Everything You Need To Know About The New Labor Code In India

In India, Labor is a subject that falls under the Concurrent list. That means, both the Parliament and the State can enact laws on it. As per the government data, more than 90% of India’s working population falls under the unorganized sector that has no access to social security.  In this blog, we will talk about everything related to the new labor code

The new labor code takes into consideration the workers and their families from both the organized and the unorganized sectors. The reason why labor codes are important is that it improves the working condition of the laborers and ensures security for all workers. The Central Government has taken the historical step of codifying the existing 29 out of 44 legislations into 4 new labor codes.

These four new labor codes are:

• Code on Wages, 2019
• Code on Social Security, 2020
• Industrial Relation Code, 2020
• Occupational Safety, Health, and Working Conditions Code, 2020

The wage law was passed in 2019, the other three bills were passed in September 2020

1. Code on Wages, 2019

The Code on Wages bill was passed in 2019.  The code is a replacement of 4 legislations: 

1. Minimum Wages Act, 1948
2. Payment of Wages Act, 1936
3. Payment of Bonus Act, 1965
4. Equal Remuneration Act, 1976

It seeks to regulate wages that cover salary, allowance or any other monetary component in all employment areas where any industry trade, business or manufacturing is carried out. Bonuses and travelling allowances are not included in this. 

The code will apply to all employees across organized and unorganized sectors. The Central government will take decisions on wages for employment in mines, railways, and oil fields. For other types of employment, the state government will take the decisions.

Main features of the Code on Wages:

1. No more than 5 years are to be exceeded to revise the minimum wages by both the Central and State Governments.
2. While the code earlier was applicable only to employees earning below INR 24k, the revised law is applicable to everyone irrespective of their monthly income.
3. Employers are required to pay a minimum wage to their employees. They also have to consider other factors such as the difficulty of the work, skills required, and time devoted to the work while fixing the monthly income of the employees.
4. Employers can fix the wage period as either daily, weekly, monthly or hourly.
5. An employer can deduct the wages of the employee in case of absence of duty, a deduction based on accommodation, any loan and fine levied. However, this could not exceed 50% of the employee’s monthly wage.
6. Annual bonus of at least 8.35% of the wage is mandatory in case an employee’s monthly wage does not meet the minimum criteria.
7. The new labor code demands similar wages for similar kinds of work irrespective of gender. 
8. The Central Government will fix the floor wages considering the workers’ living standards. The floor wages would vary according to different geographical areas.
9. The Central Advisory Boards per the Code’s provisions shall comprise members representing employers and employees, including independent persons and five state government representatives.
10. The State Advisory Board shall include representative members of employers and employees, including an independent person.
11. Further ⅓ rd of both the Central and the State Advisory boards should have female representatives.
12. In case of failure to comply with the law, the employer would be subjugated to a fine of INR 1 lakh and a maximum imprisonment of 3 months. 

Concerns with the Wage Code:

1. No clarity on fixing the minimum wages. Additionally, fixing wages based on geography and skill sets might add a lot of discretionary power to the hands of existing administrators which can have adverse effects such as lobbying.
2. The clause for deduction of wages may prevent workers from unionization in fear of a deduction in wages.
3. The code does not hold the principal employer as liable to pay wages in case the contractor fails to do so. This is a major issue since most of the workers in India work on a contract basis.
4. The new labor code has also taken away the jurisdiction of courts to provide workplace-related justice to the workers and handed over the power to quasi-judicial bodies.

Contact Asanify for updated compliance related processes.

2. Code on Social Security, 2020

The Code on Social Security seeks to amend and consolidate the laws relating to social security to all the employees belonging from the organized, unorganized or any other sectors.

It unifies the 9 legislations used earlier:

1. The Employees’ Compensation Act, 1923, 
2. The Employees’ State Insurance Act, 1948, 
3. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, 
4. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959, 
5. The Maternity Benefit Act, 1961, 
6. The Payment of Gratuity Act, 1972, 
7. The Cine Workers Welfare Fund Act, 1981, 
8. The Building and Other Construction Workers Welfare Cess Act, 1996 
9. The Unorganized Workers’ Social Security Act 2008.

Main Features of Social Security Code

1. A clear definition of fixed-term employment, home-based worker, self-employed worker, platform worker and gig worker has been provided.
2. Interstate migrant workers, construction workers, film industry workers and platform workers now fall under the definition of an employee.
3. Social security funds are to be recognized for unorganized workers, platform workers, and gig workers.
4. The code talks about how the Central Government can decrease or defer the employer’s or employee’s contribution towards the PF or ESI for up to 3 months in the event of any unexpected event such as a natural disaster or pandemic.
5. Fixed-term employees shall be subjected to payment of gratuity on a pro-rata basis by the employer. The gratuity period for working journalists has been reduced from 5 years to 3 years.
6. The new labor code specifies a penalty of 6 months imprisonment for the offenders and a fine of INR 50K.

Concerns with Social Security Code

1. To avail of social security, everyone is required to register for a specified online portal developed by the central government. This can be challenging for workers with no access to and knowledge of the internet.
2. Most of these informal workers have no clear awareness of the facilities they can avail through these schemes.
3. Furnishing proof of livelihood and other documents as a part of registration is another hassle that would be faced by most workers who do not possess these documents so far.
4. The absence of definite provisions in the present code would complicate the process of achievement of universal registration.

