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Labourers play a significant role in the growth of the Indian economy, due to which the Indian Government has made several laws for safeguarding their interests through provisions in various labour legislation and mandating the compliance of the laws by the employers. In lieu of the same, the employer must undergo the Labour Audit to ensure adherence to the various compliance requirements and avoid penalties.
The article discusses the labour Audit Check List for businesses in India to help the businesses, i.e. the employers, directors or any other person in this regard.
Table of Contents
Labour audit can be defined as the assessment of the employer’s labour compliances and checking if the employer is complying with the same.
The applicability of the labour audit shall depend on the following parameters.
The labour audit is conducted by an independent labour auditor who is a practising Company Secretary. The auditor defines the scope of the labour audit wherein he has to identify the various central and state legislations along with the rules applicable to the employer.
Although the Companies Act 2013 does not prescribe Labour Law Compliance and Audit, however, certain Section provisions indirectly clarify the requirement of Labour Law Compliance and Audit, such as
Directors had come up with proper systems to ensure compliance with the applicable laws’ provisions, and such systems were appropriate and operating effectively.
Section 204(1) Secretarial Audit and Rule 9 of the Companies (Appointment and Remuneration Personnel) Rules, 2014
This section provides that Secretarial Audit, inter-alia, includes reporting compliance with all applicable laws to companies.
Section 205(1) Duties of Company Secretary:-
The company secretary must report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company, Labour Law Compliances and Audits.
Section 143(9) of the Companies Act 2013 mandates compliance with the auditing standard
The auditor’s report on the company’s accounts to which CARO 2020 is applicable shall, among other things, include a statement on the following matters.
It can be derived from the auditor’s report specified in CARO, 2020 that audit of labour laws have been made applicable to certain companies specified under Section 1(2) of CARO, 2020.
Therefore, the companies should make a monthly, quarterly, half-yearly and yearly checklist for compliance with the various requirements under the provisions of each of the labour laws on its own, which will help them for any audits as may be required by any outside authority or by any statutory authority.
Audit scope refers to the amount of time and documents involved in an audit. It ultimately establishes the depth of the audit performed. The Labour law auditor must incorporate all labour legislations applicable to an Industry or any other commercial establishment wherein an audit is conducted. If a particular piece of labour law doesn’t apply to a specific business, the same should be disclosed distinctly in the report of an Independent Professional. The scope of labour law audit will undoubtedly vary from business to business.
Prior to the commencement of the Labour Audit, the auditor prepares a Labour Audit Checklist, which should contain the following particulars.
Identification of the laws applicable to the company/establishment based on the nature of the industry and the number of employees
This is one of the most important particulars of the labour law audit checklist, as the applicability of the labour laws depends on the no. of employees in the establishment. In case the no. of employees is not as per the prescribed limit, the establishment won’t be considered applicable for compliance under labour law.
This particular labour audit checklist is checked to determine if the employer or the relevant person has obtained the registration for the establishment in question; in case it is found out that the establishment has not been registered under the prescribed legislation, it can lead to the shutting down of the establishment along with appropriate legal proceedings.
If the establishment is registered, the auditor checks the validity of the registration certificate. Therefore, it is advisable that the employer must keep a check on such validity and renew the registration certificate before its expiration to avoid any risks of penalties with regard to the same.
The dues include Monthly Wages (Equal to or higher than minimum wages), Bonus Payment Leave Allowances, Gratuity (in case of left out employee) Overtime Payment. The payment of dues by the employer is checked to determine the employer’s punctuality and seriousness; towards the employees’ remuneration. Any delays in the same portrays the irresponsible behaviour of the employer towards the employees, which comes under the ambit of harassment.
During the audit of this particular aspect, the duties of the safety officer are scrutinised as he is responsible for the safety of the workers and employees within the organisation. The safety measures are checked to ensure that the workers or the employees are being provided safe working conditions, together with checking if the employer and the safety officers have undertaken measures to deal with cases of accidents or injuries within the establishment.
Every employer is obligated to display the provisions of the relevant acts at conspicuous places of the establishment to avoid any confusion among the employees and the workers regarding such provisions. This is a part of the Labour audit checklist to ensure the employers that the employer meets all the display requirements as per the act.
The contribution under these funds is essential to safeguard the interests of the employees and provide them monetary assistance in case of any financial or other emergencies; therefore, the employer needs to ensure that such contributions are made in a timely manner.
Maintenance of the register holds an important place in the labour Audit Checklist as the maintenance of such records voids the risks of any confusion in matters related to the wages, leaves, working hours etc., of the employees and workers as any discrepancies in the same, can lead to the miscalculation of the wages of the employees and workers and abstain them from obtaining the correct amount of remuneration, entitled benefits or allowances.
The employer needs to file the annual return on a timely basis. This aspect is included in the labour audit checklist to check the overall performance of the establishment by scrutinising the income, profit and loss incurred in the establishment.
Based on the above particulars, the auditor prepares an audit report review, any shortcoming and/or observation is discussed with the management, and their statements on the corrective action plan must be recorded within the expected timeline.
The advantages of labour audit for businesses
(a) Increased productivity in view of lower absenteeism in the enterprise. The higher the productivity, the higher will be the profit.
(b) Status in Society for the employer will increase in view of the recognition that the government may bestow on them.
(c) Strict compliance with all labour legislation will be ensured by each of the employers, which will eliminate penalties/damages/fines that the Government may impose.
(e) Co-operation and understanding with the workers will improve labour relations. A congenial atmosphere is indispensable for good corporate governance.
The non-compliance with labour laws will only put the employer, occupier, director or any other concerned person in a difficult position as it can lead to prosecutions, imprisonment, fine, personal accountability, etc., which would be a time-consuming process along with accusing the reputation among the employees as well as the Government.
Thus, every employer should take compliance as a responsibility, ensure adherence to the compliance audit checklist and consult a professional having expertise in this regard.
Read Our Article: All about the Labor Laws: Employment Laws that you Must Know
Shubhangi has completed her B. A.LLB (H) with specialization in Business Laws from Amity University. She is particularly interested in legal research and writing and wishes to utilize her knowledge to create informative legal content. She has prior experience in corporate and criminal litigation and has great drafting skills. She has also published various research papers in reputed journals.
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