The Plight of Workers in The Non-Profit Organizations – Some Reflections

In India, The role of workers in non-profit organizations (NPOs), also referred to as non-governmental organizations or NGOs, in India, is extensive and varied when it comes to contributing towards nation-building and facilitating development work for impoverished and marginalized communities. Their significant contributions to society have been evident over the decades.

Such organizations are usually set up to serve a specific cause, vocation, or community which they address through their charitable objectives. According to data from the NGO Darpan portal of the NITI Aayog, there are approximately 1.67 lakh non-governmental organizations (NGOs) operating across India.

These organizations are engaged in a wide array of activities spanning 42 different sectors. With an estimated average of 20 employees per NGO, it suggests that the sector collectively employs over 33 lakh individuals. This underscores the significant contribution of NGOs to employment generation and socio-economic development in India.

As such, NGOs are fast emerging as professional organizations and competitive employers. In India, the top ten NGOs boast an average employee strength of approximately 466, with 53% of these employees being women. Many of these NGOs are operated with a level of rigor comparable to for-profit organizations, implementing practices like compensation benchmarking, performance management, and training-need analysis for all staff members.

As the number of NGOs continues to increase, it becomes imperative for these employers to be well-versed in the legal compliances they must adhere to. The Ministry of Home Affairs (MHA), Government of India (GoI) has recently issued a gazetted notification, introducing amendments to the Foreign Contribution Regulation Act (FCRA) rules in 2023. These developments hold considerable significance for non-governmental organizations (NGOs) holding FCRA licenses and individuals who receive foreign contributions.

The Ministry has tightened FCRA rules, specifying that NGOs not directly linked to a political party but involved in political activities like bandhs, strikes, or road blockades will be deemed political entities if engaged in active or party politics. According to the law, all NGOs receiving funds must register under the FCRA. This move follows the government’s decision to raise import duty on gold from 7.5% to 12.5% to curb gold imports, which contribute to trade deficit and strain currency and forex reserves.

Plight of Workers

In the realm of non-profit organizations, where the pursuit of altruistic goals often takes precedence, the plight of workers can sometimes be overshadowed by the noble missions they serve.

However, beneath the surface of charitable endeavors lies a complex landscape where workers grapple with unique challenges and systemic issues. This article delves into the lesser-explored aspects of working within non-profits, shedding light on the struggles, sacrifices, and aspirations of those committed to making a difference in their communities and beyond.

What is the FCRA?

The FCRA was enacted during the Emergency in 1976 in an atmosphere of apprehension that foreign powers were interfering in India’s affairs by pumping in funds through independent organizations. These concerns were raised in Parliament as early as 1969. The law aimed to oversee foreign donations to individuals and associations, ensuring their operations aligned “in a manner consistent with the values of a sovereign democratic republic.”.

Objectives

• The Act mandates that every individual or NGO intending to receive foreign donations must register under it, establish a designated bank account for receiving such funds, and utilize them solely for the specified purpose outlined in the Act.
• The Act prohibits the receipt of foreign funds by candidates running for elections, journalists or media companies, judges and government officials, members of the legislature, political parties, or their officials, as well as organizations of a political nature.

Amendments

• It was amended in 2010 to “consolidate the law” on utilization of foreign funds, and “to prohibit” their use for “any activities detrimental to national interest”
• The current government amended the law again in 2020, providing tighter control and scrutiny over the receipt and utilization of foreign funds by NGOs.

What are the Key Changes?

• Under the FCRA, Indians are permitted to receive up to Rs 10 lakh annually from their relatives residing abroad.
  • The limit earlier was Rs 1 lakh.
  • In cases where the received amount surpasses the stipulated limit, individuals now have a grace period of 90 days to report it to the government, as opposed to the previous timeframe of 30 days.
• Individuals and organizations, including NGOs, are now afforded 45 days to apply for ‘registration’ or ‘prior permission’ under the FCRA to receive funds.
  • Earlier it was 30 days.
• Organisations receiving foreign funds will not be able to use more than 20 % of such funds for administrative purposes.
  • This limit was 50 % before 2020.
• Five additional offences under the FCRA have been made “compoundable,” bringing the total to 12, rather than pursuing direct prosecution of the organizations or individuals involved.
  • Earlier, only seven offences under the FCRA were compoundable.

