A L L S E C T E C H N O L O G I E S

February 2015

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Feb-15 2Allsec SmartConnect

The economic slowdown is tapering offand one can safely say that the BPOindustry has gained relative maturity inthe last few years. Compared to westerneconomies, where there is a burden ofageing population, India is currentlygoing through a demographic dividend i.e. presence of a higher proportion ofworking age population vis--vis its totalpopulation. This means that there is anabundant availability of talent atcompetitive wages and therefore, acomparative cost advantage that offerscompetitiveness to the industry.

With increased competitiveness comeshigher attrition. BPOs are forced tocombat high attrition rates not only forprofitability, but also for quality,consistency and productivity. Most BPOplayers have made significantinvestments in resources to recruit,motivate, reward and retain talent.However, due to its peculiar retention andremuneration strategies, the industrysees many individuals who take on thejob as a an interim job until they havesettled down to a proper career. Generaltalent acquisition strategies includehiring the best-fit resources, normallyfrom 18-32 age groups. Naturally, itbecomes difficult to retain theseresources that are highly competitive,ambitious and transient.

Typically, BPOs look for resources withgood listening, speaking and writingskills, basic computer literacy androunded personalities. Therefore, it isimportant for an organization to hire notjust from the competitive pool ofresources, but also to extend its horizonsto hire talent irrespective of age, race,religion, gender, color, origin, or physicaldisability. As a responsible corporation,we must entertain earnest talent forwhom the job and its remuneration is notmerely a want, but a need.

Bridging the Gap in Talent Acquisition

Feb-15 3Allsec SmartConnect

Sincere and self-motivated people whohave a higher emotional quotient arebetter suited for a BPO job and are morelikely to grow with the organization. Forexample, some BPO players haveextended their hiring strategies tospecifically hire part-time employees,people with disabilities, war veterans, warwidows, etc. without prejudice to age orgender. This has ensured minimumattrition and increased productivity.

In employing these hiring strategies, anHR manager may consider some keydecision drivers such as the employeescareer development, learningopportunities and compensation planningbased on demographic presence. Bytailoring compensation to fulfill morethan just monetary needs, theorganization can ensure constancy ofemployment. It is also pertinent to ensurethat each employee understands andaligns oneself with the largerorganizational values and goals, duringboth recruitment and periodicassessment. At a managerial level, ahealthy balance of skill sets can beensured through promotion of internalresources as well as introduction oflateral talent from varied industries andbackgrounds.

With constantly evolving talentmanagement strategies, it is imperativethat HR managers seek the right talent tomoderate the perpetual demand-supplygap. While the too-much-talent effecthas made sure that the competitive poolof resources always has a job, asubstantial pool of latent talent is yet tobe discovered and developed. Theserecruitment strategies not only help withreduced attrition, but also make sure thatthe organization is socially sensitive andresponsible towards its community.

Bridging the Gap in Talent Acquisition

Feb-15 4Allsec SmartConnect

Compensation is a scientific andsystematic approach of providingmonetary benefit to employees inexchange of their work/performance tothe organization. A good compensationplan helps the organization effectivelyrecruit, retain and motivate employees.

Normally, compensation plan is definedper annum. However, some companiesallow employees to plan and structuretheir compensation on a periodic basis.

Compensation Planning A Brief Note

Configuration Advantages Disadvantages

I. Fixed compensation plan(No flexibility)

A fixed and clear compensation is defined at the time of joining or CTC revision and the employee need not spend time choosing components.

Employee cannot plan his take home amount or taxes. This is suggested only for workmen who are driven by a collective bargaining agreement.

II. Facility to choose flexible baskets for payroll or reimbursements(Limited flexibility)

Employee can elect whether a component has to be paid through payroll or reimbursements. Typically, adeclaration defining his choice is collected from the employee.

Employee cannot choose flexible amounts under each component and should optcomponents completelyeither through payroll or reimbursements.

III. Facility to define amounts under each flexible component within eligibility limits(Fully flexible)

Employee has the option to choose the amount under each component based on his actual expenses. e.g., LTA, he can choose as per his plan and park the balance to special allowance.

No disadvantages where the employee has elected his options carefully. Once opted, amounts cannot be changed during the financial year or CTC revision,whichever is earlier.

IV. Design monthly compensation plan(Ultra flexible)

Employee can structure his salary every month based on his net pay and tax requirements. This is extremely user friendly.

