Labour Laws

All You Need to Know About the Labour Codes in India

calendar08 Nov, 2022
timeReading Time: 9 Minutes
All You Need to Know About the Labour Codes in India

Recently, India surpassed the United Kingdom (UK) to become the fifth-largest economy in the world. Despite being the fastest-growing major economy in the world, however, it lags far behind other nations or countries when it comes to per capita GDP. In India, Labour plays an essential role in recognising India’s economic growth. Unfortunately, India has been operating with an old & asynchronous statutory framework that has slowed worker welfare in India. So, the Indian Government and various State Governments have been taking various measures to promote ease of doing business in India. The Central Government of India proposed New Labour Codes; if these codes are implemented in a proper manner can have a far-reaching impact towards reducing the compliance burden on corporates without compromising the welfare of the workforce. Scroll down to check more information regarding Labour Codes in India.

Implementation of the Labour Codes in India

As a step towards implementation of the Labour Codes in India out of 30 States & 8 Union Territories, the following number of UTs or States in India have pre-published draft rules for the Codes:

  1. 27 States or Union Territories under the Code on Wages, 2019;
  2. 23 States or Union Territories under the Industrial Relations Code, 2020;
  3. 21 States or Union Territories under the Code on Social Security, 2020;
  4. 18 States or Union Territories under the Occupational Safety, Health & Working Conditions Code, 202o.

However, implementing the new Labour Codes in India seems to have been delayed. On March 21, 2022, a press release issued by the Ministry of Labour & Employment provides an update on the New Labour Codes’ progress but doesn’t contain details regarding the effective date.

An Overview of 4 Labour Codes in India

Following are the four new Labour Codes in India:

Code on Social Security, 2020 – Labour Codes in India

The Code on Social Security seeks to change & consolidate the laws concerning Social Security to extend Social Security (SS) to all employees & workers either in the unorganised or organised or any other sectors.

It incorporates 9 legislations:

  1. The Employees’ Compensation Act, 1923;
  2. The Employees’ State Insurance Act, 1948;
  3. The Payment of Gratuity Act, 1972;
  4. The Cine Workers Welfare Fund Act, 1981;
  5. The Building & Other Construction Workers Welfare Cess Act, 1996;
  6. Unorganised Workers’ Social Security Act 2008;
  7. The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952;
  8. Employment Exchanges (Compulsory Notification of Vacancies) Act 1959;
  9. Maternity Benefit Act 1961.

The main features of the Code on Social Security, 2020 are:

  1. According to Section 3 of the Code, it is not compulsory to get Registration if the industry establishment or premise is already registered under any other CLL or the Central Labour Law.
  2. The meaning of employee was introduced & is applicable across all parts of the Code.
  3. Section 4 of the Code facilitates the enforceability of social security organisations & their constitution. It is needed for fund administration for different types of workers.
  4. According to Section 125 of the Code, a fixed limitation time period of 5 years will be set, comprising inquiries & proceedings for the determination of the money dues of an employee.
  5. The Central Government may reduce or defer the employee’s or employer’s contributions (under ESI & PF) for up to 3 months in the case of an endemic, national disaster, or pandemic.
  6. Definitions for a home-based worker, platform worker, fixed-term employment, self-employed worker & gig worker have been provided.
  7. Fixed-term employees or workers shall be subjected to payment of gratuity on the basis of pro-rata by the employer. The gratuity time period has been further reduced from 5 to 3 years for working journalists.
  8. Aggregators have been introduced in the Code as a marketplace or a digital intermediary for a user or buyer of a service to connect with the service provider or the seller. As specified under Schedule 7 of the Code, the list of all the aggregators shall contribute 1% to 2% of their yearly turnover to the Social Security Fund.
  9. The Code specifies penalties for certain offences like:
    • Illegally deducting the contribution of the employer from the employee’s wages has been changed from the imprisonment of 1 year or a fine of Rs. 50,000/-;
    • Maximum imprisonment or jail for obstructing an inspector from performing their duty has been lessened from 1 year to 6 months.

Occupational Safety, Health & Working Conditions Code, 2020 – Labour Codes in India

This Code seeks to regulate the health & safety conditions of workers or employees in establishments with 10 or more workers and all mines & docks. It incorporates 13 legislations:

  • Factories Act, 1948;
  • Mines Act, 1952;
  • Dock Workers Act, 1986;
  • The Plantations Labour Act, 1951;
  • Contract Labour Act, 1970;
  • Working Journalist (Fixation of Rates of Wages) Act 1958;
  • Motor Transport Workers Act 1961;
  • Sales Promotion Employees (Conditions of Service) Act, 1976;
  • Beedi & Cigar Workers (Conditions of Employment) Act, 1966.
  • Inter-State Migrant Workers Act, 1979;
  • The Working Journalist & Other News Paper Employees (Conditions of Service & Miscellaneous Provision) Act, 1955.