3. Industrial Relation Code, 2020

The code of Industrial Relations seeks to simplify the compliance processes and promote the ease of doing business in any establishment. 

It comprises of three former legislations:

1. The Industrial Disputes Act, 1947
2. The Industrial Employment (Standing Orders) Act, 1946 
3. The Trade Unions Act, 1926.

The standing order applies to establishments with 300 or more workers. Prior permission of the government is required before any closure, lay-off, or retrenchment of employees in establishments having more than 300 workers.

Main Features of Industrial Relation Code

1. Employees are prohibited from going on a strike without giving a prior 60 days notice.
2. The code also prohibits the employees from going on a strike during the proceedings before a tribunal or the National Industrial Tribunal.
3. The definition of “strike” has been replaced with “mass casual leave” .
4. The code provides provisions for workers to secure a job after being laid off. A fund shall be initiated consisting of contributions from the employer and the Appropriate Government.
5. The code also demands the setting up of a re-skilling fund for training retrenched workers to be supported by the employer.

Concerns with the Industrial Relation Code:

1. The new labour code does not take into consideration the work conditions of workers in industrial establishments less than 300.
2. The conditions of legal strikes are very stringent and would make it very difficult to practically impossible to call a strike legally.
3. There is no clarity on the source of funds for re-skilling the workers.

Contact Asanify for updated compliance related processes.

4. Occupational Safety, Health, and Working Conditions Code, 2020

The code of occupational safety, health and working conditions seek to regulate workers’ health and safety in work establishments such as mines and docks.

It incorporates 13 legislations:

1. Factories Act, 1948   
2. Mines Act, 1952
3. Dock Workers Act, 1986
4. Contract Labor Act, 1970
5. Inter-State Migrant Workers Act, 1979
6. The Plantations Labor Act, 1951
7. The Working Journalist and Other Newspaper Employees Act, 1955
8. The Working Journalist (Fixation of Rates of Wages) Act, 1958
9.  The Motor Transport Workers Act, 1961
10. The Sales Promotion Employees (Conditions of Service) Act, 1976 
11.  The Beedi and Cigar Workers (Conditions of Employment) Act, 1966

Main Features of Occupational Safety and Working Code

1. The code applies to establishments having at least 10 workers.
2. Workers and other employees are entitled to a minimum monthly wage of at least INR 15K
3. The code also applies to contract laborers engaged through a contractor.
4. Special provisions for leave requirements for workers employed in sales, transport and journalism departments.
5. Provisions related to the safety, consent and working hours of women working between 7 pm to 6 am.
6. All establishments are to provide separate washrooms and locker rooms for male, female and transgender communities.
7. Employers are required to organize regular health checkups for employees at their own cost.
8. A mandatory employment letter should be issued to all the employees.
9. Any person working in a different state would be considered as an inter-state employee and the code demands a minimum monthly wage of INR 18K.
10. The inter-state employees are entitled to benefits such as benefits of public distribution system, insurance and other provident funds are available to other workers in the same establishments. 

Concerns with Occupational Safety and Working Code

1. The central government should conceptualize a basic framework to ensure safety at the workplace which could be adopted by the States after necessary customization.
2. The code fails to undertake basic security coverage, irrespective of labor market classifications.
3. The code fails to provide adequate protection to informal workers who constitute 91% of the workforce.

Frequently asked questions:

What are the benefits of new labor code?

The new labor codes have provided a separate definition of an employee and a worker. There will be certain specific benefits under the new labor codes which are only applicable to certain workers, not all employees.

What are the changes in the new labor law?

The new labor law of 2022 is coming up with new changes to the laws for workers. 

New labor codes make it compulsory for the organization to increase the basic pay of the employees to 50% of CTC. This way the Gratuity cost to the company will also increase as gratuity is calculated on basic pay.  Working overtime even for 15 mins or more, employees will be liable for overtime pay. The maximum limit of working hours in a week would be 48 hours. 

Is New wage code implemented in India?

The new wage code 2022 for India is in effect, as mentioned in the 2021 Union budget.

Why are labour codes formed?

To ensure social security for workers, the Government of India amalgamated labour laws into labour codes in order to secure the worker’s rights for pension, insurance, gratuity, maturity benefits, etc.

What is the new wage code in India?

The New Wage code 2022 was implemented in July 2022 with certain changes with the amendments made to The Wage code 2019. In a number of ways, the rules for labour codes have been altered. But the most significant alteration has been done to the definition of ‘wage’. Under the rules formed under The New Wage Code 2022, the basic pay of the employee cannot be less than 50% of CTC, which eventually impacts the PF and Gratuity pay in CTC. 

What is the labour code bill?

Also known as Lobour Codes (Repeal) Bill, it repeals labour codes as labor unions have found some impediments in implementing these codes such as the formation of trade unions, which will get difficult due to impositions of certain restrictive conditions. It intends to make rights to collective trade union actions like going on strikes extremely difficult due to some restrictions and conditionalities implemented in the New Labour Codes.

Contact Asanify for updated compliance related process.

Conclusion on the New Labor Code:

The labor codes are to be implemented in 30 states and 8 union territories. The effective date of the implementation of the New Labor Code is July 1st, 2022. 

The code aims to simplify the existing laws and improve the working conditions of the workers. However, the codes have received criticism from the workers’ union as it seems to have provided more power to the employer.

Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant  or Labour Law  expert for specific guidance.