The new labour code 2022 was enacted by the ministry of labour and employment which was proposed to be implemented from July 1 2022. The new code has not yet been implemented as no consensus has been reached between states. The new labour law reforms which is commonly known as new labour code codify a long list of labour laws that prevailed in India till now, which safeguards multiple aspects of the employee- employer relationship, their welfare and other wide aspects into 4 broad codes namely 1.Labour code (Wage Code) – 2019, 2.OSH Code (Occupational, Safety, Health and Working Conditions Code) – 2020, 3.Industrial Relations (IR) Code, 2020 and 4.Code on Social Security and Welfare (SS Code), 2020. There are numerous reforms introduced as per this code which are favourable and challenges both the employer and employee viz the change in the take home salary of the employees, change in the working hours etc. This paper focuses on the analysis of the said new labour code 2022, by studying its key highlights and challenges from the perspective of both employer and employee.
1. NEW LABOUR CODE 2022 2. LABOUR LAWS 3. EMPLOYER 4. EMPLOYEE
Table of Contents
Introduction
“All labour that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.”
-Martin Luther King Jnr.
In 2020, when the world was bound by the chains of covid 19, the Parliament of India passed the Labour Reforms Bill, proposing a new labour code for the new India. The ministry of labour and employment[1] had planned to implement the reforms in April 2021, but due to the second wave of the pandemic, the deadline was pushed back to July1, 2022. Even after July1, only a few states have adopted the new labour code, which has been met with indescribable criticism across the country. Let us examine in detail how this new labour code will benefit the country and why it is being criticised in the country.
Background
The workers in the unorganized sector constitute account for nearly 93% of the total labour force in the country[2]. The government has implemented some social security measures for specific occupational groups, but the coverage is limited. The majority of the workers are still without any social security coverage. Despite the existence of a plethora of labour laws designed for labour welfare, social security, dispute resolution, and so on for both organised and unorganised labour, the fruits of these laws and protection have not reached these workers across the country. In this context, the Second National Commission on Labour was established on 15th October 1999, chaired by Ravindra Varma, and submitted its report and recommendations on 29th June 2002[3]. Following the passage of the bill in parliament, Prime Minister Narendra Modi stated that the “long due and much awaited” reforms will “ensure wellbeing of our industrious workers and give a boost to economic growth. They are also shining examples of ‘Minimum Government, Maximum Governance’.” Furthermore he also added that “The new Labour codes universalise minimum wages and timely payment of wages and give priority to occupational safety of the workers. The reforms will contribute to a better working environment, which will accelerate the pace of economic growth. These labour reforms will ensure ‘Ease of Doing Business’.”[4]
Codification of Labour Laws
According to the new labour code reforms, the central government has codified almost 29 labour laws into 4 broad codes namely
- Labour code (Wage Code) – 2019
- OSH Code (Occupational, Safety, Health and Working Conditions Code) – 2020
- Industrial Relations (IR) Code, 2020 and
- Code on Social Security and Welfare (SS Code), 2020
Labour Codes’ Key Highlights
The brief summary of the major provisions of the 4 labour codes and its highlights are given below;
HIGHLIGHTS FOR THE EMPLOYEE
New definition for ‘wage’
Previously, the definition of wages varied due to changes in labour law. As a result, there were numerous definitions of wages. This created a loophole for employers to exploit their employees by interpreting the definition in their favour. However, the new code provides an inclusive definition of wages that is similar for all four codes with only subtle variations. The new definition of ‘wages’[5] – includes basic pay, dearness allowance, and retaining allowance; however, certain pay components are excluded (enhanced from current legislation). House rent allowance; bonus excluded from the terms of employment, any retrenchment compensation or other retirement benefit, or ex gratia payment made by an employer is among the new exclusions.
Quelling on allowance
Employers are required by the new wage code to ensure that basic pay accounts for 50% of an employee’s CTC and that the remaining 50% is made up of other employee benefits such as overtime pay and bursaries. Any ancillary exemptions or allowances provided by the company are considered remuneration and will be added to the employee’s earnings if they exceed 50% of the CTC[6]. The new law delineates a cap on allowances that cannot exceed 50% of gross earnings, ending the fabrications that have been ubiquitous in Indian industry for the aeons.
