corporate law

Understanding India's New Labour Codes: Key Changes and Benefits

Understanding India's New Labour Codes: A Comprehensive Guide

India's labour laws regarding minimum wages, safety, health conditions, and social security are complex and often outdated. Originating from the British colonial era, many laws have become ineffective in addressing current worker needs. Instead of protecting employees, these laws have frequently obstructed their interests, creating burdensome processes that required multiple forms to access a single benefit. Additionally, employers faced compliance challenges due to numerous regulations, resulting in significant administrative overhead.

In light of these challenges, the current Government has initiated substantial reforms by repealing ineffective laws. A total of 29 labour laws have been consolidated into four streamlined Labour Codes, which are designed to enhance worker security, respect, health, and welfare while simplifying compliance for employers.

The Four New Labour Codes

The newly enacted Labour Codes, effective from 1st April 2022, include:

  1. The Code on Wages – Integrating 4 previous laws.
  2. The Industrial Relations Code – Merging 3 existing laws.
  3. The Code on Social Security – Consolidating 9 previous laws.
  4. The Occupational Safety, Health and Working Conditions Code – Combining 13 existing laws.

Benefits of Codification

The consolidation of these laws brings forth several advantages:

  • Maximum Coverage: Broad inclusion of diverse worker categories.
  • Inspector-cum-Facilitator Role: Unifying inspection and advisory functions to reduce employer burdens.
  • Simplified Compliance: Single registration, license, and fewer forms streamline processes.
  • Standardized Definitions: Enhancing clarity and consistency across legislation.
  • Reduction in Committees: Decreasing bureaucratic complexity.
  • Web-Based Inspections and Technology Use: Facilitating electronic registrations and licensing.
  • Decreased Compliance Costs: Lowering administrative burdens and minimizing disputes.

These codes have been officially gazetted, mandating compliance from all organizations, irrespective of their size.

Phased Compliance

  1. Phase 1: Large enterprises (>500 employees) from 2025.
  2. Phase 2: Medium enterprises (100–500 employees) post-2025.
  3. Phase 3: Small enterprises (<100 employees) allowed up to 2 years.

Key Takeaways from the Labour Codes

Among the most significant changes is the revised definition of "Wages." As per Section 2(y) of THE CODE ON WAGES, 2019, "wages" include:

  • Basic pay,
  • Dearness allowance,
  • Retaining allowance.

Provisions specify that exclusions from wages, such as allowances and bonuses, cannot exceed 50% of total remuneration. Therefore, any excess must be categorized as wages.

Enhanced Social Security

  • Gig Workers: Mandatory enrollment in EPF/ESI for platforms employing over 100 workers.
  • Unorganised Sector: Establishment of welfare boards for construction, domestic, and migrant workers.

Industrial Relations Code Updates

  • Fixed-Term Workers: Entitled to gratuity after 1 year (previously 5 years).
  • Re-Skilling Fund: Employers to contribute 15 days’ wages for retrenched workers.

Occupational Safety & Health

  • Mandatory Health Checkups: Free annual examinations for employees in hazardous sectors.
  • Women in Night Shifts: Permitted with consent and assured safety measures.

Wage Code Amendments

  • National Floor Wage: Introduced to mitigate regional disparities; states must establish minimum wages at or above this floor.
  • Digital Compliance: A unified portal for registrations, returns, and licenses.

Other Important Definitions

In the context of the new codes:

  • Employee Definition (Section 2(k) of THE CODE ON WAGES, 2019): Refers to anyone employed on wages to perform work across various sectors, excluding armed forces personnel.

  • Worker Definition (Section 2(z) of THE CODE ON WAGES, 2019): Encompasses individuals employed in any industry, excluding apprentices, and includes categories such as journalists and sales promotion employees.

  • Employer Definition (Section 2(l) of THE CODE ON WAGES, 2019): Includes anyone employing individuals directly or indirectly, covering various organizational structures.

Conclusion

The implementation of these Labour Codes marks a pivotal shift in India's labour law approach, focusing on enhancing employee rights while simplifying compliance for employers. Changes to definitions, such as "wages," and contributions to social security necessitate that organizations reassess their payroll systems. Effective communication with employees regarding these updates is essential as they adapt to the new regulations.