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Decoding The Hits and Misses of the 4 Indian Labour Codes

The simplification of a complicated set of  44 labour-related laws has been long overdue—both for employers and employees alike. Employers found it impossible to navigate through a collective list of 100 labour-related laws governed by both State and Central Governments, thereby pushing them to be non-compliant and take short-cuts. While new provisions are in place to enable holistic social security of workers in all sectors, there have been debatable reforms proposed that take away their rights for fighting for better employee-friendly provisions. 

The Industrial Relations Code, 2020

The Industrial Relations Code is a consolidation of three central laws and has witnessed unique changes and additions to its contents, some of which are welcome, and others that raise an eyebrow since it is unclear whom the laws are in favour of.  Previously, employees were categorized as permanent, fixed-term, or contractual. The new codes treat fixed-term employees at par with regular employees, thereby enabling financial security in the long term. On the other hand, ambiguity in the terms “worker” and “employee” leads to an awry implementation. The definition varies, for example, for the treatment of cases revolving around industrial disputes and retrenchment. 

 In addition, there is absolute freedom in deciding the period of length of fixed-term employment, which could mean that there is never an opportunity for a fixed-term employee to convert into a permanent employee. This poses a problem since the end of fixed-term employment is the same as a termination, which comes with fewer benefits. The cascading effect of these changes is massive since it affects the worker’s bargaining power, ability to resolve industrial disputes and secure employment on a long term basis. 

A welcome move proposed in the bill, however, is to set up a re-skilling fund for retrenched employees or those who are laid off due to the closure of units. The incorporation of new-age skills in labour-intensive industries can not only help increase employability among workers but also enable the market to pivot towards newer ways of doing business. A World Economic Report states that 54% of workers across 12 industries in India will need a reskilling initiative, with the Fourth Industrial Revolution driven by technology seeping in. Manufacturing, Construction, and Retail are some of the most labour-intensive industries, where despite the mandate as per the bill, reskilling is imperative to ensure formalization and changing nature of work are taken care of. Although the manufacturing sector has reported profits despite the pandemic, it is only because of massive administrative cost cuts on the personnel front. 

On the other hand, a worrisome aspect of the proposed changes in the bill is the easy hire and fire policy in these sectors, which might house layoffs as cyclical and in-line with the production cycle. A recovery plan post the pandemic needs to be a combination of reskilling initiatives as well as enhanced productivity brought about by positive growth in employment. The pandemic has amplified the jobless growth that India has been undergoing since 2017, which can slowly be reversed by businesses opening up and enhancing productivity by a skilled labour force. 

Code on Social Security, 2020

The Social Security Code consolidates nine central labour laws, and expands its coverage to gig workers, unorganized workers, and platform workers, which, given the changing nature of work, is a much-needed move. Not only does this facilitate recognition of all forms of work, but it also keeps the employer accountable in ensuring there is uniform treatment of all employees in the respective industry. In terms of benefits, there have been massive improvements in both coverage and turn-around time; gratuity has been extended to fixed-term contract workers, and has also been reduced from 5 years to 3 years in terms of continuous work completion requirement upon superannuation, retirement/resignation, death or disablement due to disease or accident. 

There have been mixed reviews on the treatment of offences that have changed in the bill. In the 2019 bill, the respective authorized officer, in the event of missing/pending payments, reopen the case and apply relevant judgements to determine the penalty amount. The provision has now been removed, which while removing choke points for businesses to continue with their business as usual, dilutes the stringency of the punishment. Similarly, the case for enquiries on Provident Fund and Employee State Insurance conducted by the authorized officer—a provision to revisit pending cases has been removed. The penalty for unlawfully deducting an employer’s contribution from an employee’s wages has been reduced from either imprisonment or a fine of Rs 50,000 to just Rs 50,000. 

The second layer of compliance is more stringent, in that failure to deposit employees’ contributions collected attracts a penalty of Rs 1,00,000 and an imprisonment of 1-3 years. While the implementation of the code, in this case, makes it easier to reduce the number of unlawful activities, it does not incentivize compliance from the get-go. Employers must ensure all payments are made on time, and exemptions, if any, must be sought in advance. 