Increase in the gratuity and PF
The maximum basic salary is now capped at 50% of CTC under the new labour standards, ostensibly amplifying the employee’s gratuity bonus. The gratuity amount will be inferred by the new wage code’s higher salary base, which will include basic pay plus additional benefits such as a special allowance on salaries[7]. Companies’ costs for gratuities and PF are likely to rise significantly. The new legislation is likely to reduce employees’ take-home pay while increasing the social security (pension) component of wages.
Full and final settlement of obligations
Employees and employers have frequently clashed over the final and complete payment of all fiduciary duties. Currently, most enterprises can defer paying all dues in case of layoffs, resignations, or terminations for up to 90 days, causing a slew of problems for employees[8].
The new labour code mandates that employers pay all payables within two working days or face penalties and interest[9].In the past, when looking for new employment and possibilities, the obscurity regarding such settlements frequently caused workers problems. If an employee purports to move, negotiating and collecting dues can be onerous.
Rules relating to salary settlements for new employees
The new labour code significantly alters salary timescales, particularly in terms of onboarding new employees and the resulting variations in the wage cycle. As mandated by law, the number of days worked must be accounted for in the upcoming pay period. As a result, employees who start in the middle of the month do not lose pay. All payment must be received within the first seven days of the following month[10]. The wage cycle for workers who are paid monthly should not last more than a month. Employees have been forced to work at the mercy of employers for a long time due to a lack of clearly defined laws and regulations.
Change in the leave policy
In the case of earned leaves, the prerequisite for a new hire to take a hiatus is now 180 days rather than 240 days[11]. Although the Factory Act already grants 12 days of annual earned leave to people who work a minimum of 240 days per year, the new labour code reduces this to 180 days. Other than this, there haven’t been any significant changes to annual leave; now, instead of consecutive 45 days, employees receive 1 day of leave for every 20 days they work.
Leave encashment policies
An employee can carry forward 30 days if they have 45 days of unused leave remaining after a year, and the company is required to pay out 15 days right away if they have 45 days remaining[12]. According to the proposed encashment policy, dues and pay outs are only settled after the end of employment. With ample relaxation and a healthy work-life balance, this move significantly raises the level of living standard for employees. However, it causes problems because enterprises will now need to tweak scheduling.
Dispute settlement mechanism
The dispute resolution process between employers and employees has undergone significant alterations since the implementation of the industrial relations legislation in 2020. For industrial enterprises with multiple trade unions, the code has established the new notion of “sole negotiating union[13].” The regulation stipulates that at least 51% of the workforce must be represented by a union[14]. Furthermore, a sole negotiating union can only deal with the company.
As per section 9 C of industrial dispute act, 1947[15] a worker was entitled to directly move to the conciliation officer without approaching the redressal forum. But according to the new code, a worker at first need to approach the grievance redressal committee. And it also makes it compulsory for the committee to complete the investigation procedures within a time frame of 90 days[16], which was absent in all the previous legislations. The time period starts from the day of suspension of worker.
Prior notice required in case of lay off
The employer will now have to give 60 days prior notice for lock-out of the establishment as per the new code[17]. This will prevent the employees from arbitrary lock outs and earlier it was six weeks before locking out[18].
Social security provisions for women and interstate migrants.
According to the labour code, with their explicit consent, women have been granted the right to work at night, and it has also been ensured that the employer would put in place the necessary safeguards to ensure their sense of security when working at night[19]. Apart from that the Maternity Benefit Act was revised in 2017 to extend the 12-week paid maternity leave to 26 weeks and to make childcare mandatory in all establishments with 50 or more employees[20]. And work from home also has been found a place in the current legislations.
The problems faced by the interstate migrant workers have always been an obstacle, which is being resolved by the new code. The new code makes a space include various welfare provisions for the interstate migrants and it also strengthens the laws relating to interstate migrants. And different schemes have also been proposed like creation of national database, Garib Kalyan, delivery of free food grains to the homes, mandatory helpline facility etc.
