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How to prepare for India’s New Labour Laws?

December 22, 2021

In order to bring the labour regulations in India into sync and consolidate archaic and bulky laws, the Government of India is taking a landmark step of codifying 29 laws into 4 codes, namely-

  • Code on Wages 2019
  • Code on Social Security 2020
  • Industrial Relations Code 2020
  • Occupational Safety, Health and Working Conditions Code 2020

Between 2019 to 2020, all the 4 codes were passed by the Parliament after receiving assent of the President of India. It is pertinent to be noted that the codes are yet to be implemented and is continually getting delayed as several state governments are yet to introduce the code in their respective states. At present, a total of 15 states have published the draft rules under the Code on Wages and the Code on Industrial Relations. These states include:

  • Gujarat
  • Karnataka
  • Madhya Pradesh
  • Rajasthan
  • Uttar Pradesh

Other states such as Orissa, Chhattisgarh and so on have put together rules under the Code on Social Security as well as the Occupational Safety & Health Code.

The four codes provide for the following new elements:

  1. THE CODE ON WAGES, 2019[1]

This code applies to the employees working in organized and unorganized sector. The primary intent behind the code is to manage wage and bonus payments in every sector and also to instill equity amongst the employees working under similar circumstances in different sectors. The Code further mentions that there will be no more scheduled work, and minimum salaries will be based on talent and region. Managers as well as supervisors are covered by minimum wage and wage payment regulations.[2]

The Code, on the surface, strengthens accountability by requiring the preservation of documents, including regular audits of all employers. It also specifies the types of deductions and fines that can be levied against an employee’s earnings.

New definition of Wages[3] The code provides a new definition of ‘wages’.

The following, payable to a person in respect to his employment, have been included under the definition:

S no. Particulars
1) All remunerations in terms or money or capable of being so expressed.
2) Basic Pay
3) Dearness Allowance
4) Retaining Allowance

The provision further lists as to what are not to be included within this definition. These are:

S no. Particulars
1) Any bonus which does not form a part of the remuneration to be paid.
2) Value of house-accommodation
3) Electricity Charges
4) Water Charges
5) Medical expenses
6) Other amenity/ service excluded from the computation of wages by order of the Government.
7) Contribution paid by the employer towards pension or provident fund, and the interest thereon.
8) Conveyance allowance or travelling concession.
9) Sum paid to defray special expenses entailed by the nature of employment.
10) House rent allowance.
11) Remuneration payable under any award or settlement between the parties or order of a court or Tribunal.
12) Overtime allowance.
13) Commission
14) Gratuity on termination.
15) Retrenchment compensation, retirement benefits or ex gratia payment on termination.

For calculating the wages under this clause, if payments made by the employee exceeds one-half, or such other per cent of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. is to be deemed as remuneration and thus, accordingly added in wages.

Floor Wages- The code also sets out floor wages for minimum wages.[4]  Each state will have to set a minimum wage above this floor. The purpose behind this move is to assure workers of a basic income nationally. This would especially be more beneficial in the instances of inter-state migration.  The projected effect in the construction business would be large-scale emigration of labour in quest of the best emoluments and least demanding working circumstances.

Gender Neutrality- the code also furnishes provisions for gender neutrality for the purpose of paying wages. The code extends this equality to a person of every gender which also includes transgender employees.[5]

Conflict Resolution- Another feature of the Code is that there is no one unified conflict resolution board or committee that deals with all issues between an employee and management. Rather, there are several options for a setup that is problem centric in its operation. For example, if a woman is discriminated against in the workplace, she must seek redress from “such authority as may be notified by the appropriate government,” whereas for issues pertaining to the payment of dues or arrears, the employee must reach “one or more authorities” with the power and authority of a civil court.

This body will not have the ability to decide disputes involving an employee claiming her bonus or being underpaid her bonus, since such issues would be resolved by the Industrial Tribunal or another body established under the Industrial Disputes Act. Furthermore, an officer in the state government with the rank of undersecretary has the authority to impose a punishment at any time after conducting a cursory investigation.

The Code also gives employees and trade unions the authority to file direct complaints with the Magistrate, allowing the employer to be held to ransom. Strict penalties and jail for violations – all directors/persons in charge of the firm are subject to penalty. The fine imposed is 100 times that under the previous legislation.[6]

The aforementioned adjustments suggest that there will be an overall rise in complying convenience. However, this is dependent on how state governments implement these laws; if states choose to follow the Centre’s lead, compliance with the Code on Wages, 2019, will be simple and uncomplicated.

  1. CODE ON SOCIAL SECURITY, 2020[7]

The present code consolidates 9 laws pertaining to social security and maternity benefits.

