COVID-19, as we all know, is a global humanitarian challenge. The WHO declared the COVID-19 outbreak as a pandemic on March 11th, 2020, giving directives to world leaders to resort to immediate containment measures to decelerate the pace of the spread of the virus. Several countries are in a state of lockdown and businesses have suffered significant disruption. The workforce is one stakeholder group substantially impacted with challenging situations presenting themselves on a number of fronts. The International Labor Organization has called for urgent, large-scale and coordinated measures across three pillars – protecting workers in the workplace, stimulating the economy and employment, and supporting jobs and incomes.
In India, after weeks of mitigation measures, mostly taken by the state governments, Prime Minister Narendra Modi announced a nationwide lockdown in India until April 14, 2020. The lockdown has now been extended to May 3, 2020. Under this environment, business leaders have had to (and continue to) make significant people and wider business decisions in a time of extreme uncertainty.
In this document, we have outlined responses to the most common questions we are receiving from clients about their teams in India.
Question 1: Are Companies obligated to pay salaries to employees when they are in a lockdown? Or unable to perform their duties?
Employees may be unable to perform their duties owing to two reasons:
- Due to sickness- self or family; or
- Due to the nature of work not supported from home.
Due to Sickness – Self or Family: Here are the various possibilities enlisted:
- When an employee is sick, sick leave will apply as per the statutory Shop & Establishment Act within each state.
- In case an employee is tested, but not positive, he/ she can avail of sick leave to just recovering from the sickness.
- In case the employee is tested positive for COVID-19 after getting back from an official travel, the organisation is obligated to provide paid leave of 28 days for quarantine and complete recovery. However, in case the employee is tested positive for COVID-19 after a personal travel, the organisation has no obligation to provide paid leave for recovery except the State of Karnataka, has announced mandatory paid leave for ALL employees tested positive for COVID-19. In case an employee needs leave for taking care of a sick family member tested positive for COVID-19, he/ she would need to practice self- quarantine of 28 days and apply for leave as annual leave availability, for the days that he/ she is unable to perform official duties from home.
Due to the nature of work, not supported from home:
The second case applies to all staff members working in roles such as sales, operations, banking, travel, and hospitality, where the very nature of the job requires the staff to work from the office or visit clients or remain out of their home all the time. In such cases, organisations may request their staff to utilize their paid leave. In case the employee does not have any leave balance, he/ she would need to go on unpaid leave. This way their job and salary are both protected. This needs to be executed with mutual consultation and agreement to avoid the risk of future litigations.
Question 2: Should organisations be conducting performance appraisals in the current situation? What about the bonus and increments?
Performance appraisals generally consist of a review of previous period performance as well as planning for the future. In India, this process usually takes place in March/April each year given the April to March fiscal year. Every employee has the right to know how his/her efforts are being rated in the organisation, with the objective highlight of strengths and improvement areas. As would usually be the case, line managers have a responsibility to provide this feedback and setting expectations on the position for bonus and pay rise/salary increments. Given the challenging environment, many organisations are opting for ‘conservative’ or no increments and/or decisions on increments deferred by a quarter. Completing this appraisal cycle is an important way to continue to manage talent including recognizing star performers and identifying underperformers. As part of this process, it is important to be transparent with employees across all levels of the organisation’s business on how the business is managing bonuses and pay raises during this period.
Question 3: Can organisations defer the payment of a bonus or salary revisions of employees?
Yes, organisations can defer or refuse any bonus/incentive pay and pay revisions, as these are typically at the discretion of the management. In the case of commissions which are revenue-based, and mentioned in the Employment Contract, the organisation is responsible for fulfilling that contractual obligation.
However, in case the organisation has employees who ‘qualify’ under the Payment of Bonus Act (those earning less than INR 21,000/$280 per month) refusal to pay ‘bonus’ is not an option. In this case, it is a statutory obligation for employers to pay all qualifying staff 8.33% to 20% of their wages within 8 months of the close of the accounting period.
Question 4: What are the options employers have to taper down their people’s costs?
The Labor Ministry and the state governments have issued several advisories to public and private sector organisations advising them to refrain from job cuts or pay cuts during these trying times. MHA (Ministry of Home Affairs) has issued notifications intended to protect salaries and ensure wages are paid on time, especially for contract labor. However, in a directional move, the central government has recently announced up to a 30% pay cut in the salary/benefits of Ministers and Members of Parliament.
With this background, as a very first step, organisations should take a hard look at the cost structures and see what can be trimmed including vendor and other operational costs. People’s costs should be safeguarded for as long as possible.
Some measures organisations can take, are as follows:
- Option 1 – Pay cuts for the leadership/senior levels, to ensure all jobs at the lower order are retained;
- Option 2 – Utilization of Earned Leave – For many employees whose roles are redundant from home, employers may evaluate the utilization of earned/annual leave balance. This will ensure the employee gets a salary and the job is retained too.
- Option 3 – Sabbatical – For employees whose jobs are redundant, given the work from home situation, and in case they do not have any annual leave balance, such employees may be asked to go on unpaid leave (sabbatical) until the situation improves and their work is restored to be fully functional. In this scenario, employees should continue to draw benefits from the insurance schemes and other benefits that the organisation offers. In case these employees are signed up with the PF scheme of the organisation, the firm will need to continue with the minimum PF contribution through the period of the sabbatical.