Any change to the salary structure can only be prospective.

An ideal compensation plan consists ofthe following baskets as part of Cost toCompany (CTC): Fixed Salary Flexi basket - reimbursements Retirement / statutory benefits Variable pay Performance based Perquisites

The table below shows a brief comparison of various compensation plans.

Feb-15 5Allsec SmartConnect

Conclusion

Pay and benefits are extremely important to both new and existing employees. A well-structured compensation not only allows people to satisfy their materialistic andrecreational needs, but also serves their self-esteem needs.

Consequently, if an organization's compensation system is viewed as inadequate, someof the best applicants may reject its employment offers, and current employees maychoose to leave, and this gives competing players a marked advantage of a trainedresource. Since one of the major reasons for attrition is monetary satisfaction, it isimportant to manage and reduce such attrition through a well thought-outcompensation planning system.

Compensation Planning A Brief Note

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Life Cycle of ESOPI. The Grant -The employee is given an

option to acquire the shares of thecompany at a price.

II. Vesting - The employee receives anunconditional right to apply for andbe issued shares of the company, oncontinuous employment andfulfillment of criteria.

III. Exercising of option - The employeemay elect to exercise the options atsome point, based on the vestingschedule and maturity of options.

Income Tax ImplicationsUnder the Indian Income Tax Act, 1961,the benefit from ESOP is a perquisitetaxable in the hands of an employeeunder the head Salaries. The benefit isthe differential amount between the FairMarket Value on the date of exerciseand the pre-determined exercise price.The taxable event is triggered on theallotment of shares to the employee.

Pro-rata taxation of Cross Border ESOPsCross border stock options are grantedby a foreign parent company toemployees of group entities worldwide.Due to varying provisions in variouscountries, tax implications of suchoptions in the hands of expatriatesrequire careful analysis. Since the ESOPlifecycle spans different stages includinggrant, vesting, exercise and sale, it iscommon for the expatriates to be

present in different countries during thevesting period. In such cases, thequestion that arises is whether Indianincome tax would be applicable on theentire ESOP benefit or on a pro-ratabasis (only to the extent of servicesrendered by the expatriates in Indiaduring the vesting period).

There are no specific guidelines underthe Income Tax Act, 1961 that governthe pro-ration of ESOP perquisite forincome tax purposes. In the case ofMakarand Gadre vs. CIT(A) [2007 (12)TMI 302], the ITAT held that wherestock options are exercised in India, theincome is said to have accrued in India.It further held that ESOP perquisite canbe prorated based on the proportionateperiod of services rendered in India outof the total period of employment, fromthe date of grant of stock options till thedate of vesting of each grant. However,this applies only if the residential statusof the expatriate in India in the relevantfinancial year is NOR or NR. Where theresidential status is ROR in the year ofvesting/exercise, the entire amount ofESOP perquisite will be taxable in India.In this case, a possibility of claiming arelief under the relevant Treaty to lowerthe impact of double taxation (either inform of foreign tax credit or exclusionof income) may be examined separatelybased on factual circumstances.

Income Tax Implications on ESOP

Employee Stock Options Plan (ESOP) isa benefit plan that provides acompany's workforce with anownership interest in the company.As a part of an their remuneration,ESOP allows employees to owncompanys stock at a specific price.Since the plan offers the employee ashare in the wealth of the company, itinfuses a sense of ownership andloyalty, and therefore serves as a toolto motivate and retain employees.

Feb-15 7Allsec SmartConnect

Upcoming Compliances

Common Compliances

Compliance Due date Under Act Forms Authority

Remittance of

contributions

15th February

15th March

EPF & MP

Act, 1952

Challans

along with

Form 12-A

Concerned

regional office

Entitlement of

every regional

worker with

nationality and

wages (I.W.S)

15th February

15th March

EPF & MP

Act, 1952

Form 5

along with

declaration

in Form 2

Concerned

regional office

Remittance of

contributions

21st February

21st March

ESI Act,

1948Challans

Concerned

branch office

Return of

employees

qualifying for EPF

& aggregate of

contributions

25th February

25th March

EPF & MP

Act, 1952

Form 5, 10

and 12 A

Concerned

branch office

Quarterly return

for quarter ended

31st March

31st March

Employment

Exchanges

(CNV) Act,

1959

Form ER-1

Rule 6

Local

employment

exchange

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