Corporate Social Responsibility Benefiting Employees (CSR) Series – Part 1

Corporate Social Responsibility (CSR) activity means an activity undertaken by a company in pursuance of its statutory obligation laid down in Sec 135 of the Companies Act.

The Corporate Social Responsibility (CSR) Amendment Rule 2021 vide Rule 2(d)(iv) excludes the activities benefitting employees of the company from the ambit of CSR activities under the Act.

An attempt has been made in this article to highlight the Frequently Asked Questions and its answers  discussed d by the learned experts on various forums and webinars.

STATUTORY PROVISION: Corporate Social Responsibility (CSR) means the activities undertaken by a company in pursuance of its statutory obligation laid down in section 135 of the Act under the provisions contained in these rules, but shall not include activities benefitting employees of the company as defined in clause (k) of section 2 of Code on Wages, 2019 (29 of 2019) – Rule 2(d)(iv) of CSR Rules 2021

“Employee” means, any person (other than an apprentice engaged under the Apprentices Act, 1961), employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical, or clerical work for hire or reward, whether the terms of employment be express or implied, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union – Clause (k) of section 2 of Code on Wages, 2019 (29 of 2019)

FREQUENTLY ASKED QUESTIONS:

1

 

 

Whether the CSR projects that benefit only the employees and their families shall be considered as CSR activities?

NO, The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities under section 135 of the Act.

Vaccination facilities provided for employees and their families in the company premises shall not be considered as CSR.

2 Whether the CSR projects that benefit the Apprentice shall be considered as CSR activities?

YES, The apprentices are not the employees as per the Wage Code Act. However, activities that benefit the Apprentice towards statutory compliance under any act will not be covered under CSR activities

The vaccination program, medical facilities for apprentices are considered as CSR activities

3. Whether the Medical health camp for the company’s unskilled labour is covered as CSR activity under the Act and Rules?

NO, Medical camp exclusive for the unskilled labour hired by the company shall not be permitted as a CSR activity. This is because unskilled workers are covered under the definition of employees as per Clause 2(k) of Wage Code 2019

4 The company bears the cost of vaccination to contract labour & family covered under CSR activity?

NO, the definition of employee under Wage Code covers contract labour, and activities benefitting employees are excluded from the list of CSR activities.

5 Whether the payment of salary/wages to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies?

NO, the payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers and shall not qualify as admissible CSR expenditure-MCA circular No. 15/2020 dated 10 Apr 2020.

6. Payment of wages made to casual /daily wage workers during the lockdown period can be adjusted against the CSR expenditure of the companies?

NO, Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and shall not count towards CSR expenditure- MCAcircular No. 15/2020 dated 10.04.2020.

7 Payment of ex-gratia to temporary /casual /daily wage workers shall qualify as CSR expenditure?

YES, if any ex-gratia payment is made to temporary/casual workers/ daily wage workers over and above the disbursement of wages, specifically to fight COVID 19, the same shall be admissible towards CSR expenditure as a one-time exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

8 The employees getting benefits from CSR activity meant for the general public to be considered CSR under the Companies Act?

In case the activity is intended to provide generic benefit to the public and large and the employees also get benefited in the process, the Rule does not intend to discard such activity as a CSR activity.

In the draft rules, it was proposed that the activities which have less than 25% employees shall be deemed to be CSR activity. This proposal has been dropped in the Final Rules.

An awareness program conducted by the company general public attended by some employees staying in that area shall be still considered as a CSR activity.

9 Whether salaries paid to CSR staff and volunteers are considered as part of CSR expenditure?

Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to the company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure.

10 Whether CSR spending of Indian subsidiary company will include expenditure by Foreign Holding Company?

Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries

Disclaimer: The contents of the article is for education purpose only.

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