[Jayavardhini S is a third year B.A., LL.B. (Hons.) student at National University of Advanced Legal Studies, Kochi.]
India’s gig workforce is expanding so rapidly that it is projected to encompass roughly 23.5 million individuals or roughly 4.1% of all livelihoods in India by the year 2030. This is the booming reality of India’s rapidly expanding platform economy that already commands US$1 billion share of the global market and has the potential of contributing up to 1.25% to the country’s GDP in the long term.
As technology platforms expand, corporate boards increasingly rely on Employee Stock Option Plans (ESOPs) to align incentives, foster loyalty and drive long term value-creation. However, when companies try to extend equity ownership to delivery partners, service professionals and educators who contribute to the company’s long-term success, they confront a legal paradox. For example, an online learning platform such as a tutoring marketplace may depend heavily on independent educators who conduct live classes, prepare learning materials, and collectively teach thousands of students, thereby generating substantial subscription revenue for the platform; yet these educators are not legally classified as employees and therefore cannot be granted ESOPs under existing frameworks. Although they contribute significantly to enterprise value, they remain outside the employee-centric framework governing ESOPs.
The resulting framework is deeply fragmented. On one side, SEBI has modernized its approach by expanding the scope of eligible recipients under its share-based benefits regime by extending eligibility to certain contractual and gig workers. On the other hand, the Companies Act continues to restrict statutory ESOPs in unlisted companies to permanent employees. Labour jurisprudence scrutinises platforms that blur the distinction between independent contractors and employees and looks beyond contractual classifications to determine whether gig workers are employees. As a result, companies seeking to reward gig workers with equity will find themselves being caught between an enabling securities regime and restrictive corporate and labour law frameworks.
The dilemma that platform workers face is both legal and commercial. While extending the equity-based incentives to gig workers promotes inclusion, ownership and long-term value creation, doing so with the existing legal framework creates a significant risk called “worker misclassification”. The grant of stock options may be used as evidence of employer-employee relationship thus exposing platforms to claims of worker misclassification, statutory employment obligations, tax liabilities and regulatory scrutiny. Companies must therefore balance the benefits of equity participation against the risk of undermining their independent contractor model. Against this backdrop, the article examines how platforms have structured alternative equity models to navigate these constraints. It also analyses the tax and financial risks associated with gig worker equity and proposes a legally compliant framework that enables broader ownership without compromising the independent nature of platform work.
The Regulatory Divide Between Listed and Unlisted Start-Ups
A significant shift occurred with the notification of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 which replaced the 2014 regulations. Regulation 2(1)(i) removed the requirement that an eligible employee should be a permanent employee thereby broadening the scope of individuals who can participate in share-based benefits schemes. Subsequently SEBI clarified its intent through its Frequently Asked Questions dated 16 November 2021 and Informal Guidance issued in January 2023 confirming that contractual, part-time and certain gig workers may be considered eligible employees, provided they satisfy the conditions prescribed under the Regulations.
However, regulation 2(1)(i) requires recipients to work exclusively for the listed company or its group entities, which significantly limits its usefulness for gig workers, who usually deal with multiple platforms at the same time. In practice, this makes it difficult for delivery drivers, ride-hailing drivers, and other platform workers to operate across multiple platforms simultaneously, not just one. So, even if SEBI’s framework has expanded who counts as eligible beneficiaries, the practical value still remains, mostly, rather narrow.
Under section 2(37) of the Companies Act, 2013 the position is comparatively more restrictive for unlisted companies as it is defined as a right granted to the directors, officers or employees of a company. Furthermore, section 62(1)(b), read with rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 limits statutory ESOPs to permanent employees and specified directors.
Unlike SEBI, the Ministry of Corporate Affairs has not amended Rule 12, leaving unlisted platform companies unable to extend statutory ESOPs to gig workers. This is a regulatory mismatch because listed companies get a limited path to pass along share-based benefits to specific non-traditional workers. However, the same kinds of businesses, when unlisted, remain constrained by a narrower statutory framework under the Companies Act, 2013.
Judicial Approaches to Worker Classification
Indian courts have consistently held that the classification of employer-employee relationship depends on the substance of the relationship rather than terminology adopted by the parties. A number of tests have been developed by the judiciary to determine employee status.