What are Compoundable Offences?

• Compoundable offences are those where the complainant, who filed the case (i.e., the victim), agrees to a compromise and drops the charges against the accused. However, this compromise must be made in good faith and without any consideration to which the complainant is not entitled.
• FCRA violations that have now become compoundable include failure to notify about the receipt of foreign funds, failure to open bank accounts, failure to disclose information on websites, and similar offenses.

What is the Significance of the Move?

• Enhances Remittances:
  • It will curb the outflow of funds while simultaneously enhancing inward remittances.
• Stabilise forex Reserves:
  • It will lead to an increase in inflow of funds into India which will stabilise the forex reserves and also the currency.
  • Similarly, an increase in import duty on gold from 7.5 % to 12.5 % will discourage gold import as it will result in an increase in the price of gold in India.
• Reduces Trade Deficit:
  • A rise in the influx of funds coupled with a decrease in the efflux of funds resulting from gold imports will aid in mitigating the trade deficit.
    • The trade deficit in the month of April and May 2022 stood at a high of USD 20.1 billion and USD 24.6 billion respectively making an aggregate of USD 44.7 billion in two months.
    • By comparison the trade deficit in April and May 2021 stood at USD 21.8 billion.

FCRA Amendment Rules, 2023

In a recent notification, the Ministry of Home Affairs has invoked Section 48 of the Foreign Contribution Regulation Act (FCRA) to enact vital rule changes. These amendments, formally designated as the “Foreign Contribution (Regulation) Amendment Rules, 2023,” have come into effect upon their publication in the Official Gazette.

Earlier Relaxations

Earlier, the Ministry of Home Affairs (MHA) had revised rules governing foreign funding, introducing certain relaxations. These relaxations permitted relatives to send larger amounts under the Foreign Contribution Regulation Act (FCRA) and extended the timeframe for organizations to notify the government about opening bank accounts for funds received under the ‘registration’ or ‘prior permission’ category.

Expanded Beneficiaries

The updated regulations introduce substantial changes regarding who can accept foreign contributions without the risk of prosecution. Notably, political parties, legislators, election candidates, judges, government officials, journalists, and media outlets, previously prohibited from receiving such funds, will now be exempt from prosecution if they receive contributions from overseas relatives. Crucially, these recipients will have a 90-day window to notify the government about these contributions.

This amendment has adversely impacted lakhs of young people in the NGO and INGO sector. Most NGO workers are now facing a serious crisis all over the country due to the recent FCRA Amendment. Unemployment rates in the country is now at the peak, especially after the COVID period.

Educated and skilled youth are increasingly facing challenges to get a job and support their families. Both the Central and State Governments are doing little to provide gainful employment to youth. There are no regular Government jobs now being advertised.

Even the Contractual jobs have reduced considerably and most contracts are not being extended. Many NGO staff have lost their jobs over the last two years. Finding another similar job has become a challenging prospect for most young people working in the non-profit sector. 

Thousands of NGO staff have been retrenched over the last two years, which has adversely affected their families, source of income and livelihoods. NGO staff salaries are amongst the lowest in the country. The average salary could range from INR 3 to INR 6 lakhs per annum. Most NGO staff have limited academic qualifications and employable skills to find a new job in the towns and cities. 

Many INGOs (international NGOs) and donor agencies also have now either phased out of India or have considerably reduced their programme interventions in most states of India, especially in the poorest states. India is no longer a focus country for most bilaterals, multilaterals and international donors.

This has resulted in not only reduced poverty alleviation programmes but has also adversely impacted the lives and livelihoods of poorest communities and NGO staff. Most INGOs are now directly implementing the projects on the ground and are not able to partner with local grassroots NGOs. Donors have now become implementers!

Labour laws in India

Labour laws govern the relationship between employers and employees within an organization, encompassing industrial relations, labor-management relations, unfair labor practices, holiday entitlements, annual leave, working hours, unfair dismissals, minimum wage, layoff procedures, severance pay, and various other matters relevant to the employer-employee dynamic, along with associated compliance requirements.

