Serving in the Armed Forces gives a unique perspective to everything in life, and this includes compliance. Non-compliance to processes and procedures never remains to be an option in the Armed Forces. Shifting to the corporate world and witnessing the nuances of compliances in HR and its adherence by organisations has been an eye opener. Before getting into the nuances of compliance, I would say that it is no great secret that the general culture of India is not conducive for compliance. And, this is so because a child grows up in our country looking at people breaking traffic rules and begins to believe that rules are meant to be broken. The concept of stopping before a stop line (if the stop line even exists) is something that most Indians do not seriously consider. So, compliance to hazy HR laws whose meanings are open to interpretation, can be a daunting task for us in India.
The impact of non-compliance
Non-compliance to HR laws can indeed have a very high impact based on the severity of non-compliance. While serving as the HR head in an organisation, my own experience of non-compliance led me to deal with an arrest warrant issued on one of the Directors of the organisation. We then had to spend quite a bit of money and time to resolve the situation. Most of the laws in India stipulate imprisonment and hefty fines for non-compliance misdemeanours. Enforcement agencies such as the labour commissioner and labour inspector can invoke these provisions at any time, based on the non-compliance of an organisation.
Non-compliance to HR laws can indeed have a very high impact based on the severity of non-compliance. While serving as the HR head in an organisation, my own experience of non-compliance led me to deal with an arrest warrant issued on one of the Directors of the organisation. We then had to spend quite a bit of money and time to resolve the situation.
HR compliance in India
Even though there are no reliable estimates of HR compliance in India, compliance levels can be classified on the basis of the culture and origins of the organisation. On the basis of my interactions with HR professionals and senior leaders from various industries in India, I would broadly categorize them as indicated in the diagram
Major contributors to non-compliance
One of the major causes of non-compliance is not just wilful non-compliance, but also the non-availability of complete knowledge of all compliance requirements. India is a vast country with central and state governments working in tandem. Understanding the laws laid down by this federal structure and realizing what law is applicable to a particular state or industry can thus be very difficult. The non‑availability of affordable systems and processes also contributes to non‑compliance. Moreover, engaging a knowledgeable consultant and investing in a good governance, risk and compliance platform that mitigates the risks faced by companies can also be a very costly affair. So, while the larger cash rich companies can afford the luxury of better people and systems, most organisations prefer to face compliance issues on a reactive basis, an activity which often results in non‑compliance. So, the reality is that when enforcement agencies arrive at an organisation, the cost of non-compliance can be easily overcome by a monetary payoff to the enforcement agency, rather than investing in costly consultants and systems. Unfortunately, for many Indian SMEs, the latter option seems to deliver a better ROI.
“One of the major causes of non-compliance is not just wilful non-compliance, but also the non-availability of complete knowledge of all compliance requirements. India is a vast country with central and state governments working in tandem. Understanding the laws laid down by this federal structure and realizing what law is applicable to a particular state or industry can thus be very difficult. The non‑availability of affordable systems and processes also contributes to non-compliance.”
The future of HR compliance
While the government is proactively trying to make things simpler and easier for organisations, the enforcement of such laws is also becoming more stringent. So, we are looking at a potential repeat of the situation that occurred during the demonetisation and GST transitions. Companies that were previously not compliant, and individuals who had excess cash, faced incomprehensible situations to protect their wealth and organisations during the transition. HR compliance is moving in the same direction thanks to two major efforts that are being led by central and state governments:
1. Digitisation: With the automation of many government machineries such as the Provident Fund Organisation, Single Labour Identification Numbers (LIN) and the linking of Aadhar cards of employees, we are heading towards a world wherein transparency will be the key for an organisation to be effectively compliant and run its business as usual.
2. Codification of Labour Laws: The central government is also proposing a comprehensive list of four codes of labour laws, thereby reducing many redundant Acts. While these codes may reduce the reporting efforts of organisations to the government, compliance to these specific codes may be implemented with strong fervour, which will in turn entail organisations to comply with all laws.
Making organisations compliant
As mentioned earlier, knowledgeable consultants and good GRC systems can help prevent non-compliance. Companies can also start looking at intelligent knowledge and compliance systems to achieve the same objective. The Indian start-up ecosystem is simultaneously building innovative solutions to ensure that companies remain compliant. Adopting new-age systems built by startups can also help companies remain compliant. However, as learnings reinforced by recent scams and frauds across the country have shown us, a culture of being compliant must be driven from the highest management and operation heads of organisations. This is the most successful way to remain compliant in letter and in spirit.
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