The New Labour Codes in India and How Business Can Prepare for Them

The Government of India has introduced significant labour reforms in order to address both the organised and unorganised worker segments, and provide for adequate social security for all categories of labourers in India. While the executive arm of the Government has been mulling over the implementation of four labour codes for quite some time now, the Ministry of Labour and Employment has finalised the rules. Thus, paving the way for reforms by notifying them for implementation. India has consolidated 29 central labour laws into four codes –

The key objectives of these labour codes

Given that over 90% of the country’s 50 Cr workers are in the unorganised sector, the government wants to ensure the benefits of labour laws (relating to minimum wages and social security) reach these workers through the labour codes. The codes also aim to consolidate and simplify the existing 29 labour legislation, bring uniformity in definitions, improve process transparency, and promote digitization, thereby reducing the compliance burden for employers.

Overview of the labour code

The Code on Wages aims to subsume the provisions of four laws – Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, 1965, and Equal Remuneration Act, to ensure all employees covered under the code can avail the Centre-determined minimum wage in a fair and timely fashion.
The Code on Social Security empowers the Central Government to notify various social security schemes like the EPF, EPS and ESI for workers’ benefit in all sectors. It also allows the Centre to frame wage benefits and support schemes for the self-employed, unorganised workers, gig workers, and platform workers, as well as their family members.

The Code on Industrial Relations expands the definition of ‘worker’ to include people employed in a skilled or unskilled, manual, technical, operational and clerical capacity. Even supervisors earning less than ₹18,000 fall within the purview of this code.

The Occupational Safety, Health, and Working Conditions Code amalgamates 13 existing legislatures. It applies to factories having at least 20 workers if manufacturing is being carried on with the aid of power, and 40 workers if the manufacturing is being done without power. Under this code, employers are required to maintain a hazard-free workplace and provide free annual health examinations to certain classes of employees.

Have they come into effect?

Since labour is a concurrent subject, the Centre and States, both have the power to frame rules in relation to these codes. According to the latest government data, at least 26 States and Union Territories have formulated draft rules for the Code on Wages, 22 have framed draft rules for the Industrial Relation Code, 20 for Code on Social Security, and 17 for the Occupational Safety and Health Code.
The codes were earlier planned to be implemented from April 1, 2021. The Parliament approved the Code on Wages in August 2019, and the other three codes were passed in September 2020. However, none of them have been rolled out yet in any state.

Are the industries ready for these codes?

According to a State of The Industry report by BCPA, 83% of companies believe that the codes will have an overarching impact on the entire employee lifecycle, rather than the common notion that it will impact only wages.
67% of businesses prefer a phased roll-out of the codes rather than all at once, in order to seamlessly implement them. However, it is interesting to note that only 34.9% of companies are ready to implement the new labour codes while 18.9% have not initiated any action so far.
If you belong to the latter category of companies, we’ve got you covered. Below are a few key focus areas that could ensure you transition smoothly from the existing laws to the new labour codes with optimal efficiency.

What are the critical focus areas for implementation?

Impact of the new definition for wage
Possible additions or exclusions to the salary structure
Impact of revising the salary structure and conclusion on the financial impact
HR policies such as Maternity Benefit, Gratuity, PF, along with the attendance, working hours and leave policies
Categorisation of the workforce into FTE, contract employees, gig workers, consultants, and more.

Takeaway

While the complete implementation of any new legislation takes time, the codes are poised to accomplish the objectives that were originally set. When compliance objectives are defined clearly and integrated efficiently with on-ground implementation, they are bound to succeed.

Given that these reforms are not a choice, organisations need to understand the significance of these codes and consider their implications for specific industries, so that they are better prepared to handle the implementation by creating internal policies, processes and governance structures aligned with the requirements of these codes.