GST (Goods and Services Tax) has proved to be blessing for flexi-staffing industries, with the introduction of input tax credits boosting jobs and growth.
The input tax credit benefit under GST prompted companies to increase their hiring of temp employees such as sales and support staff, resulting in an up to 60% annual growth for staffing firms such as Team Lease Services, Ikya Human Capital Solutions (a division of Quess Corp.), Randstad, Kelly Services, Adecco and Spectrum Talent Management.
Ecommerce, IT/ITeS, retail and FMCG are the sectors leading the charge in the flexi-staffing space since GST was rolled out on July 1 last year. Telecom, hospitality, manufacturing and banking, financial services and insurance companies are also increasing their outsourcing of staff.
The Indian contract-staffing industry grew 10% to Rs 33,000 crore and employed almost 3 million temp staffers during 2017-18.
How does GST impact the flexi-staffing industry?
Flexi-staffing in India is both organized as well as unorganized, with the latter having a pricing advantage due to exemption from service tax and compliance burdens. Under the pre-GST era, organized flexi-staffing agencies needed to comply with applicable labor laws, and pay service tax at the rate of 15 percent.
However, the GST regime changes this, bring in much needed pricing parity between organized and unorganized agencies by eliminating the pricing advantage enjoyed by unorganized agencies. The GST rate for staffing agencies is pegged at 18 percent for both organized as well as unorganized firms. GST rules also allow firms that avail services of staffing agencies to benefit from input tax credit. This benefit may only be availed if the staffing firm is registered and pays tax to the government.
Due to the input tax credit benefit under GST, it is expected that firms will move towards hiring from organized agencies, and unorganized agencies will be forced to become organized in order to survive in the market. This will make the industry move towards stricter compliance with applicable laws and improved working conditions.
Source- Economic Times and India Briefing.