LABOUR REFORMS 2021 AND IT’S IMPACT.
The government has been working on completely rephrasing of Labour Laws to bring in consistence with present era requirements and ensure that they meet up the changing business dynamics and promote current investment structure in all perspectives. It is very a little difficult to balance the interest of both the parties i.e., the employer and the employee. However, by implementing the four major codes the government quiet far reached the goal of striving to meet this growing need. With the changing era there was an increased need to overhaul these laws for the better maintenance of law in society.
Code on wages was first approved by Parliament of India in 2019 and it was later on in September 2020 that Code on social security, health and working conditions, occupational safety and industrial relations was approved by government. This new code aims at giving more liberation to employer in terms of work hours and also aims at easing the process of firing and hiring of employees. These four Codes are an amalgamation of 29 Labour Laws. The whole purpose behind introduction of these codes is to improve ease of doing business and reduce compliance burden.
The four Codes that are introduced as below –
The Code on Wages, 2019
The Code on Social Security, 2020
The Industrial Relations Code, 2020
Occupational safety, Health and Working conditions Code, 2020
All these four codes have been considered to be the need of hour by government considering in the changing era and COVID-19 pandemic efforts. Some of the key employee- friendly features of these newly introduced codes are revised definitions of wages thereby introducing changes like higher contribution by employer in form of gratuities, statutory bonuses, termination compensation and Provident fund. Also, provisions have been introduced regarding leave encashment on an annual basis with pro- rata gratuity payments.
The Code on Wages, 2019
It is important to note that new definition of Labour Law will be applicable to whole of India. The new Code on wages comprise of four main acts that are as follows-
Payment of Wages Act, 1936
Minimum Wages Act, 1948
Payment of Bonus Act, 1965
Equal Remuneration Act, 1976
The code is applicable to employees of all sectors. The word employee includes all those employed in administrative, supervisory and managerial category. Minimum wages will be payable to all including the unorganized sector.
The necessary differences are mentioned below:
Minimum Wages- Earlier there were no provisions on minimum wages for state government. Minimum wages fixed by the State government should not be less than national minimum wages for that particular region.
Applicability- Earlier Wages Act before was applicable to employees whose wages were not more than 24000 Rs. Per month. Bonus Act was applicable to those employees whose wages do not exceed Rs. 21000- P/M or to any establishment consisting of 20 or mor members. Now the provisions regarding payment of wages will be applicable to all employees.
Overtime Wages- Before the overtime wages were setup by appropriate state or central authority but now, they are set at two time the normal wages.
Discrimination on basis of gender- Presently all the discrimination based on gender has been removed in wages, transfer and recruitment.
Key points of this code are:
The new Labour code is applicable to all kinds of employment and also ensure minimum wages even to the unorganized sector.
People employed in supervisory, administrative and managerial category are all included in definition of employees.
The scheme adopted for inspection will be web- based.
All categories of employees can file for grievances if any in compliance with rules of Labour code.
Trade and Industry are quired to redesign policy for the salaries and wages in order to make sure that 50% of CTC including employer’s contribution towards PF and ESIC are considered to be wages on which PF will be subtracted. There are certain factors that need to be paid attention while such salary is restructured and Labour codes are complied with those are as follows- there shall be higher amount of penalties in case any sort of contravention takes place, In case a complaint is filed by a trade union or a n employee then court will take the cognizance of any such offence duly punishable under this code, If we widen the meaning of wages we will come to know that definition of wages does not include house rent allowances, hence it is important that 50% of wages shall be part of the basic wage.
All this implies that although net salary of employee that he gets will reduce but on the other hand their will be a substantial increase in savings of an employee.
The Industrial Relation Code, 2020
The new Industrial Relation Code 2020 comes into existence with compliance of following Laws i.e.,
Industrial Employment Act
Industrial Dispute Act
Trade Union Act
The new code has introduced following changes in the Labour law:
The code is applicable to all those establishments with strength of at least 300 employees’ prior number of employees was fixed at 100.
Any kind of dispute related to termination of individual worker is termed as an industrial dispute. For all such disputes industrial tribunal can be referred by employees for adjudication. If we widen the scope of this term, it may include disputes regarding retrenchment, dismissal, termination of the services of an individual employee or discharge.
Earlier permission for lay- offs, closure etc. was required for establishments with 100 employees but now there should be at least 300 employees.
If in case more than 50% of the worker take leave i.e., mass casual leave then in such a case it will be termed as strike.
In case workers wish to go on strikes a lock outs they are required to serve 60 days prior notice.
The Code on Social Security, 2020
The main aim behind introduction of this code was to ensure that all the employees and workers get the deserved social security irrespective of the organized or unorganized sectors they all work in and even if they work as temporary workers. Various different types of social security boards are being constituted one such is national security board for the social security f employees belonging to the unorganized sector of industry. Also make sure electronic registration of the employees. Even self-employed workers need social security schemes so it’s objective also include to frame schemes for them.
The new Code on Social Security is a sum up of below mentioned Laws:
The Maternity Brief Act, 1961
The Payment of Gratuity Act, 1972
The Employees’ Compensation Act, 1923
The Employees’ State Insurance Act, 1948
The Employees Provident Fund and Miscellaneous Provisions Act, 1952 is another important Law.
