All about Labour Codes in 10 minutes

While the government seeks to implement these new labour codes by July 1, many states are yet to ratify these regulations and publish draft rules, which is a must before they can become effective. However, certain provisions of the Code in relation to minimum wages and the Code on Social Security, 2020 pertaining to identification of employees and their beneficiaries for provisions of statutory benefits through Aadhaar Card have already been operationalized.

This will be the largest and most impactful shift in the Indian labour law paradigm since independence.?

Inclusion of workers in unorganized sector, Gig workers and Fixed-term employees within the ambit of social security coverage are amongst the commendable reforms under the aegis of these labour codes.

• Subsumes 29 Labour Acts in to 4 Codes
• While new codification has left many existing laws intact, it also introduces some reforms that could result in more significant changes to the future employee pay and benefit
• Aims to bring in uniformity in definitions of various terms across all the four Codes e.g. definition of the term "Wages"
• Promotes ‘Ease of doing business’???

What all will these codes change?

1.??????Uniform definition of the ‘Wages’ across codes –

Code of Wages redefines the term ‘Wages’ to be uniformly used across the 4 Codes.

This change intends to curb, a widely spread practice in the private sector, to lower the basic salary and hence the PF contribution to increase the take home salary. Code has not defined or recognized the concept of Cost to Company (CTC), instead it mandates the part of emoluments on which PF contribution (and other statutory dues) will be made both by employer and employee specifying ‘Inclusions’ and ‘Specified Exclusions’ from wages. This will certainly increase cost in some organizations. Government has cleverly mentioned that ‘specified exclusions’ cannot exceed ‘half or such other percentage as may be notified’ which means it may begin with a lower percentage and increase up to 50% in 2-3 year’s time. While such a mauver will give organizations additional time to correct their salary structures, it will also help in bringing acceptability for these codes initially.

Government is cognizant of the fact that this may bring down the take home salaries to some extent. However, it attempts to check it when it restricts the various deductions not to exceed 50% of wages.

No doubt that Labour Ministry has made a lot of effort in understanding the salary structures prevalent in private sector and am sure must have had enough surprises with respect to their understanding and interpretations of the written text in law books. There are still some questions remaining unanswered. There could be many components which are said to be linked with performance but actually no real performance is expected to earn them. For example – Incentive payouts with no periodicity mentioned, quarterly payouts etc. ?This will be beginning of new era and we’ll see some new innovative salary structures, components to dodge the new rules.

2.??????Introduction of Floor Wages –

Wage code propose the introduction of the concept of ‘Floor Wages’ which means that central government will prescribe floor wages for different categories of workers. State can, however, prescribe higher wages but states where it is already higher than floor wages, cannot reduce it to the level of floor wages as prescribed by the Central Government.

Floor wages intends to alleviate disparity in wages across states causing mass labour migrations. Besides smaller states where minimum wages are on the lower side, there are states with strong industrial activities e.g. Gujarat. Introduction of floor wages will impact them heavily not only in terms of additional costs but also losing cost advantage.

3. Employee to include managers as well now –

New definition of the ‘employee’ in the 4 labour codes are typically similar and fairly broad to include persons who are “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”.

4.??????Gratuity to Fixed Term Employment-

The mandatory employer provision of a defined benefit gratuity scheme (GS) end-of-service payment will be extended to employees on fixed-term employment contracts, on a pro rata basis without the need to complete five years of service (which is required for permanent staff in the case of retirement or resignation).

5.??????Overtime –

Employees in supervisory and managerial roles are also eligible for overtime wages now. New Code provide for an increased number of overtime hours to 125 per quarter from earlier of 50 hours per quarter. Increase in permissible overtime hours, while provide room to accommodate 12 hours working day, it will not only increase cost disproportionality but also reduce productivity.?

