The law related to labour’s minimum wages, safety, health and working Conditions and the Social Security are very complex in India. Many provisions of Labour Laws trace their origin to the time of the British Raj. However, with changing times, many of them either became ineffective or did not have any contemporary relevance. Rather than protecting the interests of workers, these provisions became difficulties for them. The web of legislations was such that workers had to fill four forms to claim a single benefit. Employer are also not able comply all the laws and these laws became burden for them. They have to take various registrations under various social security laws and have to deal with various authorities. Inspector Raj from the time of Britishers forcibly imposed on them.
Therefore, the present Government has repealed the non-useful Labour Laws and 29 Labour Laws have been codified into 4 Labour Codes, so that workers can get security along with respect, health and other welfare measures with ease and it became easy for employer also to comply with laws.
These are the 4 new labour codes introduced after consolidating 29 previous laws:
1. The Code on Wages – Consolidating 4 Laws – Gazetted 8/8/2019
2. The Industrial Relations Code – Consolidating 3 Laws – Gazetted 29/9/2020
3. The Code on Social Security – Consolidating 9 Laws – Gazetted 29/9/2020
4. The Occupational Safety, health and working Conditions Code – Consolidating 13 Laws – Gazetted 29/9/2020
Benefits of Codification
- Maximum Coverage
- Inspector-cum-facilitator not only to inspect but also advise
- Single Registration; Single License; Single Statement; Minimum Forms
- Common definitions
- Reduction of Committees
- Web-based surprise inspection
- Use of technology – Electronic registration and licensing.
- Reduction of compliance cost and disputes
All 4 new labour codes already gazetted in “Gazetted of India” and are law and will have to implement by all organization whether large, small or medium once notified by the government. Now the proposed date of Implementation is 1st April 2022. Unless delayed by government every organization has to comply with it from the F.Y. 2022-23.
As Human capital is the most costliest and sensitive cost of capital among the others, after introduction of these labour codes it needs to be restructured, human capital cost needs to be re budgeted.
Here are the major takeaways from these labour codes:
Change in definition of “Wages” is the most critical change and have financial impact on both employee and employer.
As per section 2(y) of “THE CODE ON WAGES, 2019” “wages” means all remuneration
-whether by way of salaries, allowances or otherwise,
-expressed in terms of money or capable of being so expressed which would,
-if the terms of employment, express or implied, were fulfilled,
be payable to a person employed in respect of his employment or of work done in such employment, and
includes,—
(i) basic pay;
(ii) dearness allowance; and
(iii) retaining allowance, if any,
but does not include–
(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;
(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;
(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
(d) any conveyance allowance or the value of any travelling concession;
(e) any sum paid to the employed person to defray special expenses entailed
on him by the nature of his employment;
(f) house rent allowance;
(g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;
(h) any overtime allowance;
(i) any commission payable to the employee;
(j) any gratuity payable on the termination of employment;
(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:
Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other percent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the percent so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause
Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.
Explanation.––Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen percent of the total wages payable to him, shall be deemed to form part of the wages of such employee.
In simple terms wages includes basic pay, dearness allowance and retention allowance but major twist is in the proviso which says exclusion (mentioned above) from wages can’t be more than 50% of the all remuneration. If exclusion are above 50% of the total remuneration amount exceeds should be added to wage. The impact of this is that now employer can’t restrict the amount of contribution like PF and ESI by showing minimal amount as basic pay.
And also Payment in kind upto 15% of “Total Wages” shall be deemed to part of Wages.
As per Social Security Code PF Deduction to be 10% and not 12%.
The Impact can be illustrated from the below example:
| Particulars | Calculation under existing law | Calculation under proposed law |
| Basic | 5,000 | 5,000 |
| Other allowances | 10,000 | 10,000 |
| Total Salary | 15,000 | 15,000 |
| PF Contribution | ||
| Employer | 600* | 750** |
| Employee | 600 | 750 |
| Total Deduction | 1,200 | 1,500 |
| Cash In hand | 14,400 | 14,250 |
| %reduction in Cash in Hand | -1% | |
| CTC for Employer | 15,600 | 15,750 |
| % increase in CTC for Employer | 1% |
(*) 12% of 5,000
(**) 10% of 7,500 (As maximum allowable allowances are 7,500 [i.e. 50% of 15,000] So, Rs 2,500 added to wages for PF calculation]
This also impact provisioning for gratuity and leave encashment. Keeping all thing in mind employer needs to restructure his human capital cost. And as employee’s in hand salary will reduce there should be proper communication from employer to employee that this is for his benefit as his retirement fund will increased.
