New labour codes for a new India - is it impactful?

Atmanirbhar India is all set to implement ‘Minimum Government and Maximum Governance’ through the long-due and much-awaited labour reforms that the Parliament passed.

The Central Government codified the existing 29 laws into 4 codes.

Keeping the interest of workers across various sectors and industries in mind, the earliest labour laws were framed in the late 1940s in India. Since then, industries have evolved and so has the working environment. 

Based on reports submitted by the National Commission of Labour, a unified set of labour codes has long been under discussion. In order to generate employment and ease the condition of doing business, these labour laws have undergone reformation in tandem. 

Driving factors for reformation:

The total number of workers in the organized and unorganized sectors combined amounts to more than 50 crores. Among them, 90% work in the unorganized sector, which does not have access to all social securities. 

The lawmakers feel that a standardized set of laws is the need of the hour. Policy objectives like social security, social equity, and overall uniformity across the organized and unorganized sectors are the major driving factors.

What is changing?

The 4 codes are a result of the amalgamation of the following laws:

Let’s look at the impact these laws are likely to have when implemented. 

Right to minimum wages: Labour Code (Wage Code), 2019

Under this code, there will be:

• Guarantee of minimum wages available to workers, covering both sectors
• A review of the minimum wages every 5 years
• Equal remuneration to both male and female workers
• Removal of regional disparity in minimum wages
• Easy determination of the minimum wage on the basis of skill

Right to social security: Social Security code, 2020

Under this code, there will be:

• The benefit of free treatment in hospitals and dispensaries of ESIC (Employees State Insurance Scheme)
• The benefit of a pension scheme (EPFO) to all workers of all sectors – organized, unorganized, and self-employed
• Same social security benefits for both permanent employees and those engaged on a fixed term
• Removal of the requirement of minimum service for payment of gratuity in case of fixed-term employees
• A mandate to report vacancies online for employers employing more than 20 people
• An Aadhaar based Universal Account Number (UAN) to ensure seamless portability

Right of security to workers in all situations: OSH Code (Occupational, Safety, Health and

Working Conditions Code), 2020

Under this code:

• There will be provisions to ease the lives of inter-state migrant workers
• A national database will be set up for inter-state migrant workers
• A worker shall be entitled to one day leave for every 20 days of work, on completion of 180 days, instead of the old prerequisite of 240  days
• Women have the right to work night shifts, with their consent. The employer must make adequate arrangements to provide facilities and ensure their safety
• An increase in paid maternity leave from 12 to 26 weeks. An establishment with 50 or more workers should have a mandatory crèche facility

End to disputes: Industrial Relations (IR) Code, 2020

Under this code:

• A worker would be provided 15 days’ wages for re-skilling, at the time of retrenchment
• A worker from the organized sector on losing their job will get financial aid from the Government under the Atal Bimit Vyakti Kalyan Yojna
• Indian tribunals will have 2 members to ensure faster disposal of grievances
• Disputes are to be resolved within a year in the tribunal

What are the benefits of codification?

• Electronic registration, licensing, and other use of technology to increase efficiency and accuracy
• Reduction of disputes and compliance costs
• Web-based surprise inspection to increase accountability
• Reduction of committees and introduction of common definitions for ease of understanding and doing business

Let’s take a look at the major areas which would be impacted once these codes are implemented.

1. Wages and components

The term “wage” was previously an ambiguous concept. The Social Security code, 2020, and the Labour Code (Wage Code), 2019 will introduce a standardized definition of the term. This will now include all types of remunerations such as Basic Pay (BA), Retaining allowance (RA0, and Dearness Allowance (DA), among others.

They stipulate that the minimum basic wage should be at least 50% of the total CTC.

2. Working hours

Under these new labour codes, offices and companies can have the flexibility to extend working hours from 7-8 hours per day to 12 hours a day. However, the total working hours permitted in a week remain unchanged at 48 hours.

So if one were to work 12 hours a day, their workdays would be capped at 4 days a week with 3 mandatory weekly offs.

Across industries, the maximum number of overtime hours has been increased from 50 hours (under the Factories Act) to 125 hours (in new labour codes) in a quarter.

What’s getting people excited is the prospect of a 4-day work week. But, it comes at the cost of putting in extra hours daily.

3. Salary timelines

For an employee exiting an organization, the codes mandate that the payment of wages be made within 2 working days of their dismissal, resignation, removal, or retrenchment.

Since these new codes do not specify any salary limits and are applicable to all employees, the mentioned timeline is universal. However, certain state legislations do not include the condition of resignation while determining this timeline.

When will they come into action?

These codes were expected to be implemented and come into action from July 1st, 2022. 

For these laws to be implemented, both central and state governments will be required to formulate rules.

According to the Union Labour Ministry, as of March 2022, 27 States/ Union Territories have pre-published the draft rules under the Wage Code, 23 for the Social Security Code, 21 for the Industrial Relations Code, and 18 for the Occupational Safety Code.

What next?

The implementation of these laws needs to be planned well. Irrespective of the size and scale of the organization, a phased implementation will provide adequate time to make suitable requirements for the changes to come.

Since a pan-India consensus is needed for these laws to come into effect, a number of code blocks are still to be won over.