All about new Labour codes

All About New Labour Codes | Labour Code Bills

Parliament had passed four new labour codes on wages, industrial relations, social security, and occupational safety health & working conditions (OSH) which would ultimately rationalize 44 central labour laws. But for implementing these four codes, the rules need to be notified.

The Labour Ministry has envisaged implementing the four labour codes from 1st April 2021 this year in one go. But the four labour codes which were earlier set to be notified on April 1, got delayed due to the delay of the states in finalizing the rules which forced the government to delay the implementation of the codes. The Labour Ministry is believed to be ready with the new rules and will notify them once states finalize the rules to be implemented in their domain. 

One of the biggest impacts of the new labour codes will be on the take-home salaries, which is expected to reduce, owing to the fact that the government is eyeing increasing contributions towards provident fund (PF) and other post-retirement schemes. The new laws are expected to come into play soon, which will force employers to modify their employee compensations.

1. Objectives of new labour reforms

1.1 Simplification of labour laws

The 2nd National Commission on Labour (NCL) recommended consolidation of central labour laws.  It observed that there are numerous labour laws, both at the centre and in states.  

Further, labour laws have been added in a piecemeal manner, which has resulted in these laws being complicated and consistent with outdated clauses. The Commission emphasised the need to simplify and consolidate labour laws for the sake of transparency, and uniformity in definitions and approach.  

Since various labour laws apply to different categories of employees and across various thresholds, their consolidation would also allow for greater coverage of labour.  Following the recommendations of NCL, the four Codes on wages, industrial relations, social security, and occupational safety were introduced in Parliament.

1.2. Facilitating job creation while protecting work

The central challenge to labour regulation is to provide sufficient rights to workers while creating an enabling environment that can facilitate firm output and growth, leading to job creation.  

Companies should find it easy to adapt to changing business environments and be able to change their output (and employment) levels accordingly.  

At the same time, workers need the protection of assured minimum wages, social security, reduction in job insecurity, health and safety standards, and a mechanism for ensuring collective bargaining rights.   

This would also require a labour administration that effectively manages conflicts and ensures the enforcement of rights.

1.3. Delegated Legislation

Under the Constitution, the legislature has the power to make laws and the state government is responsible for implementing them.  Often, the legislature enacts a law covering the general principles and policies, and delegates detailed rule-making to the government to allow for expediency and flexibility. The labour Codes delegate various essential aspects of the laws to the government through rule-making.  

These include: 

(i) Increasing the threshold for lay-offs, retrenchment, and closure, 

(ii) Setting thresholds for applicability of different social security schemes to establishments, 

(iii) Specifying safety standards and working conditions to be provided and maintained by establishments, and 

(iv) Deciding the norms for fixation of minimum wages.

2. List of Acts which are being subsumed by the four labour codes

Labour codesActs being merged
Codes on Wages, 20191. Payment of Wages Act, 1936

2. Minimum Wages Act, 1948

3. Payment of Bonus Act, 1965

4. Equal Remuneration Act, 1976
Occupational Safety, Health and Working Conditions Code, 20191. 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
Industrial Relations Code, 20191. Trade Unions Act, 1926

2. Industrial Employment (Standing Orders) Act, 1946, and 

3. Industrial Disputes Act, 1947
Code on Social Security, 20191. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

2. Employees’ State Insurance Act, 1948; Employees’ Compensation Act, 1923

3. Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 
4. Maternity Benefit Act, 1961; 

5. Payment of Gratuity Act, 1972

6. Cine-workers Welfare Fund Act, 1981

7. Building and Other Construction Workers’ Welfare Cess Act, 1996; and 

8. Unorganised Workers Social Security Act, 2008

3. Some of the Key Issues in New Labour codes

3.1 In the Code of wages 2019

  • Minimum Wages- The central government will set the national floor rate for wages after taking into account the minimum living standards of workers varying across geographical areas; where existing minimum wages are higher than the floor wages, the same shall be retained. 

State governments will fix the minimum wages for their region which cannot be lower than the national floor rate for wages. The code also provides that there would be a review/ revision of minimum wages at intervals not exceeding five years. Further, the rate of wages for overtime work shall not be less than twice the rate for normal wages.

  • Equal remuneration- Provisions relating to equal remuneration now prescribe that no discrimination is permitted on the basis of the gender of said employees. This is slightly wider than the earlier provision which specified no discrimination on the basis of “Men” and “Women”.
  • Payment of bonus- Similar to the provisions of the Payment of Bonus Act, 1965, the chapter relating to bonus payments under the code shall apply to only those establishments employing at least 20 employees on any day in that accounting year. 