The Cine Workers Welfare Fund Act, 1981
The Unorganized Workers Social Security Act, 2008.
The Employment Exchanges Act, 1959
Key Features of this Code:
This code consists of a provision of gratuity even for fixed term employee irrespective of the period of their service. This implies that even the fixed term employees will get social security benefits similar to those of regular employees.
All those establishments where there is certain kind of hazardous activity conducted are compulsory to be linked with ESIC irrespective of the number of workers working it their even establishment with single worker are required to link.
Presently ESIC facility was given only in 566 districts but after this code comes into force it will be provided in all 740 districts.
Simple procedure of self-certification through online data bases will be used for the registration of unorganized workers also national database will be set up for the same. This will make it easy to provide benefit of social security schemes to the workers of unorganized sector.
Basic advantages offered:
If a particular employee has already been registered under the subsumed laws in such a case no fresh registration of employee will be required also employees can file return electronically.
To ensure transparency in process of inspection the reports are to be uploaded online within a limited time frame and from thereon employer may choose to answer the necessary query.
Further an attempt is being made to adopt a uniform meaning of term wages as introduced in the code which may stand similar for each employee.
In order to increase the accountability EPFO and ESIC corporations to be made body corporates.
Occupational Safety, Health and Working Conditions Code, 2020
In today’s era with emerging trend and innovation in the technology the main objective of this code is to provide flexibility and include necessary provision for the proper implementation of rules and regulations. This Code is beneficial for both employees and companies. Since various Laws are consolidated under into one code this leads to easy compliances and monitoring. Apprentices are not covered under this code of Occupational Safety, Health and Working Conditions. It promotes web-based inspection for easy and smooth process without any hinderance. In order to ensure that employees abide by the safety norms legal provisions are very framed. For engaging the contract labourers, a single all India license is valid for five years. Inspectors are required to perform the role of facilitator as well to guide to employees how they can comply with the provisions of the code.
This code is a compliance of following Laws:
Plantation Labour Act
Dock Workers Act
Inter State Migrant Workers Act
Working Journalist Act
Motor Transport Workers Act
Working Journalist and Other Newspaper Employees Act
Sales Promotion Employee Act
Contract Labour Act
Building and Other Construction Workers Act
Cine Workers and Cinema Theatre Workers Act
Beedi and Cigar Workers Act
Imposition of Penalties:
In case offence is such that it leads to death of an employee then higher penalties will be imposed, it will be punishable with fine of up to Rs. 5 Lakh or with imprisonment of up to 2 years, or both.
Impact of Labour Laws on Business Community:
For a smooth and harmonious relation between employer and employee Labour laws play a very important role. These Laws have far reaching impact on every sort of business organization. If there are lot of conflicts and disputes within a business concern then it is very likely to affect the production of that business. Below mentioned are the impact of Labour reforms 2021 on business community:
Uniformity in definition of wages- Earlier the term wages alone was assigned 12 different definitions therefore leading to a lot of confusion and contravention within companies and further increasing litigation.
Now in the four codes a uniform definition has been assigned to term wages to avoid any sort of conflict and reduce confusion.
Impact on take home-salary and social security- A change is expected in total payouts on account of social security and retirement benefits because of change in definition of wages and also the fact that various social security maned as ESIC, gratuity, Provident fund etc. have now been pegged as the percentage of wages and not just the basics. All this is surely going to impact the take home-salary of employees in one or other way.
F and F settlements – In situation of removal, dismissal, retrenchment or resignation of employee all the wages payable to any such employee should be paid within 2 days as per section- 17(2) of the wages code. For the faster settlement of dues within the prescribed period it will require all exit formalities and HR processes to be performed speedily. Therefore, companies are required to make the necessary changes within their internal processes.
Inclusions and Exclusions in wages – Industry needs to pay full attention to definition of wages and find out all the necessary inclusions and exclusions in it. All the companies need to closely analyze the components of their employees CTC. It is their responsibility to comply with all the key features of definition if wages and reconsider their employment contracts if necessary.
The 4 Labour codes are applicable to all kinds of employees irrespective of their area of work unlike present Labour laws which were applicable based on the type of work performed by the employee, salary withdrawn by the employee etc. The newly introduced codes have much wider coverage as compared to the earlier one. Their main aim is to give remedies considering in the present era and problems faced particularly by 21st century workers. Categories covered by them are fixed term employment, gig workers, contract Labour and many more. Thus, the Labour law appears to be evolving with changing needs of time and is forward looking.
Priyadarshini Maji, New Labour Codes: How will they impact social security, take-home salary The Financial Express (2021), https://www.financialexpress.com/money/new-labour-codes-how-will-they-impact-social-security-take-home-salary/2220976/ (last visited Jun 27, 2021).
Ashok Nawal, Labour Reforms w.e.f. 1st April 2021 & Impact thereon TaxGuru (2021), https://taxguru.in/corporate-law/labour-reforms-w-e-f-1st-april-2021-impact-thereon.html (last visited Jun 27, 2021).
Author- Eshika Singla
Course- BCom LLB (H)
University- Amity Law School, Noida