Companies raise concerns over subsidy refund in proposed ELI scheme

Representatives of companies have raised concerns over the inclusion of a contentious clause in the proposed employment-linked incentive (ELI) scheme. Under two key programmes, employers are required to refund the government-provided subsidy if an employee’s job ends within 12 months of recruitment.

This issue is of import as over 24 million youth are expected to benefit from these schemes, which form the crux of the ELI initiative.

The matter was discussed during a stakeholder consultation with employer associations on September 3, attended by senior officials from the Ministry of Labour & Employment. The government has requested stakeholder input by September 9.

The government’s position, clarified during the meeting, is that the refund clause applies only when the company dismisses the employee within one year, not if the employee leaves of their own accord. However, a senior executive representing employers said, “There is consensus among most of us that this clause needs a relook. Suppose the employee has an integrity issue, is incompetent, or violates basic employment rules. The condition that we cannot take any action ties us down. It feels like a penalty for creating jobs.”

An email to the Ministry of Labour & Employment regarding employers’ concerns did not receive a response.

Under the scheme for first-time employees, the government has stated that it will provide a subsidy equivalent to one month’s wage (up to a maximum of Rs 15,000) to the employer, paid in three instalments through direct benefit transfer.

This scheme targets first-time employees who are new to the workforce, have an Employees’ Provident Fund Organisation (EPFO) account, and earn less than Rs 1 lakh per month. However, it stipulates that “the subsidy must be refunded by the employer if the employment ends within 12 months of recruitment”.

A similar clause is included in another scheme focused on job creation in manufacturing. In this scheme, the government will provide incentives linked to EPFO contributions for both employers and employees during the first four years of employment.

The subsidy is set at 24 per cent of wages for the first two years of additional jobs created and 16 per cent for the third and fourth years. However, a similar refund clause applies if the employee leaves within 12 months.

The government announced five schemes in the latest Union Budget aimed at facilitating employment and skilling 41 million youth over five years, with a central outlay of Rs 2 trillion.

Employers have also sought clarifications on several aspects of the draft scheme. For example, in the job creation scheme, will the benefits continue if an employee switches companies and is no longer a fresh recruit? Will eligibility be based solely on gross wages at the time of entry, or will wage changes after employment be considered?

Further questions have arisen regarding contractual labour. Employers are asking whether the subsidy should accrue to the principal employer or the contractor, given that labour laws are typically fulfilled by the latter.

Companies have also requested clarification on the requirement that employees must complete a compulsory financial literacy course before the employer can claim the second instalment of the subsidy under the first-timer scheme.

“Our question is whether self-certification by employees through the EPFO’s member portal will suffice as proof or whether employers will need to ensure compliance,” an employer representative queried.

RED FLAG 

Companies oppose the requirement for employers to refund subsidies if employees leave within 12 months

 

Clause incorporated in two schemes expected to benefit 24 million youth through job creation

 

Employers argue that the clause prevents them from taking action against employees with integrity issues, incompetence, or violations of employment rules