The implementation of the new labour laws in India has been extended by the government. This decision has been made to give more time to firms so that they can modify their salary structure. The previous date for implementation of labour codes was April 1 but now it has been extended indefinitely due to elections and the second wave of novel coronavirus.
Nevertheless, the new labour codes will come into effect soon and the employers will have to restructure a lot of their company policies. Let’s take a detailed look at the new labour laws.
The 4 labour codes
The labour laws are currently divided into 4 labour codes by the government, each of which represents a specific category of laws. The 4 labour codes are as follows:
1. Industrial Relations Code
This contains laws regulating industrial disputes and trade unions in India. The IR Code proposes that firms having up to 300 workers will not be requiring prior government approval for firing employees or closing the plant or factory. The firms with more than 300 employees will need to take prior government approval for the same.
The code also states laws for the workers going on strikes and stipulates that workers of an industrial establishment will need to provide 60 days’ strike notice to the employer. Moreover, in the case of proceedings pending prior to an industrial tribunal or a labour tribunal, the employees cannot go on a strike for 60 days after the completion of the proceedings. The code makes flash strikes illegal.
2. Code on Social Security
This code contains laws regarding the social security and maternity benefits of the workers. This code extended social security benefits like maternity leave, disability insurance, gratuity, health insurance, and old age protection to workers in the unorganized sector. The unorganized sector in India is growing in popularity and includes gig workers, platform workers, contract workers, freelancers, and home-based workers.
According to a report by MSDF & BCG , Gig economy has the potential to serve upto 90 million new jobs in India in the long run.
With the recent labour code changes welcoming the gig and platformer workers, Indian workforce is witnessing the beginning of a new era.
The code also proposes gratuity benefits for fixed-term employees without requiring them to serve a minimum period. A social security fund is also proposed in order to extend these benefits to unorganized workers as well. The platforms and aggregators will supposedly make contributions to the fund, which will be either 1-2% of the turnover or 5% of the worker’s wages. The central and state governments can also make contributions to the fund.
3. Occupational Safety, Health, and Working Conditions Code
It includes laws aimed to regulate the safety, health, and working conditions of employees working in establishments with 10 or more workers and in all mines and docks. This code stipulates widening its applicability to various types of workers, such as inter-state migrants, sales promotion employees, and audio-visual workers.
For encouraging gender equality, the code stipulates allowing women workers during the nighttime if they have agreed to it. It also proposes that the benefits of the Public Distribution System can be availed by inter-state migrant workers in their home state or in the state where they work.
4. Code on Wages
This 2019 code of labour laws in India includes laws regarding the wages and bonus payments paid to the workers by employees in every industry, trade, business, or manufacture. The Code on Wages made provisions for minimum wages and timely payment of wages for all workers in India.
A new concept called the floor wages was introduced in this code according to which, the central government will fix the rates by taking into consideration the minimum living standards of the workers. When the code is implemented, the minimum rates of wages fixed by the State Government cannot be less than the floor wages fixed by the Central Government.
This code applies to every establishment regardless of the number of workers in the establishment and is also applicable to organized as well as unorganized sectors.
Previous states of the codes on labour laws in India
The 4 labour codes were introduced for the streamlining and simplifying of the country’s existing and overlapping labour laws. These 4 labour codes merged the 44 pre-existing labour laws. They have been already passed by the Parliament and have also received the President’s assent. There are a lot of changes in the new labour codes and some of them are discussed below:
- According to the Industrial Relations Code 2020, companies having 100 or less than 100 employees weren’t required to take permission from the government to fire employees. However, now the new labour codes allow companies with up to 300 workers to fire workers without the government’s permission.
- Earlier, the workers needed to give two weeks’ strike notice but now the new codes require them to give 60 days prior notice.
- The unorganized sector was not provided social security cover but now the law provisions social security benefits for the sector under CSS 2020.
- The new codes state that workers with just 1 year of service are also eligible to draw gratuity whereas previously, minimum years of service required to be eligible was 5 years.
- Previously, the OSH code stated that the maximum work hours should not exceed 9 hours a day but now it has been extended to 12 hours a day.
- There used to be no provision for minimum wages for the employees but now the minimum wages will be determined by the central government under the new labour laws.
The states of India can choose to frame their own rules for governing the labour in their respective states because labour laws come under the concurrent list of the constitution of India. While these codes have been welcomed by the industry and the employers, labour unions have strongly criticised them. They complained that these codes are highly anti-labour and are favoured towards employers.
Effects on Salary
The new labour law, when comes into effect, will have the biggest impact on the take-home paychecks of the workers. It is expected to fall because the government is planning to increase contributions towards provident fund (PF) and other schemes. The new labour laws in India, whenever they are given the green-light, will have a drastic effect on salary structures of organizations.
Basic Pay to be 50 percent of CTC
The code in new labour laws in India proposes to make it mandatory for firms to ensure that 50 percent of employees’ CTC is basic pay. The remaining 50 percent should comprise other employee allowances, such as overtime, house rent, etc.
If the firm pays the employee any additional allowances that exceed 50 percent of the CTC, it will be seen as remuneration to be added to the salary.
Increase in Gratuity Cost
The new labour laws in India, when passed, will restrict the maximum basic pay to 50 percent of the CTC, which means that the Gratuity bonus to be paid to the employee will increase.
The calculation of gratuity amount will be carried out on a larger salary base. This salary base will include basic pay and allowances. Therefore, the gratuity cost of companies will likely increase.
Social Security (Pension)
The definition of wages will be changed after the wage code comes into play. The various social security like Provident Fund, Gratuity, ESIC, etc. will be seen as a percentage of the wages and not as a basic allowance. Therefore, this means that the take-home pay will decrease while the social security (pension) component of the wages will increase.
Effects on Working hours
After the wages of employees, the new labour laws in India will hugely affect the working hours of employees. The firms will need to modify their working hours and policies related to the same.
The new labour laws in India stipulate that the employees will be paid overtime payment for overtime of 15 minutes or more. This is applicable to all employees, including the managerial staff. Additionally, the overtime payment should be at least twice that of the employees’ regular pay.
Maximum working hours
The maximum working hours will be set at 48 hours for a one-week work capacity. The employers cannot make their employees work for more than this. The employers have the freedom to adjust the work time in a 4-days, 5-days, or 6-days week structure.
Faster settlements after resignation or removal
Section-17(2) of the code on Wages states that the wages payable to an employee should be paid within two days of removal, dismissal, resignation, or retrenchment. To fulfil this, the exit formalities and HR processes will need to be completed quickly in the alloted period by the HR department. The remaining dues also must be settled in that prescribed time. This, of course, will be a challenge for the firms, especially, SMEs.
These new changes in labour laws in India can be a bit of a headache for firms lacking in labour and resources. Workex, however, is here to help such businesses. Our team of payroll experts will accurately calculate payroll of each employee, incorporating the tax and social security (pension) deduction.
As a manager or business owner, you will be easily able to onboard all of your employees on our app. Following this, you can relax as we will take care of everything from here, from tracking employees’ attendance and performance to payroll management to legal compliance. All your employees need to do is enter their clock-in and clock-out times on our app and we will track their attendance and punctuality, based on which, we will curate performance charts of each employee.