deductions for low wage employees in the world; in a cost-to-company world this can mean an almost 44.31% salary deduction for low wage employees. And contrary to public objectives this is only 5.32% for high wage employees. Economic data suggests that low-wage employees do not have such high savings rate and mandating savings higher than real savings leads to high attrition and high informal employment because employees cannot live on half their salary.

Employers of India & TeamLease has been actively engaging the Ministry of Labour and HRD to do away with this salary confiscation regime by amending the existing laws and allowing employees to choose their own salary and investment options. TeamLease & a Coalition of 500 employers recently submitted a petition and urged the government to re-look at the laws governing salary payment of low wage employees by allowing employees to choose how their salary is paid and contributions invested.The petition asks the government to give employees the choice to decide ona) whether to make their 12% employee contribution to Provident Fund or opt out of it, b)whether to pay their 12% employer contribution to the Employee Pension Scheme (EPS) or to an individual account opened with the National Pension Scheme (NPS), and c)whether to pay their ESI contribution to the ESI corporation or purchase insurance from any IRDA regulated insurance company. There is no proposal to make the employer Provident Fund voluntary (it must be mandatory) and the status quo of employee paying their Employee Provident Fund to EPFO should be available.

Talking about the initiative, Ms. Rituparna Chakraborty, Convenor of the Petition & Co-Founder, TeamLease said, “A constant cry from young job seekers to salary numbers is ‘haathwaaliyachithiwaali salary’ because most cannot live on half their wages.The government is requested to move away from the current benefits confiscation regime because it harms the people it is trying to protect. Recognizing the cost-to-company model and revamping these labour laws would greatly benefit youth, increase formal employment and accelerate voluntary migration.”

Currently in a cost to-company model informal employees can take home their entire salary while employees in the organised sector lose nearly 50% of their earnings to schemes like PF, Employees State Insurance (ESI), Professional Tax, Employees Pension Scheme, (EPS), statutory bonus and gratuityforcing them to live on half their salary which they can’t . Hence most choose informal employment where gross and net salaries are the same. The plight is amplified further by the poor value of these schemes (ESI has India’s worst health insurance claims ratio and EFPO is the world’s most expensive government securities mutual fund with 50% of their account dormant because of poor service). A detailed table elaborating the deductions is given below:

Dr. Abhishek Chaturvedi, Director, Kanpur Education Society (one of the 500+ petitioners) says, “Teaching is a noble profession but sometimes there is a contradiction between keeping it inclusive with low fees and paying teachers well. Giving teachers a choice of how they are paid their salary will not only increase the take home pay but also help in attracting more talent to the sector. This obviously holds true for all other industries as well.”

“In my opinion there has to be some flexible benefit plan for every employee. Employers should empower employees with the choice. Today’s youngsters prefer a working environment which offers them choice, even in the