6.??????Gig & Platform Workers-

A social security fund will be set up to provide welfare benefits to gig and unorganized workers (home-based and the self-employed). Benefits will include maternity, cash benefits in case of sickness, a termination indemnity (after five years of insured service) and compensation in the case of occupational injury or illness.

7.??????Early settlement of dues –

The Code on Wages, 2019 says, “Where an employee has been - (i) removed or dismissed from service; or (ii) retrenched or has resigned from service, or became unemployed due to closure of establishment, the wages payable to him shall be paid within two working days of his removal, dismissal, retrenchment or, as the case may be, his resignation."

In absence of any such guideline under current law, employers have been making their own policies in respect of F&F settlement. It is common that employees who have not separated keeping good terms with employer/manager to wait for their settlement for long time which may range from a few months to a year. Some employers make arbitrary deductions as well.?

Settlement of full & final dues is a process wherein many departments provide their clearances before account settles the payment to the employee. Biggest bottleneck are those managers who want to penalise outgoing employees by delaying their dues.

Employers have to reorganize their payroll processes to ensure that they can comply with such requirements and they can achieve this by tightening the noose of such erring managers only. ???

8.??????4-days working week –

These Codes not only attempted to correct old anomalies but also tried to keep pace with contemporary practices around the world. In doing this, it hasn’t shown any hesitation in terms of adopting changes practiced in most advanced countries in terms of work culture and quality of life. The labour ministry has proposed maximum 12 working hours in day inclusive of intervals under the draft on OSH passed by the parliament.

This has drawn flak from many corners?because the OSH Code passed by the parliament provides for maximum 8 working hours in a day. Sources from ministry clarify that this has been done keeping in mind the extreme climatic conditions across country where work schedule spread through the day. Besides this will allow workers to earn more through overtime allowance.

?Adopting 4-days working week is one such step in the direction. New law enables employers an option to switch to a 4-day working week arrangement which means an employee has to work for 12 hours in a working day. However, maximum 48 working hours in a week remain intact.

This won’t be easy for organizations due to multiple challenges such as commutation time spent by the employees especially in Metros, productivity challenges resulting out of elongated working hours etc.

9.??????Threshold eligibility reduced for Leave entitlement –

The minimum number of days of employment needed to qualify for leaves has been lowered under the new labour laws from 240 to 180. This would imply that in accordance with current regulations, a new hire must work 240 days in order to be qualified to take a leave of absence. However, under the current labour laws, a new hire must only work 180 days before being eligible for leave.

10.??????Common Creche Facility - Currently, employers with 50 or more workers are required to provide or arrange for childcare facilities at or near the workplace that mothers may visit at least four times per day. A new provision will allow different employers to utilize a common crèche. A group of establishments may also pool their resources for setting up a common crèche in the manner mutually agreed upon.

11.??????Recognition of the Union - Employers will be required to recognize a registered union for the purposes of employee representation if one is established within an enterprise. In the event two or more unions are present, recognition will apply to the union supported by at least 51% of the workers. If none have 51% support, a negotiating council should be established with representatives of each union representing at least 20% of the workers.

12.??????Fund for Re-skilling - In the event of retrenchment (i.e., collective dismissals), employers will be required to contribute to a new “re-skilling” fund at a rate of 15 days’ pay per employee made redundant. Workers will be able to claim 15 days’ wages from the fund within 45 days of being made redundant.

13.???Higher Threshold for CG’s permission for lay-off – A higher threshold for the total number of workers at which industrial establishments must obtain permission from the central government in order to lay off or dismiss workers from 100 to 300.

14.???Other Reforms –

a.??????Single registration for all establishments,

b.??????Prohibition to engage contract labour in core activities.

c.???????Mandatory health check-up for workers who attained an age of 45 years or are engaged in hazardous process/mines.

d.??????Extended list of benefits to migrant labourers

e.??????Flexibility on employment of women

Sources :

Official site of Ministry of Labour and Employment, News sites and analysis published by various consulting and Law firms.