Do firms’ Covid spend on staff count as CSR?

The government recently allowed corporates to vaccinate their employees at their premises. This decision has led to many companies chalking out plans to get their staff and their immediate families inoculated against the novel coronavirus.

While there is a section that believes that responsible companies should in any case spend on employee vaccination, another set feels it should be considered a social responsibility and, therefore, a part of Corporate Social Responsibility (CSR).

Legally speaking, vaccination of employee cannot qualify as CSR for the simple reason that as any amount spent by a company on its employees, contractors, business associates or anyone directly or indirectly associated with it is something that will benefit the corporate.

“The government’s view is that at present if a company is undertaking a vaccination drive for a community then it will be considered as CSR, but if it is doing it exclusively for its employees then it is not CSR,” Devesh Prakash, Partner, Financial Accounting Advisory Services, EY India, said.

India became the second country, after Mauritius, to mandate CSR spending by introducing specific provisions through Section 135 of the Companies Act, 2013. Over the years, these provisions have under gone changes.

In March 2020, the Ministry of Corporate Affairs had said that spending on Covid-19 would be treated as an eligible CSR activity and the coronavirus outbreak will be treated as a notified disaster. In August 2020, the MCA went a step further to treat research and development spend on Covid vaccine, drugs and medical devices as an eligible (subject to certain conditions) CSR spend. In January 2021, the MCA allowed companies to spend their CSR funds for carrying out awareness campaigns/programmes or public outreach campaigns on Covid.

On April 22, it clarified that “setting up makeshift hospitals and temporary Covid-care facilities” is an eligible CSR activity.

Legal framework

As Aseem Chawla, Founder, ASC Legal Solicitors & Advocates, puts it, “The legal framework should be enabling in nature. The legislature should revisit its stand on permitted CSR activities as this truly is a social responsibility.”

According to Preeti Malhotra, Chairman, Smart Bharat Group, and Chairperson, Assocham National Council of Company Law, Corporate Governance & CSR & Audit Committee, “The CSR circular focusses on disaster management and the development and creation of makeshift hospitals and temporary shelters — and rightly so. However, while there is a lot of focus on disaster management, there also needs to be more focus on preventive care which is also included in Schedule 7 of the Companies Act.”

There are those who believe that employee health, safety and wellness is not a “social” responsibility of a corporate. But many also feel that the idea is to encourage corporates to spend a percentage of their profits for larger community development.

“Vaccination is the need of the hour and the faster we vaccinate the better will be the eventual outcome. For offices to get back to working, factories to start running again and getting the economy back on track, Corporate India has to, and indeed wants to, participate in this drive,” said Nitin Sethi CEO, India & South Asia, Aon.

“Not only will this increase the pace but also build more confidence in the vaccination programme and bust myths that may exist against inoculation. For companies, getting employees, their families and, in some cases, even stakeholders, partners or the community at large vaccinated is not just about CSR but an investment in putting the business back on track for which they will happily take on the responsibility,” he added.

“Given the unusual pandemic situations, it would be useful to extend the definition as it helps the government, the employee as well as the employer. It helps the government agenda of wider reach. From an employee perspective, it is timely vaccination at a safe place. And, from an employer perspective, if we look at service sector, then it helps the country, and if we look at the manufacturing sector, especially MSMEs which have an underprivileged labour class, they will get vaccinated without any glitch. Corporate India has also stepped up to support their employees so their expectation is also as such to expand the definition,” says Prakash of EY India.

Preeti Malhotra explains, “As a part of preventive care, it is imperative that companies focus on employee vaccinations too. Companies that are giving vaccinations to employees, to contractual labourers, their families and their communities, etc., must be allowed to include this in their CSR activity because vaccinations can ensure that people are not affected. While the government policy did not allow expenditure on employees to be considered as a part of the allowable CSR activities, Covid has to be considered an exception. Also, companies must set up facilities to support access to doctors, right medication at the appropriate time for employees and larger communities who have tested positive for Covid. Education and awareness of Covid protocols and treatment can be critical in preventive care.”

While all agree that the Central and State governments are providing support with many initiatives and programmes, , are they enough and are they adequately reaching remote locations?

“Plus, the demand for support is far more than the current facilities/supplies. Allowing vaccination and preventive care as a part of CSR will in fact help the government as it will put the onus on the employer to reach the least common denominator while, at the same time, ensuring that the manufacturing workforce is saved from the worst of the pandemic,” Malhotra added.

A clarification from the MCA is much needed.

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