Presently, approximately 29 laws address these aspects. In pursuit of consolidation and labor reform to enhance the ease of conducting business, the government has enacted four new labor codes, which amalgamate the provisions of the 29 existing labor laws. However, the implementation of these codes is pending.

Are non-profit organizations exempt from labour laws?

As evidenced by numerous court rulings, including a notable one from the Madras High Court as discussed below, non-profit organizations (NPOs) in India often assert a common defense, arguing that they are exempt from adhering to certain key compliances due to their dedication to the greater societal good.

They emphasize their involvement in philanthropic endeavors and highlight that their activities do not generate profits. These arguments have been repeatedly presented before the courts. However, it is essential to scrutinize the judiciary’s perspective on the applicability of labor legislation, particularly The Industrial Disputes Act, 1947, to NPOs.

The Industrial Disputes Act applies solely to industries as defined in Section 2(j) of the Act, encompassing any business, trade, undertaking, manufacture, or calling of employers. This definition also includes various activities such as service, employment, handicraft, industrial occupation, or workmen’s avocation.

In the case of Bangalore Water Supply & Sewerage Board vs. A. Rajappa and others, the Supreme Court addressed the interpretation of ‘industry’ and established a triple test to ascertain whether an enterprise qualifies as such.

This test includes:

• systematic activity,

• organized cooperation between employer and employee, and

• engagement in the production and/or distribution of goods and services aimed at fulfilling human wants and needs.

Importantly, the Supreme Court ruled that the absence of a profit motive or gainful objective is irrelevant, regardless of the sector in which the enterprise operates. The primary focus is on the functional aspect, particularly the nature of the activity and the dynamics of employer-employee relations. Therefore, if an organization engages in trade or business activities, it does not lose its character as such due to philanthropic endeavors underlying its operations.

The judgment in Bangalore Water Supply & Sewerage Board vs. A. Rajappa and others served as a precedent in various other cases, including S. Thilagavathi vs The Presiding Officer, Labour Court, Madurai & Others. In this case, the Madras High Court determined that the Madurai Children Aid Society qualified as an ‘industry’ under the Industrial Disputes Act, 1947, thus making it subject to labor laws.

Furthermore, the High Court held that professions, clubs, educational institutions, cooperatives, research institutes, charitable projects, and similar endeavors would also fall under the definition of ‘industry.’ Consequently, the outcome of these court rulings, along with the provisions outlined in the legislations themselves, implies that most labor laws are applicable to non-profit organizations (NPOs). Some of these implications are discussed below.

Applicability of the Payment of Wages Act

The Payment of Wages Act guarantees the punctual payment of wages to workers and defines an establishment as any location where manufacturing, trade, or business operations occur. While non-profit organizations may not be involved in manufacturing or trade, they do conduct business activities to fulfill their social goals.

Consequently, under this act, if a non-profit organization hires workers and remunerates them for their services, it can be classified as an establishment, regardless of its profit-making status. Therefore, the Payment of Wages Act is likely to be applicable to non-profit organizations that employ workers and provide them with wages for their work.

Also read: The Unheard Voices of the Migrant Workers Globally

Applicability of the Shops and Establishments Act (Karnataka)

The Karnataka Shops and Establishments Act, governing the working conditions of employees, broadly defines an establishment as any premise where commercial, trading, banking, or insurance activities occur, or services are provided to clients.

Surprisingly, non-profit organizations, despite lacking commercial pursuits, may find themselves subject to this act if they offer services falling within its scope. While the Karnataka Act is specific to the state, equivalent legislation exists across all Indian states, ensuring similar standards are upheld nationwide.

Although the act doesn’t explicitly address non-profit organizations, it encompasses establishments where individuals are engaged in various roles. Therefore, if a non-profit hires workers for tasks aligned with its goals—like administration, accounting, or project management—it could fall under the act’s purview. This means the organization and its employees would be subject to the provisions outlined in the act.

