Software developers to be deemed as 'FACTORIES'

Software developers including SMEs, start ups or entrepreneurs are ‘Factories’, according to a recent judgement passed by the Bombay High Court for the purposes of the Employees’ State Insurance Act, 1948 (ESI Act).Sickness, maternity, injury etc in the course of employment are the contingencies that employees would be protected from under the ESI Act which envisages an integrated need based social insurance scheme. 

“Consequently, SMEs engaged in software development will be considered to carry out a ‘manufacturing process’ and will therefore fall within the net of ESI Act, if they have 10 or more employees,” says Kruti Desai, Partner, ALMT Legal.  “They will need to obtain registration and pay contributions on behalf of the employer, at the rate of 4.75% of wages, and the employee at the rate of 1.75% of wages,” she continues. They would also be required to make periodic filings with the labour authorities and comply with other requirements under the ESI Act.  

The punishment for non-payment of contribution is imprisonment for a term up to 3 years, with a minimum term of 6 months and/ or a fine of Rs. 5000. Further, delayed payment attracts simple interest at the rate of 12% p.a. until the date of actual payment.    

smementor@moneycontrol.com

To read the entire report click on the link below:

Read More