The Code applies to the following:

  1. Workers & all other individuals engaged in an administrative, managerial, or supervisory role (with monthly wages of at least Rs. 15,000/-);
  2. Establishments employing at least 10 workers & irrespective of the number of workers in all docks & mines;
  3. Contact Labour engaged via a contractor in the offices of the State and the Central Government;
  4. Specific provisions of the Code, like working & health conditions, apply to all employees, excluding apprentices.

The following are the crucial features of the Occupational Safety, Health & Working Conditions Code, 2020:

  1. All the establishments must provide bathing places, locker rooms & washrooms for male, female & transgender employees or workers.
  2. Employers are required to conduct annual health check-ups for the employees to promote formalisation at the workplace.
  3. Special provisions specify leave requirements & working hrs for workers employed in journalism, transport & sales.
  4. Provisions are included concerning the women’s employment between 7 PM to 6 AM with conditions concerning their consent & safety, holidays and working days. If the women’s employment is dangerous for their safety & health, the employer will provide protection to them before their employment.
  5. Provisions have been introduced for the employer to take consent or approval from the employee for OT (Over Time) work. It will apply to a small establishment also with up to 10 workers. Moreover, the workers shall get twice the wages for their overtime work.
  6. The employer shall compulsorily issue an Appointment Letter (AL) to the employee to promote formalisation at the workplace.
  7. Leave encashment during dismissal or discharge, superannuation or death at the time of employment is laid out under Section 32 of the Code. Provisions concerning leave encashment are available at the end of the calendar year. The Code gives for carry-forward of leaves in case a worker doesn’t avail of the leave allowed to him or her in any calendar year. However, the total number of leaves that may be carried forward cannot exceed 30 days & any leave with wages that have been declined can be carried forward without limit.
  8. This Code prohibits contact labour in core activities except where:
    • The activities are such that they don’t require full-time workers for a specific portion of the day;
    • There is an unexpected increase in a load of work in the core activity, which should be completed in a given time;
    • The general establishment functioning is such that the activity is normally done via a contractor.

Code on Wages, 2019 – Labour Codes in India

This Code seeks to regulate bonus & wage payments in all employments where any trade, business, industry, or manufacture is carried out. The Code will apply to all the employees and the Central Government of India will make wage-related decisions for employment like mines, railways & oil fields. State Governments in India will make decisions for all other employees. It incorporates 4 legislations:

  1. The Minimum Wage Act,
  2. The Equal Remuneration Act,
  3. The Payment of Wages Act,
  4. The Payment of Bonus Act, 1965.

The main features of the Code on Wages, 2019 are:

  1. The Central or State Government shall not exceed 5 years to revise minimum wages.
  2. As per the conditions applicable in the Code of Wages, the employer/worker shall pay wages not less than 50% of the total remuneration. The computation of wages will comprise retaining allowance, basic pay & dearness allowance and it excludes conveyance, overtime allowance, house rent allowance, statutory bonus, conveyance, and commissions. A minimum 50% of the Cost-to-Company shall comprise basic pay & dearness allowance.
  3. The employees whose wages do not surpass a definite monthly amount are eligible for an annual bonus of a minimum of 8.35% of their wages/Rs. 100/-, whichever is higher. According to the Code, an employee can get a maximum bonus of 20% of their annual wages.
  4. The Payment of Wages Act applies to employees only under wages less than Rs. 24,000/month. This threshold limit is being removed under the Code on Wages now. Therefore, the Code on Wages shall apply to all employees irrespective of monthly wages.
  5. The Code provides a usual definition of the Wages term as opposed to the various definitions specified under the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 & the Minimum Wages Act, 1948.
  6. The Central & State Governments shall constitute Advisory Boards as per the Code’s provisions. The Central Advisory Board shall include members representing employees & employers, including independent individuals and 5 State Government representatives. The State Advisory Board shall include representative members of employees & employers comprising an independent individual.
  7. According to the Code, the Central Government of India will fix the floor wage, considering workers; living standards. Remember that the floor wages will be different for different locations.
  8. The minimum wage decided by the State or Central Governments must be higher than the floor wage. In case the minimum wages fixed by the State Government or Central Government are higher than the floor wage, they cannot lower the minimum wages.
  9. The employer has the right to deduct wages, including absence from duty, fines, and accommodation given by the employer/the advance payment made to the employee. Remember that the deductions shouldn’t be more than 50% of the total wage of the employee.
  10. It prohibits employers from paying fewer wages than the minimum wage. The State or Central Governments, as the instance may be, must notify minimum wages based on the following:
    • Workers’ skills;
    • Work difficulty;
    • Time or number of pieces produced.
  11. State Advisory Boards (SABs) will consist of employees, employers & independent persons. Further, 1/3 of the total members of the State Boards & Central Boards will be women. The State and Central Boards will advise the appropriate Governments on various issues comprising:
    • Increasing employment opportunities for women;
    • Fixation of minimum wages.

Industrial Relation Code, 2020 – Labour Codes in India

This Code seeks to simplify the compliance process & promotes ease of doing business. It incorporates 3 legislations:

  • The Trade Unions Act, 1926;
  • The Industrial Disputes Act, 1947;
  • The Industrial Employment (Standing Orders) Act, 1946.