The Act addresses key facets of labor and employment, including appointment orders, working hours, rest periods, overtime, compensation, holidays, and leaves. It mandates that establishments acquire registration under the Act and adhere to its provisions, regardless of whether they employ individuals or not. Compliance with the Act is obligatory, emphasizing its significance in regulating labor practices and ensuring employee welfare.

Applicability of Social Security Legislations

Alongside the Shops and Establishments Act and the Payment of Wages Act, India enforces several social security legislations aimed at safeguarding workers’ welfare. These include the Employees’ Provident Funds and Miscellaneous Provisions Act, the Employees’ State Insurance Act, and the Maternity Benefit Act, among others. These laws play a crucial role in ensuring the well-being and security of employees across various sectors.

The extent to which these social security legislations apply to non-profit organizations primarily hinges on the number of employees they have. For example, the Employees’ Provident Funds and Miscellaneous Provisions Act is relevant to establishments with 20 or more employees, while the Employees’ State Insurance Act pertains to those with 10 or more employees.

Consequently, if a non-profit organization meets the specified employee thresholds, irrespective of its profit status, it becomes subject to these legislations. Therefore, the organization is obligated to adhere to their provisions and ensure compliance accordingly.

Notable Implications of Labour Law Applicability

1. Service conditions must meet or exceed the standards outlined in standing orders or the law.
2. Employees have the right to seek resolution through appropriate labor forums in the event of industrial disputes, such as non-payment of retrenchment compensation or unilateral changes in service conditions.
3. Employees have the entitlement to receive compensation for any injuries sustained during the course of their employment.
4. Employers must contribute 3.25% of gross wages of eligible employees to the Employee’s State Insurance fund.
5. Employers must match the provident fund contribution made by the employee which may not exceed 12% of provident fund wages.
6. Employers are required to provide eligible women employees with 26 weeks of paid maternity leave. Additionally, they should offer creche facilities to their employees.
7. Employers are obligated to provide gratuity payments to employees who have served continuously for a period of five years or more.
8. Employees are entitled to sick leave, earned leave, national holidays, and festival holidays.
9. If women employees in Karnataka are scheduled to work between 8pm and 6am, employers are responsible for providing door-to-door transportation with sufficient security at their expense.
10. If employees are mandated to work more than nine hours in a day or forty-eight hours in a week, they are entitled to receive overtime wages at double the rate of their regular wages.

Labour Laws and Corporate Social Responsibility (CSR)

Ensuring adherence to labor laws is imperative for NGOs seeking CSR funding, as it serves as a pivotal factor indicating their suitability for investment. Corporations often prioritize NGOs that demonstrate compliance with labor regulations during their due diligence process for allocating CSR funds. This emphasis on labor law compliance underscores the significance of ethical and legal standards in the selection of NGOs for corporate social responsibility initiatives.

1. NGOs’ adherence to labor laws bolsters the attainment of United Nations’ Sustainable Development Goal 8, which centers on promoting decent work and fostering economic growth. Companies that endorse NGOs advocating for equitable employment practices actively contribute to sustainable development aligned with international agendas.
2. Corporate Social Responsibility (CSR) endeavors provide companies with a vehicle to fortify their brand reputation and elevate their public image. However, any instances of partner NGOs breaching labor laws can cast a shadow on a company’s standing, leading to heightened public scrutiny, unfavorable media portrayal, and erosion of stakeholder confidence.

Non-compliance and its repercussions

The implications of labor law applicability entail severe consequences for non-compliance, including substantial penalties, damages, and accruing interest rates. Furthermore, non-compliance may result in criminal prosecution of office bearers or authorized signatories, potentially leading to imprisonment of directors. Additionally, NPOs/NGOs face reputational risks that can hinder their funding prospects.

Conclusion

Labor laws in India are chiefly formulated to safeguard the rights of workers. It is essential for non-profit organizations to meticulously assess their operations and seek guidance from legal professionals to ensure adherence to pertinent labor laws, thereby upholding the rights and well-being of their employees.

The Ministry of Home Affairs, Government of India, ought to reassess the situation of development workers in the non-profit sector and enact necessary amendments to the New FCRA Amendment Rules, 2023. Recognizing and supporting reputable non-profits by the Government would significantly contribute to addressing some of the unemployment challenges in India.