HIGHLIGHTS FOR THE EMPLOYER
Increase in the number of working hours
The new labour code proposes a change in the number of working hours from 40 hours a week to 48 hours week. And also the per day working hours has extended from 8 hours[21] to 9 hours which can extend up to 12 hours. So to sum up a worker needs to work only for 4 days and can take 3 days off provided that he works for 12 hours a day or he can work for 8 hours a day for 6 days in a week[22].
Overtime work
The occupational health and safety code, 2020 makes provision for the total number of working hours for a worker. Previously according to factories act, 1948 the total number of working hours were capped till 50 hours[23]. But the new labour code has lifted the overtime working from 50 to 125 hours across all industries in India[24]. This makes advanced scope for the employers to schedule the shifts of workers allowing a great deal of flexibility which was the major setback in the factories act, 1948. Right now both the employers and employees benefited by extending the overtime hours. This also makes it easier for companies and factories all around the nation to adopt the four-day workweek.
Increasing the threshold of standing orders
The new labour code has increased the threshold of standing orders from 100 or more workers to 300 workers. This move is highly going to benefit the industrial establishments with less than 300 workers, which was earlier decided based on the Industrial establishments standing orders act, 1946.[25] Standing order means the rules of conduct for workmen employed in industrial establishments[26].
Enhanced retrenchment and closure provisions
For layoffs, retrenchments, or business closures, industrial establishments that employ 300 or more employees must now acquire the necessary government approval; the previous threshold was 100 employees. This will provide much more flexibility to the employer in hiring and firing procedures.
Prior notice required in case of strike
According to the new labour code, strike in an establishment must be announced by the employees at least 60 days in advance. It will be advantageous for employers to broaden the scope of a strike and compel employees to give 60 days’ notice.[27] Also, the new definition of ‘strike’ mandates that mass casual leave by 50% or more of the workers will be considered a strike.
Labour Code’ Key Challenges
The brief summary of the pain points of the provisions in the 4 labour codes and how it’s going to affect the employer- employee is given below;
Challenges for the Employer
Employer need to restructure the salary
The new definition forces each employer to renew the salary structure of the employees due to the inclusion of different components in the total salary and the employer now need to make sure that the salary structure is in terms with the new definition of wages under the code of wage 2019.
Short deadline for full and final settlements
Even though the two day full and final settlements are beneficial for the employees, it will create hassle for the employers to comply with the requirement under the provision. The deadline for FNF settlements are two days which very shorter which needs the employer to review it properly.
The inclusion of Gig workers/ Platform workers
The new definition of workers has included gig workers and platform workers which create much more complications in the employer’s life, the primary issue being to identify the aggregator, gig workers and platform worker among the cohort of employees.
Strengthening the punishment for contravention
The Code of Wage has increased the penalties for non-compliance, with the following material penalties: Underpayment or non-payment of amounts due is penalised with a fine of up to INR 50,000 for the first infringement, increasing (with the possibility of imprisonment) to up to INR 1,00,000 for the second and consecutive contraventions; and Other transgressions result in fines of up to INR 20,000 for the first offence, increasing to INR 40,000 for subsequent offences (with the possibility of imprisonment)[28].
The Wages Code allows for the compounding of offences through the payment of fines, however if an offence has been compounded yet recurs within five years, it cannot be compounded once more.
High expenses for complying the new code
In total, considering the provisions of the four codes, we can conclude that proper code compliance forces the employer to spend more from their pocket, particularly when it comes to resolving industrial relations issues.
Challenges for Employees
Diminution in the take-home salary for employees
Despite the possibility of modest savings in the long-term statutory benefits, the restructuring of compensation components would undoubtedly result in higher employee deductions, including taxes. This will decrease the take home salary of the employees; thereby it will be difficult for the employees to look after his family especially when the prices of essential commodities are increasing day by day.
Hampering the job security
By increasing the employee thresholds of layoffs from 100 to 300 employees, it increases the chance for employers threatening and misusing the provisions thereby hampering the job security of the employees.
Increase in the working hours
The increase in the working hours may negatively impact the mental and physical health of the employees. It will lead to the social wellbeing of the society. This will also have an impact on the women who are in charge of family chores, because according to the current patriarchal system of the society, home chores are solely the responsibility of women.