The Code on Wages, 2019

The Code on Wages, 2019 amalgamates the existing 4 wages and payment-related labour laws, where it sees the culmination of years of deliberations with multiple stakeholders including Trade Unions, Employers, Central Ministries/State Governments and experts of the labour sector. The primary objective of the code is to simplify and regulate wage and bonus payments. It applies to all employees across the country (from the earlier 30% per cent of the country) with the central government tasked to make decisions for railways, mines, and oil fields, among others, while State governments decide for all other ones. This would, for the first time, include the service sector along with both organized and unorganized employees. 

Interestingly, in line with the Ease of Doing Business, the definition of wages has been categorically stated to include three components — basic pay, (inflation-linked) dearness allowance, and retention payment while excluding bonuses, pension and PF contributions, conveyance allowance, HRA or housing benefits, overtime, gratuity, commission, retrenchment compensation, and others. Moreover, to envision easy compliance, the new wage code makes it mandatory for employers to award at least 50% of employees CTC as basic pay. 

The code further introduced the concept of “floor wage”, which is the minimum wage based on the living conditions set by the central government. This sets the minimum wage that an employee is statutorily guaranteed which in any case has to be above the floor wage. The geography, nature, and working conditions along with the skill sets, forms the primary criterion in determining the minimum wage instead of the earlier criteria of employment types. Furthermore, the code stresses the gender aspects of employment with the ideal to create equal pay for equal work. 

Work of similar nature is defined as “work for which the skill, effort, experience, and responsibility required are the same”. In terms of bonus payments, the code puts forth that any establishment employing more than 20 employees with wages less than that specified by the government must award an annual bonus of at least 8.33% of employees’ wages or Rs. 100, whichever is higher. In case employees work in excess of a normal working day, they are entitled to overtime wage, which must be at least twice the normal rate of wages. It prescribes the revision of minimum wages every five years, similar to the previous acts. With the notification of this act, the Number of minimum wage rates is expected to reduce to about 200 in the entire country as against 10000, earlier.

 While the code presents a promising outlook, it seems that the states have been granted a free-hand in determining the wages, which could defeat the purpose of ease of compliance. Further, there are rising debates on the calculation of floor rate which would play a crucial role in enabling the security to the workers. 

The Occupational Safety, Health, and Working Conditions Code, 2020

The Occupational Safety, Health and Working Conditions Code, 2020  brings together and simplifies the key provisions of the 13 Central Labour Acts, where it envisions a centralized database to improve the Ease of Doing Business, rationalizes compliance with the introduction of one license-one registration-one return for establishments. It entails a single, one-time electronic registration of any establishments with 10 or more employees. Further, the applicability of this Code can be extended by the central government to any establishment, even if it has less than 10 employees, carrying out hazardous or life-threatening occupations. The code expands the definition of a ‘migrant worker’ to also include those who would be directly employed by the employer along with those engaged by a contractor. Moreover, the migrant worker has been empowered to register on an electronic portal on the basis of an Aadhaar based self-declaration in the destination state. This would create a national database of the unorganized sector which on proper execution could go a long way in mapping their skills, providing social security benefits, and formulating future policies.

 In terms of health and working conditions, the employers have been tasked with providing annual health check-ups along with mandatorily providing appointment letters; a necessary step to improve the formalization of the economy. Desirably so, the code has now paved the way for gender neutrality at the workplace by entitling Women to work at night, subject to their consent, and envisaging the employment of women in all establishments. 

Moreover, the All India License for contractors instead of an order-based licensing system could go a long way in streamlining labour reforms. Lastly, the multiple regulatory committees have been substituted by one National Occupational Safety and Health Advisory Board, a tripartite body representing trade unions, employer associations, and State governments. While the provisions are difficult to regulate, the prudent implementation of the code could prove to be a game-changer for the formalization of the economy. 

The consolidation of the codes is a welcome move towards untangling a complicated set of regulations that governed an even more complicated landscape of the labour market in India. That said, the codes have a long way to go in terms of making them accessible, easy to comprehend, and aiding the economic growth of the country, at the same time ensuring all parties secure equal access to gaining benefits from its implementation.

This article is the first in a series of unpacking the Indian Labour Codes. The next article will cover the economic implications of Labour Laws in developing economies. The authors,Nidhi Upadhyaya and Aradhya Gupta, are Young India Fellows at the Ashoka University. They have a combined work experience in the field of Human Resources and Public Service respectively. 

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