All employees whose wages do not exceed a specific monthly amount (to be notified by the central or state government) will be entitled to an annual bonus. Bonus is payable on higher minimum wage or the wage ceiling fixed by the appropriate government for payment of bonus. The minimum bonus prescribed under the Code is 8.33 percent and the maximum bonus payable is 20 percent.

3.2 In the Industrial Relations Code Bill, 2020

  • New conditions for legal strike- no person employed in any industrial establishment shall go on strike without a 60-day notice and during the pendency of proceedings before a Tribunal and sixty days after the conclusion of such proceedings.
  • Raised the threshold for the requirement of a standing order – rules of conduct for workmen employed in industrial establishments – from the existing 100 to 300 workers.
  • Reskilling fund – to set up a re-skilling fund for the training of retrenched workers with the contribution of the employer of an amount equal to 15 days last drawn by the worker.

3.3 In the Social Security Bill, 2020

  • National Social Security Board which shall recommend to the central government for formulating suitable schemes for different sections of unorganized workers, gig worker, etc.
  • No more ambiguities: The bill has defined various terms like “career center”, “aggregator”, “gig worker”, “platform worker”, “wage ceiling”, etc.
  • Social security for workers: Also, aggregators employing gig workers will have to contribute 1-2 percent of their annual turnover for social security of workers.
  • The facility of ESIC would now be provided in all 740 districts. At present, this facility is being given in 566 districts only.
  • EPFO’s coverage would be applicable to all establishments having 20 workers. At present, it was applicable only on establishments included in the Schedule.
  • Provision has been made to formulate various schemes for providing comprehensive social security to workers in the unorganized sector.
  • Work to bring newer forms of employment created with the changing technology like “platform worker or gig worker” into the ambit of social security has been done in the Social Security Code.
  • Provision for Gratuity has been made for Fixed Term employees and there would not be any condition for minimum service period for this.
  • With the aim of making a national database for unorganized sector workers, registration of all these workers would be done on an online portal and this registration would be done on the basis of Self Certification through a simple procedure.

3.4 In the Occupational Safety, Health and Working Conditions Code Bill, 2020

  • To employ women in all establishments for all types of work. They can also work at night, that is, beyond 7 PM and before 6 AM subject to the conditions relating to safety, holiday, working hours, and their consent.
  • To Promote Formalisation: Issuing of appointment letter mandatorily by the employer of an establishment to promote formalization in employment.
  • Inclusion of inter-state migrant workers in the definition of worker: Inter-state migrant workers are defined as the worker who has come on his own from one state and obtained employment in another state, earning up to Rs 18,000 a month.
  • The proposed definition makes a distinction from the present definition of only contractual employment.
  • Portability Benefits: An Inter-State Migrant Worker has been provided with the portability to avail benefits in the destination State in respect of ration and availing benefits of building and other construction workers.
  • Journey allowance — a lump sum amount of fare to be paid by the employer for to and fro journey of the worker to his/her native place from the place of his/her employment.
  • Free health check-up once a year by the employer for workers which are more than a certain age.
  • Cine Workers have been designated as Audio Visual Worker so that more and more workers get covered under the OSH code. Earlier, this security was being given to artists working in films only.

4. Key differentiators on the applicability of the Code of Wages

  1. In the Code of Wages, the Government has introduced the term “ Occupation” by virtue of it can be interpreted that the applicability of this Code will also be on non-profit motive establishments except in the cases where specific exemptions are provided in the Code.
  1. The Payment of Wages Act, 1936, as applicable on the employees of the Factories or Railway administration having wages of less than Rs. 24,000 per month except in the few states like Haryana and Karnataka wherein the said act is applicable also on Shop, and Commercial Establishments. Whereas The Code of Wages will extend to all types of establishments.
  1. Payment of Bonus Act, 1965 is applicable on Factories and in case of any other establishment having 20 or more employees on any day during the previous accounting year, wherein the case of the Code of Wages, the provisions pertaining to payment of bonus will be applicable on all type of establishments, other than Factories, irrespective of a number of employees.

5. The delay in implementation of Labour codes

Pertaining to the new labour rules, companies were required to make major changes in the employees’ salary structure starting from April 1, but the government has deferred implementation of the labour codes, including the Code on Wages, beyond April 1, giving companies more time to revamp their salary structures and human resource-related policies, which could have led to higher employee costs.  

Adding to that this was not the best time to implement the codes because any economic improvement so far could be reversed with the resurgence in Covid cases. Companies although would have provided enough flexibility to employees and significantly improved the ease of doing business, it was better not to rush into it. 

As of now, companies will maintain the status quo but they would have preferred it from the beginning of April to coincide with the financial year. 

In the changed economic scenario, the government has to balance the rights of workers and economic recovery. Favoring one over the other will impact the country’s prospects in the long run. These bills make a significant change to the regulation of labor and the employer-employee relationship.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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