Conclusion
The new reforms in the labour laws by introducing the codification of labour laws into 4 broad codes are a welcoming step by the nation. As we all know there are around 44 central legislations[29] and about 200 state enacted legislations which explains the different aspects of the employer- employee relations, different social security schemes, and dispute settlement mechanisms. However, the implementation and actual outcomes of these legislations remain undetermined. The large number of cases pending in courts relating to labour issues indicate that the benefits of these laws have not reached the employees. Employer exploitation continues to prevail in various sectors. Thus, codifying these numerous laws into four codes simplified the process, and everything is now in one place. The majority of the legislation has also revealed severe gender discrimination in the workplace. Nevertheless, these disparities are adequately addressed in the new labour code, and women’s welfare measures have found a prominent place in the current legislations. Although these codes have massive benefits, they, like the other side of the coin, have flaws. The code’s definitions are ambiguous, difficult to interpret, and confusing. There is a provision that allows employers to exploit employees. These codes must be demographically customised. To summarise, the new labour code for the new India is quite experimental and will be a pivotal milestone in labour welfare and legislation. Despite multiple announcements of implementation dates, the codes have yet to be implemented, and only a few states have done so. The passage of time will reveal how effectively the new labour code will be implemented.
This article is authored by Vrinda Lakshmanan.
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[1] Home, (Aug. 18, 2022), labour.gov.in/.
[2] Ministry of Finance, 2019. The Economic Survey 2018-19. Government of India.
[3] Ministry of labour and employment, 2002. The Second National Commission on Labour report. New Delhi: Government of India, pp.4-6.
[4] Ministry of labour and employment, 2022. New Labour Code for New India. Government of India.
[5] The code on wages 2019 § 2(y) No. 29 , Acts of Parliament,2019 (India)
[6] The code on wages 2019 § 18(3) No. 29 , Acts of Parliament,2019 (India)
[7] The code on wages 2019 § 18(4) No. 29 , Acts of Parliament,2019 (India)
[8]The Industrial Disputes Act, 1947 § 25O No.14 Acts of Parliament,1947 (India)
[9] The code on wages 2019 § 17(2) No. 29 , Acts of Parliament,2019 (India)
[10]The code on wages 2019 § 17(1) No. 29 , Acts of Parliament,2019 (India)
[11]The occupational safety, health and working Conditions code, 2020 § 32(i) no. 37 acts of parliament,2020(India)
[12] The occupational safety, health and working Conditions code, 2020 § 32(i) (Vi) no. 37 acts of parliament,2020(India)
[13] The Industrial Relations Code, 2020 § 14 No. 35 acts of parliament,2020(India)
[14] The Industrial Relations Code, 2020 § 14(3) No. 35 acts of parliament,2020(India)
[15] The Industrial dispute act, 1947 § 9(C) No. 14 acts of parliament,1947(India)
[16] The Industrial Relations Code, 2020 § 38(1) No. 35 acts of parliament,2020(India)
[17] The Industrial Relations Code, 2020 § 62. (1) No. 35 acts of parliament,2020(India)
[18] The Industrial dispute act, 1947 § 22(2) No. 14 acts of parliament,1947(India)
[19]The occupational safety, health and working Conditions code, 2020 § 43 no. 37 acts of parliament,2020(India)
[20] The maternity benefit amendment act 2017§ 3(3) No. 6 acts of parliament,2017(India)
[21]The occupational safety, health and working Conditions code, 2020 § 25(1) no. 37 acts of parliament,2020(India)
[22] id
[23] The Factories Act, 1948 § 51[2] and 54[3] No. 63 acts of parliament,1948(India)
[24]The occupational safety, health and working Conditions code, 2020 § 27 no. 37 acts of parliament,2020(India)
[25] The Industrial establishments standing orders act, 1946 § 1(3) No. 20 acts of parliament,1946(India)
[26] The Industrial establishments standing orders act, 1946 § 2(g) No. 20 acts of parliament,1946(India)
[27] Id at 17
[28] The code on wages 2019 § 54 No. 29 , Acts of Parliament,2019 (India)
[29] Ministry of labour and employment. 2022. List of enactments. [online] Available at: <https://labour.gov.in/list-enactments-ministry> [Accessed 19 August 2022].
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