- Option 4 – Recalibration of Work Hours – For some roles, there is some work to complete but not at 100% utilization. In all such cases, the organisation may evaluate the option of reducing work hours and thereby recalibrating accordingly.
- Option 5 – Temporary Reduction in Pay – Some organisations may evaluate the option of exercising a pay cut across levels, positioning this as a temporary move till the business bounces back (when former pay levels are to be restored).
- Option 6 – Retrenchment/ Lay-Offs – In extreme cases where the businesses are battling for survival, organisations may be left with no choice but to layoff staff. Where this is the case, it is advisable to follow through the contract terms and also make every effort to mitigate the distress on the staff member by working out a severance package that would minimize the impact on staff members.
Note: The advisories issued by the govt bodies are only guidelines and employers are not duty-bound for adherence. However, the MHA order issued on March 29, 2020, has been issued under section 10 (2) of the Disaster Management Act, 2005 for payment of wages on the due date without any deduction, is binding, and applicable to the ‘workmen’ category of workers* (defined under the Industrial Disputes Act). In the event of litigation, the labor courts tend to favor the employee, construing most of the options quoted above, as a willful disadvantage to the employee through pay cuts, unless a force majeure situation is invoked by the organisation, for the relevant option they choose. Also, organisations need to ensure mutual agreement and all relevant documentation is in place while implementing any of the options specified.
Question 5: What if an employer has to layoff some of its staff members? Are layoffs legal in India?
As specified in the previous section, layoff or retrenchment is a defined process in India. It is governed by the terms and conditions of the employment contract and specific laws under State legislation which may be applicable to specific sectors/industries. There is a concept of ’severance pay’ as well, which does not have a legal hold. However, it is a provision to mitigate the distress for the employee. Again, it is advisable to be transparent with your staff across all levels, make them understand the distress/business situation and find an amicable solution to the best extent possible.
Note: There is a bill that has been introduced into the parliamentary process (i.e. but not yet passed as law), called ‘The Terminated Employee (Welfare) Bill, 2020’. The Bill proposes that if an employee is asked to leave due to reasons such as a slump in the economy, political instability, technological changes, a court order, or if the business becomes insolvent, and so on, that the employee should be given unemployment benefits with assured income for nine months (which is considered sufficient time for them to find a new job). This would obviously have a very significant impact on organisations but the Bill is not yet passed in the Parliament.
Question 6: What is the most critical responsibility of a business leader during these times of uncertainty?
Organisations are trusted institutions and to hold on to that ‘trust’- leaders must communicate often, with messages going out to key stakeholders, customers, suppliers and to its people. In doing so, organisations must:
- Develop an approach for cascaded communication to provide clarity, transparency, honesty, and direction;
- Select communication channels and set protocols to send communication early and often
- Ensure communication from all sources is consistent
- Keep the two- way communication open and ensure your staff are heard and reassured with your messaging
- If pay cuts are necessary, it is advisable for leaders to first start with themselves and save lower grade staff as much as possible
*Industrial Disputes (Amendment) Act 2010, Notification No. S.O. 2278(E) dated 15.09.2010, Note: Section 2(s) of the Industrial Disputes Act, 1947 defines a workman as any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work, for hire or reward, terms of employment are expressed or implied and include any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of the dispute. It excludes persons employed in Army/Navy/Air Force/Police and those employed in mainly managerial or administrative, supervisory capacity and drawing wages of more than INR 10,000/-
Question 7: Can an employer deduct salaries/wages in India to account for unutilized work time?
Employers can exercise option 4 in Q3, highlighted earlier. Here working hours are revised to reflect the required levels of support and salaries are adjusted (reduced) proportionately. This is true for white-collared staff.
Since, the nationwide lockdown remains in effect i.e. Order No. 40-3/2020- DM-I, the Government of India has directed all employers to pay the wages to their workers (specifically the ‘workmen’ category of workers) on the due date and without any deduction. Hence employers may implement pay cuts by invoking Force Majeure, under the given circumstances, in such cases. Invoking Force Majeure is a due process, it is advisable to take legal course and documentation before doing so formally. It would impact overall business reputations, customer and suppliers.
Question 8: What are some of the cultural sensitivities when communicating to an Indian audience, through this tough period of time?
Organisations should take the following measures to ensure all employees are onboarded on the organisation’s plans:
- Be ready with business suitability plans, financial contingency matrix, vendor negotiations, and another operational cost-saving measure. Your Finance, Tax and HR Advisors would be able to work on all that.
- Ensure there is frequent and transparent communication on the impact of slowdown on the business and the customer side of the story, to help condition employees with the grim reality
- Ensure the messaging is employee-centric; with every decision accounting for ‘employee first’ as a philosophy
- Documentary support on all people processes and business continuity plans are maintained
- Consensus on the decision taken by listening to employees and addressing their core issues
Disclaimer- This advisory note is generic with broad guidelines on topics covered, with views that are directional and recommendary in nature. For specific queries, interdependent factors and state-level regulations and statutory laws under COVID (or otherwise) need to be referenced. Sannam S4 is not responsible for any action based solely on the recommendations