The Code applies to establishments in accordance with the formation of Unions & Committees:

  1. The appropriate Government in India may order to constitute a Work Committee the employer having an establishment where 100/more workers are employed/have been employed on any day in the preceding twelve months;
  2. The Standing Orders (SOs) apply to every industrial establishment where 30/more workers are employed/were employed on any day of the preceding twelve months;
  3. Any Trade Union having 7/more members may register under the Code digitally or otherwise;
  4. Industrial Establishments with 20/more workers shall have one or more GRCs (Grievance Redressal Committees) to resolve disputes or arguments arising from individual grievances.

The following are the features of the Industrial Relation Code, 2020:

  1. The Industrial Relation Code, 2020 (under Labour Codes in India) has introduced a Sole Negotiating Union or SNU in establishments with more than 1 Trade Union. A sole negotiating union must have 51% / more workers or members as per Section 14 of the Code. Only an exclusive negotiating union shall be allowed to negotiate terms with the employer. If there are no eligible sole negotiating terms with the employer.
  2. This Code provides provisions for workers or employees to secure employment after being laid off. A fund shall be initiated, including contributions from the employer & the appropriate Government.
  3. The mechanism for settling industrial disputes shall be formed by the Central Government of India, comprising a National Industrial Tribunal & one or more industrial tribunals.
  4. It is now compulsory under the Code to approach the grievance or compliant redressal committee in case of any grievance or complaint. An inquiry, along with its investigation, should be completed within 90 days. The time limitation begins from the suspension date of the worker.
  5. The workmen terms are renamed & replaced with the worker in the Code.
  6. The Code introduces definitions of both employee & fixed-term employment.
  7. The Standing Orders (SOs) only applied to a threshold above 100/more workers in accordance with the Industrial Establishment Standing Order Act (IESOA), 1946. The threshold of SO (Standing Order) has now been further increased from 100 to 300 workers.
  8. The definition of Strike terms is now denoted as mass casual leaves by more than 50% of workers on a specific day.
  9. No individual shall go on lockouts & strikes in violation of the contract:
    • At the time of pendency of proceedings before a Tribunal or NIT (National Industrial Tribunal) & 60 days after the conclusion of such proceedings;
    • Within 14 days of giving such notice;
    • At the time of the pendency of any conciliation proceedings before a conciliation officer & 7 days after the conclusion of such proceedings;
    • Without giving notice to the employer regarding lockout or strike, as hereinafter provided, within 60 days before striking;
    • Before the expiry date of lockout or strike specified in any such notice;
    • At the time of the pendency of arbitration proceedings before an arbitrator & 60 days after the conclusion of such proceedings.

Impact of New Labour Codes in India on India’s Workforce

The following is the impact of New Labour Codes in India:

  • Decreased Working Hours: The maximum daily working hours have been reduced from 9 hrs to 8 hrs, although the maximum daily hrs inclusive of rest intervals have increased from 10.5 hrs to 12 hrs. The reduction in daily working hours and the increase in total spread over will permit longer rest intervals for workers, possibly leading to greater productivity levels.
  • Flexibility in Leaves: The leaves have been rationalised under the new Labour Codes in India. Under the Factories Act, of 1948, a holiday should be given on Sunday unless a compensatory holiday (with prior consent from authorities) is given either 3 days before/after such Sunday. The compensatory holiday should be planned so that the worker doesn’t work for more than 10 consecutive days. On the other side, the new Codes mandate that a worker shall be eligible for at least 1 leave/week, removing the complex provisions on compensatory holidays & providing higher flexibility in granting leaves.
  • Broader Applicability: The applicability under the new Codes has been broadened to comprise more establishments & workers. For example, while the Minimum Wages Act, 1948[1] applied to workers only in scheduled employment, the Codes on Wages, 2019 is applicable to all employees & establishments. The threshold applicability limit of Rs. 24,000 under the Payment of Wages Act, 1936, has been removed. Similarly, the EPF Act, 1952, applied to scheduled employment only prescribed in the portal. The Code removes this industry-specific applicability criterion.
  • Lower Net-Take Home Salary: Under the new Labour Codes in India, the basic wage component cannot be less than 50% of the total remuneration & hence, the sum of excluded components shouldn’t be more than 50% of total remuneration. This will have 3 board implications. First, contributions towards PF and Pension will likely increase. Second, employees will get minor allowances (excluded from basic pay) since these cannot surpass the 50% threshold. In general, the net take-home salary of the employee will reduce.

Conclusion

The roll-out of the Labour Codes in India has been considerably delayed as all 36 States and Union Territories haven’t been notified of state-specific rules. Even after 2 years of their enactment, there is no such clarity as to when they will be implemented. As a result, the benefits granted to workers under the Labour Codes in India have been deferred indefinitely. With India reaching new heights on the world economic front, the benefits or advantages of this progress must be equally distributed across the country’s workforce. 

Read Our Article:Contract Labour Act: A Synopsis of Key Provisions

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