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Labour codes – What could this mean for employers and employees?

Written by Adil Zawahir, Team, .

 A sea change is expected to occur in the labour policies and compensation structure of all the businesses, be it small or big. Here is an overview of the impact of the Labour Codes on employers and employees. For any assistance in coping with these drastic changes, visit us on

The Parliament has recently passed four new labour codes. The Ministry of Labour and Employment has finalised rules under these four labour codes paving the way for making reforms a reality by notifying these for implementation soon. Under the new plan, 29 central laws will be subsumed into four broad codes on wages; industrial relations; occupational safety, health and working conditions (OSH) and social security.

The changes in labour laws are to affect workers of all strata of society. The organized sector would face changes in salary structure and retirement benefits, whereas the unorganized sector would see minimum wages implemented, universal social security and health benefits.

In 2019, the Central Government introduced four bills on labour codes to consolidate 29 central laws. While the Wages Code was passed in 2019, the other three bills were referred to a Standing Committee on Labour. As per the recommendations of the Committee, the government replaced these bills with new ones in September 2020, and these were passed in the same month.

Even though the draft Rules for the Wages Code had been circulated in 2019 itself, the Central Government had taken a conscious call of not implementing the law on a standalone basis. It wanted to implement all the codes at one go for uniformity.

Changes introduced in the new codes

  • The code allows for 12-hour shifts and 4-day workweeks, provided the number of hours in a week not exceed 48 hours. If such 12-hour shifts are adopted in a 4 day workweek, it must be with the mutual consent of both the employee and the employer, and must mandatorily include 3 days of paid leave in the week. Rajiv Kapoor, a member of the CII National Committee on Industrial Relations, is of the opinion that a 4-day workweek provides flexibility to organizations to plan according to the market demands and customer needs. At the same time, due caution should be exercised and safety guidelines should be complied with after due diligence in the specific area of work.
  • The codes include a provision that caps allowances at 50%. This has been brought in to ensure that companies do not blow-up allowances to evade statutory burdens. As a result, companies will need to retweak their salary structures. Employees earning low salaries will not be heavily impacted as the take-home salary is not going to change by much. However, for employees earning a higher income, the income tax impact and providence fund deductions will be seen more clearly.
  • In the process of restructuring, net salaries may be reduced to balance it with an increase in retirement benefits such as gratuity and other tenure related benefits.
  • Universal Social Security will be introduced for the first time in India. Workers in the unorganized sector, gig workers and platform workers will now be brought into the social security lens. Employers and employees will be asked to contribute towards such a scheme as opposed to the government paying for it.
  • Employees State Insurance Corporation (ESIC) health insurance scheme plans to initially cover one million gig workers. Platforms and aggregators such as Amazon, Flipkart, Ola etc. will contribute 1% of their revenue towards the Social Security Fund and this fund will take care of the health and other needs of the gig workers and their families.
  • Statutory National Minimum Wage. The present minimum wage regulation is statutory but not binding by law. The new code will be statutory as well as mandatory which will make employers accountable for any breaches, and simultaneously improve the income of workers across India.
  • India's cost advantage as far as labour is concerned will come down substantially. The new law ensures all workers in India receive minimum wages, as against 60% of the workforce do at present.
  • With the gender pay gap as high as 80% in some of the Indian states, ensuring pay parity for women has been a constant urge by women’s rights advocates. The recent wage code clearly has created the right grounds for ensuring gender parity across sectors by emphasising equal opportunity and wages for all genders. This in turn could go a long way in attracting more women to join the organised workforce in India.

Concerns regarding the new codes

The notion of stretching daily working hours up to twelve hours is deeply concerning. These rules would supersede thirteen existing central labour law rules, as well as international standards set by the ILO and ratified by India. Several states including Uttar Pradesh and Madhya Pradesh have already introduced laws to enhance working hours to twelve in what they claim was a move to recover the losses incurred during the pandemic-induced lockdown. The state governments argued that such measures were necessary to boost output amid a limited workforce. However, considering the high rate of unemployment in India, this is questionable and points towards a desire to ensure cheap labour.

The central government’s plan to implement the new labour codes in India by April 1st is pushed forward due to a delay by state governments in framing their own sets of rules. Even after the draft rules are made public by the states, they will have to wait for public comments over a period of 30-45 days before finalising the codes.

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