In Dhrangadhara Chemical Works Ltd. v. State Of Saurashtra, the Supreme Court held that employment depends on the degree of supervision and control exercised over the manner of work. The “totality of the relationship” idea, as in the case of Balwant Rai Saluja v. Air India Ltd where the Supreme Court held that employment status cannot be decided by just one factor. Instead, the full picture needs to be analysed such as who has the power to appoint and dismiss, whether remuneration is paid, how supervision and control operate, the economic dependence and in what way the worker is integrated into the employer’s business.
Similarly in the case of Ms.( X) v. Internal Complaints Committee, ANI Technologies Pvt. Ltd., the court examined the realities of the relationship between Ola and its drivers and observed that since the platform exercised significant control over fares, ride allocation, performance monitoring and account deactivation, the drivers could be treated as employees for the purpose of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. All these judicial decisions indicate a preference by the courts for examining the factual realities of a platform rather than relying exclusively on contractual labels.
Recognition Without Employment
The legislative framework shows the same tension, and it is not fully resolved yet. The Code on Social Security, 2020, is the first major legislation to expressly recognize gig workers and platform workers under sections 2(35) and 2(61), respectively. Still, the Code only pulls those workers in for the purpose of social security, not for recognition as employees. It does not confer employee status, nor does it extend the broader protections you typically see in labour laws, whether that be wages, industrial relations, or conditions of employment.
This approach is also seen in several states. The Rajasthan Platform-Based Gig Workers (Registration and Welfare) Act, 2023, the Karnataka Platform-Based Gig Workers (Social Security and Welfare) Act, 2025, and the Bihar Gig and Platform-Based Workers (Registration, Social Security and Welfare) Act, 2025 put in place welfare mechanisms via registration systems, welfare funds, and platform contributions. Still, these enactments stop short of acknowledging gig workers as employees, and they instead keep the contractor model intact.
The cumulative effect of these legislative developments is that gig workers are getting more statutory recognition and also some limited welfare protections, but without acquiring employee status, or at least not in the usual corporate sense. Even though the law has begun to acknowledge the distinctive nature of platform work, the question of whether gig workers may participate in statutory ESOPs remains unanswered.
Innovative Equity Models for Gig Workers
In the absence of a statutory mechanism that specifically permits ESOPs for gig workers, a number of companies have adopted other frameworks that sit outside the usual ESOP setup. Rather than leaning on the more conventional section 62(1)(b) of the Companies Act, 2013, some companies have used preferential allotments under section 62(1)(c), or have adopted trust-based arrangements, to roll out equity-linked incentives for independent contractors without officially treating them as employees. The idea behind these models is to recognize ongoing, long-term contributions while also reducing the risks of worker misclassification.
This approach has been reflected in market practices; for example, in 2021, Unacademy introduced its Teachers Stock Option Plan (TSOP) for educator partners through a contractual model. Urban Company then went on to launch a trust-based Partner Stock Ownership Plan (PSOP), allowing service professionals to participate in the company’s value creation without relying on the statutory ESOP regime. Similarly, BrightCHAMPS extended stock-linked incentives to its teacher partners through a more tailored TSOP. Overall, these efforts show that even with the limits of the Companies Act, innovative contractual frameworks can help gig workers gain equity participation while preserving the contractor model in place.
Challenges and the Road Ahead
Giving gig workers more equitable access can help advance financial inclusion and improve long-term motivation, but it also brings legal and financial headaches. Section 17(2)(vi) of the Income Tax Act, 1961 states that once stock options are exercised, they are treated as a perquisite even though the actual shares are still illiquid or just convert. The workers end up facing tax obligations, but there is no real liquidity to cover the payments. Furthermore, startup valuations can fluctuate erratically, and those restrictive post-termination exercise windows strip away the practical usefulness of equity compensation, which is difficult to ignore.
Thus, a balanced regulatory approach becomes essential wherein unlisted companies consider alternative equity structures such as trust-based arrangements and preferential allotments under section 62(1)(c) of the Companies Act, 2013 to extend ownership-related benefits without compromising the independent contractor structure. Mechanisms like cashless exercises, deferred taxation until a liquidity event, and periodic buybacks or liquidity windows would ease the financial burden on workers. Lastly, vesting conditions (the rules for when workers earn their shares) should be based on clear and measurable performance goals. They should not be designed in a way that is only meant to avoid legal signs of an employer-employee relationship. Taken together, these steps would allow more people to participate in equity while still keeping commercial innovation and legal certainty within the same framework.
– Jayavardhini S