Labor laws in India – the new regime

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Labor laws in India – the new regime

Introduction

India is looking at major labor law reforms with the replacement of about 29 existing laws with 4 novel labor codes. These codes have been introduced to consolidate the existing laws and to ensure greater coverage of various employments.

This alert addresses the coverage, key provisions and the status of these labor codes.

Background

The current labor law regime in India is lengthy and tedious. While certain employments are covered under multiple laws, there are others which are not regulated. The duplication of compliances under these existing laws creates challenges for employers.

In order to simplify the complex framework and to ensure widespread coverage in an organized manner, the Ministry of Labour and Employment, Government of India introduced four labor codes to consolidate various central laws dealing with wages, social security, resolution of industrial disputes and working conditions.

Code on Wages, 2019 (Wage Code)

Objective: The Wage Code has been enacted with a view to regularize wages and bonus payments across all employments.

Laws subsumed: The Wage Code replaces four existing laws, namely:

  • Minimum Wages Act, 1948;
  • Payment of Wages Act, 1936;
  • Payment of Bonus Act, 1965; and
  • Equal Remuneration Act, 1976.

Coverage: The Wage Code is applicable to all employments wherein any industry, trade, business, or manufacture is carried out.

Key provisions:

  • The central government will fix a “floor wage” by taking into account the minimum living standards of workers.
  • The state government will fix the rate of minimum wage, which shall not be less than the floor wage prescribed by the central government.
  • The Wage Code mandates payment of wages within two working days in case of retrenchment or resignation.
  • Provisions for payment of bonus are applicable to every establishment where 20 or more persons are employed. Bonus is required to be paid to every employee who draws less than the prescribed wages and who has put in at least 30 days work in an accounting year.
  • Fraud, violent behaviour, theft and conviction for sexual harassment are grounds for disqualification for payment of bonus.
  • The Wage Code prohibits discrimination on the basis of gender in relation to wages.
  • The Wage Code defines “wages” to mean all remunerations which can be expressed in monetary terms with certain exclusions. This definition replaces different definitions under various labor laws.

Status:

  • The Wage Code has been published in the official gazette of India. The date of commencement is yet to be notified by the government.
  • The draft Code on Wages (Central) Rules, 2020 have also been formulated.

Occupational Safety, Health and Working Conditions Code, 2020 (Safety Code)

Objective: The Safety Code aims at the promotion of health and safety conditions of workers in establishments, factories, mines and docks.

Laws subsumed: The Safety Code subsumes 13 laws such as :

  • Factories Act, 1948;
  • Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996;
  • Contract Labour (Regulation and Abolition) Act, 1970; and
  • Inter-State Migrant workmen (Regulation of Employment and Conditions) Act, 1979.

Coverage: The Safety Code is applicable to:

  • Any trade, industry or business in which 10 or more workers are employed;
  • Factories, motor transport undertaking, newspaper establishment, building and other construction work, plantation in which 10 or more workers are employed; and
  • Mines and dock work.

Key provisions:

  • The Safety Code mandates the registration of all establishments and licensing of all contractors.
  • The Safety Code also mandates the issuance of an appointment letter to every employee.
  • Women may be employed to (with their consent) to work in an establishment before 6 a.m. and beyond 7 p.m.
  • Safety officers are required to be appointed for certain establishments such as factories (with 500 or more workers), building or other construction work (with 250 or more workers), etc.
  • The Safety Code prohibits employment of contract labor in core activities, except if:
    (a) The normal functioning of the establishment is such that the activity is ordinarily done through contractor; or
    (b) The activities are such that they do not require full time workers; or
    (c) There is any sudden increase of volume of work in the core activity which needs to be accomplished in a specified time.
  • Employers are required to maintain registers; issue wage slips and file returns in prescribed formats.

Status:

(i) The Safety Code has been recently passed by the Indian Parliament.
(ii) The rules in relation with the Safety Code have not been formulated yet.

Code on Social Security, 2020 (SS Code)

Objective: The SS Code has been enacted with a goal to extend social security to all employees and workers either in the organized or unorganized sectors.

Laws subsumed: The SS Code replaces nine existing laws, such as :

  • Employees’ Compensation Act, 1923;
  • Employees’ State Insurance Act, 1948;
  • Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
  • Maternity Benefit Act, 1961; and
  • Payment of Gratuity Act, 1972.

Coverage: The SS Code has varied coverage. For example:

  • Provisions dealing with Employees’ Provident Fund are applicable to every establishment in which 20 or more employees are employed;
  • Provisions dealing with gratuity and maternity benefit are applicable to every factory, shop or establishment in which 10 or more employees are employed; and
  • Provisions dealing with Employees’ State Insurance are applicable to every establishment in which 10 or more persons are employed.

Key provisions:

  • The government will formulate new Provident Fund Scheme, Pension Scheme and an Insurance Scheme and respective funds in this regard.
  • The contributions to the Provident Fund and the Pension Fund will be made by the employers and the employees collectively and the contributions to the Insurance Fund will be made by the employer.
  • Employers and employees will also be required to make contributions to the Employees’ State Insurance Corporation.
  • The SS Code mandates registration of unorganized workers, gig workers and platform workers. The SS Code further allows the government to formulate schemes for the welfare of such workers that may be funded wholly or partly by aggregators and/or the government.
  • The SS Code also mandates registration of establishments and building workers.
  • The onus of payment of maternity benefit, gratuity, cess for building workers and employee compensation lies solely on the employer.
  • Gratuity will be payable not only on superannuation or retirement or resignation, but also on termination of contract period under fixed term employment.

Status:

(i) The SS Code has been recently passed by the Indian Parliament.
(ii) The rules in relation with the SS Code have not been formulated yet.

Industrial Relations Code, 2020 (IR Code)

Objective: The IR Code has been enacted with a view to regulate conditions of employment in industrial establishments and promote settlement of industrial disputes.

Laws subsumed: The IR Code replaces three existing laws, namely:

  • Industrial Disputes Act, 1947;
  • Trade Unions Act, 1926; and
  • Industrial Employment (Standing Orders) Act, 1946.

Coverage: The IR Code is applicable to all industrial establishments and undertakings.

Key provisions:

  • The IR Code mandates the preparation of standing orders for establishments that employ more than 300 employees.
  • Prior permission of the government is required to be taken before closure, layoff or retrenchment by industrial establishments (specifically factory, mine or plantation) employing more than 300 workers.
  • A grievance redressal committee is required to be set up by every industrial establishment employing 20 or more workers, for resolution of disputes arising out of individual grievances.
  • The IR Code also classifies any dispute in relation to termination of the services of an individual worker to be an industrial dispute. The worker may apply to the Industrial Tribunal for adjudication of the dispute.
  • The IR Code introduces the concept of negotiating unions. The employer of an industrial establishment having registered trade union(s) is required to recognize a negotiating union.

Status:

(i) The IR Code has been recently passed by the Indian Parliament.
(ii) The rules in relation with the IR Code have not been formulated yet.

Conclusion

The new labor codes intend to create a balance between the rights and obligations of employers and employees. While employers have been given relaxation in obtaining registration and approvals and also for maintaining multiple registers, employees have been provided with greater bargaining powers. The codes regulate not only organized but also the unorganized sectors.

While the codes have broadly set out the new framework, the formulation of the rules relating to the new codes will provide a cohesive understanding.

The labor codes appear to be a welcome change in the age-old framework of labor laws in India.