The Indian Government has been working on a full overhauling of the archaic labour regulations to bring them in sync with the 21st-century organization landscape and advertising investments. The new set of regulations consolidates 44 labour laws below 4 categories of Codes namely, Wage Code Social Security Code Occupational Safety, Health & Working Conditions Code and the Industrial Relations Code.
What is the status of the 4 Labour Codes? When will they be applicable?
The Parliament has currently passed all the 4 Codes and it has also received the President’s assent. The government is aiming to implement all the 4 Codes in one go from the next Financial Year 2021-22 (date not notified however) and full the final stretch of labour sector reforms. The 4 codes are:
- The Code on Wages, 2019, applying to all the personnel in organized as effectively as unorganized sector, aims to regulate wage and bonus payments in all employments and aims at delivering equal remuneration to personnel performing work of a equivalent nature in each and every sector, trade, organization, or manufacture.
- The Code on Occupational Safety, Health and Working Conditions, 2020 seeks to regulate the wellness and security situations of workers in establishments with 10 or more workers, and in all mines and docks.
- The Code on Social Security, 2020 consolidates nine laws connected to social safety and maternity added benefits.
- The Code on Industrial Relations, 2020 seeks to consolidate 3 labour laws namely, The Industrial Disputes Act, 1947: The Trade Unions Act, 1926 and The Industrial Employment (Standing Orders) Act, 1946. The Code aims to boost the organization atmosphere in the nation largely by minimizing the labour compliance burden of industries.
The Ministry has also framed the draft Rules below each and every of these Codes and has invited recommendations/comments from the public on the identical. Since labour laws are placed below the concurrent list of the constitution of India, the States can decide on to frame their personal guidelines to govern the labour in their respective States.
The new labour codes bring in substantial adjustments and it is pertinent that companies/organizations recognize the important adjustments introduced below the new Codes, restructure and re-align, wherever expected, to adapt to the new labour code regime.
How do the labour laws effect you?
Labour and employment regulations have far-reaching implications for each and every organization organization. Firstly, these are critical for a congenial and harmonious connection among employers and personnel. You can’t have higher productivity and innovation in an atmosphere saddled with rifts and disputes. Secondly, the labour and employee charges constitute among 10 per cent to 50 per cent of the total charges for most organization organizations and the new laws will have an effect on the price structure. Finally, the new regulations will demand evaluation and revision of all employment contracts, compensation structure, registrations, and compliances. Suitable adjustments will have to have to be produced in the governance structure and IT systems. This will demand a “project management” method and a transition roadmap.
Some of the important impacts that the labour laws have on the organization neighborhood are as follows:
- Consistency in the definition of wages: Under the existing labour laws, there are almost 12 definitions assigned to the term “wages” alone! This was resulting in a lot of litigation and confusion for the businesses. The term ‘wages’ has been uniformly defined below the 4 codes and for that reason, it is anticipated to lower considerably confusion about what is particularly incorporated in wages.
- Businesses have to have to clearly recognize ‘Inclusions’ and ‘Exclusions’ in Wages: The definition of wages is most likely the single most critical aspect that the sector wants to contemplate. The Code on Wages consists of certain inclusions as effectively as exclusions in the definition of wages. Further, below the Code of Wages, it has been specified that the total of the specified exclusions, if the identical exceeds 50 per cent (or such other per cent as specified by the Central Government) of the remuneration, then the quantity exceeding such 50 per cent would be deemed to be remuneration and would be added in wages as per the definition. All businesses have to have to contemplate the definition of wages, look at their employment letters, analyse each and every of the elements of their employees’ CTC, and may possibly have to have to revisit the elements in case of non-compliance with the definition of wages below the new proposed labour laws.
- Impact of the new codes on social safety and take-property salary: Due to the alter in the definition of wages and the truth that the several social safety such as Provident Fund, Gratuity, ESIC, and so on. have now been pegged as a percentage of the ‘wages’ and not just the simple or simple plus dearness allowance, there is anticipated to be a alter in the total payouts on account of social safety and retirement added benefits. Depending on the employment letters and salary breakup of current personnel, even the take-property salary of personnel may possibly be impacted. Even TDS calculations based on the revisions in the take-property have to have to be meticulously thought of as the obligation to deduct TDS in case of salary is on the employer.
- Much wider coverage: Unlike the existing labour laws, exactly where coverage is distinctive for each and every of the laws based on the form of work carried out by the employee or coverage is restricted to workers or personnel drawing particular remuneration, the 4 labour codes appear to apply to all personnel and undoubtedly have considerably wider coverage than each and every of the existing laws looked at individually. The new labour codes also look at new-age working models and appear to give protection and legal treatments to 21st-century workers as effectively. The labour codes cover contract labour, fixed-term employment, gig workers, platform workers, and a lot of more ideas. Thus, the laws seem to be forward-seeking and are more inclusive.
- Faster F&F Settlements: Section-17(2) of the Code on Wages needs wages payable to an employee to be paid inside two days of removal, dismissal, resignation, or retrenchment. This will demand exit formalities and HR processes to be completed expeditiously and for dues to be settled inside the prescribed period. Companies should take note of this and make the needed adjustments to their internal processes.
by, Siddharth Surana, Advisor – Strategy and Business Transformation, RSM India