Some other key definitions are :
As per section 2 (k) of “THE CODE ON WAGES, 2019”“employee” means,
– any person (other than an apprentice engaged under the Apprentices Act, 1961),
– employed on wages by an establishment to do any skilled, semi-skilled or unskilled,
– manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward,
-whether the terms of employment be express or implied,
– and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union.
As per section 2 (z) of “THE CODE ON WAGES, 2019” “worker” means,
-any person (except an apprentice as defined under clause (aa) of section 2 of the Apprentices Act, 1961)
-employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work
-for hire or reward,
-whether the terms of employment be express or implied,
-and includes—
(i) working journalists as defined in clause (f ) of section 2 of the Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955; and
(ii) sales promotion employees as defined in clause (d) of section 2 of the Sales Promotion Employees (Conditions of Service) Act, 1976, and for the purposes of any proceeding under this Code in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched or otherwise terminated in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute,
but does not include any such person––
(a) who is subject to the Air Force Act, 1950, or the Army Act, 1950, or the Navy Act, 1957; or
(b) who is employed in the police service or as an officer or other employee of a prison; or
(c) who is employed mainly in a managerial or administrative capacity; or
(d) who is employed in a supervisory capacity drawing wage of exceeding fifteen thousand rupees per month or an amount as may be notified by the Central Government from time to time.
As per section 2 (l) of “THE CODE ON WAGES, 2019” “employer”means
-a person who employs, whether directly or through any person, or on his behalf or on behalf of any person,
– one or more employees
-in his establishment and
– where the establishment is carried on by any department of the Central Government or the State Government, the authority specified, by the head of such department, in this behalf or
– where no authority, is so specified the head of the department and in relation to an establishment carried on by a local authority, the chief executive of that authority,
– and includes,—
(i) in relation to an establishment which is a factory, the occupier of the factory as defined in clause (n) of section 2 of the Factories Act, 1948 and, where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the said Act, the person so named;
(ii) in relation to any other establishment, the person who, or the authority which, has ultimate control over the affairs of the establishment and where the said affairs is entrusted to a manager or managing director, such manager or managing director;
(iii) contractor; and
(iv) legal representative of a deceased employer;
As per section 2 (m) of “THE CODE ON WAGES, 2019”“establishment” means
-any place where any industry, trade, business, manufacture or occupation is carried on
– and includes Government establishment;
Under 4 New Labour Codes following points are on merit:
1. Minimum wage is a universal right and not restricted to scheduled employments.
2. The appropriate Government shall fix the minimum rate of wages payable to employees.
3. The appropriate Government shall review or revise minimum rates of wages ordinarily at an interval not exceeding five years.
4. Employees for Social Security expanded to include Gig Workers, Inter State Migrant Workers, Platform Workers & Film Workers and other Unorganized Sector Workforce.
5. OSHW Code 2020 contains exhaustive provisions relating to occupation, safety, health, and working conditions of workers across industries/ commerce-service sector is also covered now.
6. One Registration of an establishment instead of multiple registration.
7. The code is applicable to all the establishments employing 10 or more workers.
8. Structured definition of Industry- excludes charitable institutions.
9. Prior permission Provisions relating to closure, layoff and retrenchment will apply only for establishments with more than 300 workers (now 100).
10. Time limit for raising industrial disputes fixed 2 years.
11. Definition of Establishment now not only limited to factory, covers ‘any place’ where any business/occupation iscarried on.
With contributions from Assistant Mr Himanshu Hareet
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Author Bio
Dear Ca. Jatin ji,
I have read your article on Labour Laws: A New Rise, really its studied article and such difficult subject you explained it in very lucid way. Now I am eagerly waiting from you for detail article on other codes too…The Industrial Relations Code – The Code on Social Security — The Occupational Safety, health and working Conditions Code. Hope you will release it at earliest. Thank you.
Best Regards
Sanjeev