Gig Workers- The code for the very first time defines ‘gig worker’[8] as comprising of those who work for companies such as Uber, Ola and so on. A distinction has been made from the traditional employer-employee relationship as the companies would not be burdened under the same liabilities as are imposed on them for their full-time workers. However, the companies are expected to contribute to a social security fund, established by the Government, for these workers.[9]

Gratuity provisions[10]– The most important change in the new social security legislation will result in gratuity terms. Gratuity will now be paid by a company to both permanent and fixed-term workers. This is paid at the rate of 15 days’ earnings for each year of service performed. The gratuity provisions apply when 10 or more employees are employed on any day in the previous twelve months. Gratuity becomes payable after an employee has completed five years of continuous service. This obligation, however, does not apply to fixed-term employees. They would be compensated on a pro-rata basis. Gratuities would be payable even if workers hired a contractor. As a result, a company must plan for the payment of gratuities to even its contractual staff.

Maternity benefits[11] – Maternity benefits would be available if ten or more employees were hired on any day in the previous 12 months. No company is required to employ a woman for six weeks after her delivery, miscarriage, or termination of pregnancy. However, this benefit is only accessible to female workers who have worked for at least 80 days in the previous twelve months. Furthermore, a maternity benefit of up to 26 weeks can be claimed and any violation of maternity benefits will subject the employer to jail for up to 6 months or a fine of up to Rs.50,000.

Consequences for non- compliance with the required Social Security payment under the  Code[12]If an employer fails to make any payment required by the Code or its rules, directives, or schemes, he will face the following penalties:

  1. imprisonment for a period of one year, which may be extended for a total of three years
  2. Failure to pay the employee’s share, which he would withdraw from the employee’s earnings, will result in imprisonment for up to 6 months and a fine of 1 lac.

In addition to this, unlike before, the code now restricts the authorities to looking back only five years to check compliance with all rules relating to the Employees’ Provident Fund. It also requires that all investigations must be completed within a period of 2 years.

  1. THE OCCUPATIONAL SAFETY, HEALTH AND WORKING CONDITIONS CODE, 2020[13]

This particular code seeks to regulate the safety, health and working conditions of workers employees in establishments functioning with 10 or more workers, including mines and docks.

Under this Code, every employer is required to undertake the following[14]:

  • guarantee that the workspace is devoid of dangers that cause or are expected to cause harm or occupational illness to workers, and that this is done in accordance with the Code and government guidelines;
  • offer complimentary annual health examinations or tests to specified categories of employees;
  • provide and retain, as far as is fairly possible, a working atmosphere that is secure and clear of hazard to the employees’ wellbeing;
  • issue letters of appointment to employees; and
  • make sure that no cost is imposed on any worker for the upkeep of security and hygiene at the worksite, including the conduct of medical examinations and investigations for the purpose of deterrence.
  • The code provides for a provision where companies may hire women to work nightshifts between 7 p.m. and 6 a.m., in a condition where the companies meet the set safety and security requirements.[15] This code particularly facilitates the outsourcing and call center institutes, which at present are employing major population of women to work night shifts.

Moreover, the Code imposes a more rigorous set of responsibilities on employers in factories, mines, dock work, or plantations, including making arrangements in the worksite to guarantee the safety and absence of danger to health in relation with the use, storage, and transportation of materials and supplies; and (ii) providing such details, guidance, training, and oversight as are essential to ensure the health and safety of employees.[16]

In furtherance, the code defines as to what is a “core activity of an enterprise”.[17] At present, various companies are resolved to hiring contract laborers for the purpose of furnishing their core work so as to avoid their liability to pay benefits. This code does reiterates the old law that prohibited companies from hiring contract labour for its core activities, however, now it provides a list of exceptions for the same.

The Code also states that it is the responsibility of the architect, project engineer, or designer responsible for any building or construction work, or the design of any project relating to such a building, to ensure that the safety and health of the construction workers and employees who are employed in the construction, operation, and execution of such initiatives is taken into account during the planning stage.[18]

At last, the code now enables employees to claim encashment at the end of any year, as per their convenience.[19] However, the change is anticipated to create new financial burdens for several companies. As a result, the companies can also be expected to amend their policies as such that compels employees to exhaust their leaves instead of claiming it after the year end.

  1. THE INDUSTRIAL RELATIONS CODE, 2020[20]

This code consolidates three labour laws namely- the Industrial Disputes Act, 1947, the Trade Unions Act, 1926 and the Industrial Employment (Standing Orders) Act, 1946. The purpose behind the code is to mend the business environment in the country majorly by lessening the labour compliance burden on the industries.

Fixed-term Workers- The code now recognizes fixed-term workers[21] and provides for them to be eligible for employee benefits, gratuity payments and so on. The code further fortifies companies to employ more fixed-term workers so they can exercise control over than in comparison to those employees hired through a third part.

Standing Orders- In addition to the above, the code expands the imposition of standing orders to cover all companies having more than 300 employees. Furthermore, any sort of exception from the same would require the company to take government’s approval.[22]

Termination of an Individual Worker- Disputes over an individual worker’s discharge, dismissal, or termination of services would be considered an industrial dispute under the Code. As a result, the company might file a complaint with the Industrial Tribunal for adjudication.

Prohibition on Strikes[23]– The new labour code forbids any strike or lockout in any industrial facility without prior warning. Previously, only public utility services were exempt from this prohibition. At least 60 days before to the strike, a notification must be provided. Furthermore, no strikes are permitted during conciliation processes or when a matter is pending before an Industrial Tribunal. This will most likely lessen the likelihood of job disruption.

Quick Resolution of Disputes- The code establishes a two-member Industrial Tribunal, as opposed to one under the previous regime. If a dispute cannot be settled through conciliation, the tribunal might be contacted directly.[24]

List of old Acts covered by the New Labour Codes:

S no. Labour Codes Old Acts
1. Code on Wages, 2019
  1. Payment of Wages Act, 1936
  2. Minimum Wages Act, 1948
  3. Payment of Bonus Act, 1965
  4. Equal Remuneration Act, 1976
2. Code on Social Security, 2019
  1. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  2. Employees’ State Insurance Act, 1948
  3. Employees’ Compensation Act, 1923
  4. Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
  5. Maternity Benefit Act, 1961
  6. Payment of Gratuity Act, 1972
  7. Cine-workers Welfare Fund Act, 1981
  8. Building and Other Construction Workers’ Welfare Cess Act, 1996
  9. Unorganised Workers Social Security Act, 2008
3. The Occupational Safety, Health and Working Conditions Code, 2019
  1. Factories Act, 1948;
  2. Mines Act, 1952;
  3. Dock Workers (Safety, Health and Welfare) Act, 1986;
  4. Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996;
  5. Plantations Labour Act, 1951;
  6. Contract Labour (Regulation and Abolition) Act, 1970;
  7. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
  8. Working Journalist and other Newspaper Employees (Conditions of Service and Miscellaneous Provision) Act, 1955;
  9. Working Journalist (Fixation of Rates of Wages) Act, 1958;
  10. Motor Transport Workers Act, 1961;
  11. Sales Promotion Employees (Condition of Service) Act, 1976;
  12. Beedi and Cigar Workers (Conditions of Employment) Act, 1966; and
  13. Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
4. The Industrial Relations Code, 2019
  1. Trade Unions Act, 1926;
  2. Industrial Employment (Standing Orders) Act, 1946, and
  3. Industrial Disputes Act, 1947

To know more about Labour Laws in India, read below:

[1]https://labour.gov.in/sites/default/files/THE%20CODE%20ON%20WAGES%2C%202019%20No.%2029%20of%202019.pdf

[2] Section 13 and 14, the Code on Wages, 2019.

[3] Section 2 (y), the Code on Wages, 2019.

[4] Section 9, the Code on Wages, 2019.

[5] Section 3, the Code on Wages, 2019.

[6] Section 55, the Code on Wages, 2019.

[7] https://labour.gov.in/sites/default/files/SS_Code_Gazette.pdf

[8] Section 2 (35), the Code on Social Security, 2020.

[9] Section 114, the Code on Social Security, 2020.

[10] Chapter V, the Code on Social Security, 2020.

[11] Chapter VI, the Code on Social Security, 2020.

[12] Section 133, the Code on Social Security, 2020.

[13] https://labour.gov.in/sites/default/files/OSH_Gazette.pdf

[14] Section 6, the Occupational Safety, Health and Working Conditions Code, 2020.

[15] Section 28, the Occupational Safety, Health and Working Conditions Code, 2020.

[16] Section 7 and Section 8, the Occupational Safety, Health and Working Conditions Code, 2020.

[17] Section 2 (p), the Occupational Safety, Health and Working Conditions Code, 2020.

[18] Section 9, the Occupational Safety, Health and Working Conditions Code, 2020.

[19] Section 32, the Occupational Safety, Health and Working Conditions Code, 2020.

[20] https://labour.gov.in/sites/default/files/IR_Gazette_of_India.pdf

[21] Section 2 (o), the Industrial Relations Code, 2020.

[22]Section 28, the Industrial Relations Code, 2020.

[23] Section 62, the Industrial Relations Code, 2020.

[24] Section 44, the Industrial Relations Code, 2020.

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