Labour Codes

In News

• The streamlining of labour laws has been a work in progress, with the Centre notifying four broad labour codes to replace 29 sets of labour laws:
  • The Code on Wages, 2019; 
  • The Industrial Relations Code, 2020; 
  • The Code on Social Security, 2020; and 
  • The Occupational Safety, Health and Working Conditions Code, 2020.

Key Features of the proposed labour code

• The codes are based on recommendations of the Second National Commission on Labour (2002).
• Code on Wages, 2019:
  • Applying to all the employees in organized as well as unorganized sectors. 
  • Under these new codes, a number of aspects related to employment and work culture, in general, might change including the take-home salary of employees, working hours, and the number of weekdays.
  • According to this wage code, once an employee quits, is fired, or is removed from employment and services, a company is required to pay the full and final settlement of their salaries within two days after their last working day.
    • Currently, firms require anywhere from 15 to 60 days, and in some situations up to 90 days, to pay the full settlement of wages.
• Code on Industrial Relations, 2020:
  • Employees in India may be able to enjoy a four-day workweek, as opposed to the current five-day workweek.
  • In that case, however, employees will have to work for 12 hours on those four days since the labour ministry has made it clear that even if the proposal comes through, the 48-hour weekly work requirement has to be met.
• Code on Social Security, 2020:
  • The regulations restrict allowances to 50 percent.
    • This implies that half of the salary would be basic wages and contribution to the provident fund is calculated as a percentage of basic wages that involves the basic pay and dearness allowance (DA).
  • Under the current labour regulations, the employer’s percentage-based contribution towards the PF balance depends on the employee’s basic pay and dearness allowance.
• The Occupational Safety, Health and Working Conditions Code, 2020:
  • Bill provides that women will be entitled to be employed in all establishments for all types of work under the Bill. 
  • It also provides that in case they are required to work in hazardous or dangerous operations, the government may require the employer to provide adequate safeguards prior to their employment.

Significance

• Four-day workweek: 
  • It is likely that employees may be able to balance worklife by enjoying a four-day workweek.
• Management: 
  • It will also drastically alter the way industrial houses treat their employees.
• Short-term work contracts: 
  • Employers would have greater flexibility in rolling out short-term work contracts.
• New social security net: 
  • A new national wage floor could benefit workers, besides informal and gig workers will have a new social security net.
• Improve ease of doing business: 
  • The new industrial relation code would also improve the ease of doing business by allowing firms with up to 300 workers to go ahead with lay-offs, retrenchment and closure without government permission.
  • At present all firms with up to 100 employees are exempted from government permission for lay-off, retrenchment and closure.

Concerns

• Implementation:
  • It was deliberated whether it should be implemented phase-wise. 
  • A part of the discussion was that the Wage Code and the Social Security Code could be brought in first, but then it was felt that if the remaining two are not brought in simultaneously, their turn may not come. 
  • It has to be wholesome, for both workers and the industry
• Impact take-home pay: 
  • A key change in the definition of “wage” would impact take-home pay, but increase retirement savings, something that a section of employers are opposed to as it may increase their employee costs.
• The burden on firms & companies: 
  • Firms will have to bear a higher provident fund liability.
  • Companies would also need to adjust their payroll operations if the wage code were to become law, working around the deadlines and methods for determining the full settlement of salaries within two working days.
• Strikes may become harder: 
  • Due to these new changes, industrial strikes may become harder which is a negative impact on the workers.
• Political challenge:
  • Early-2023 is being considered a feasible option for rolling out these codes.
  • But the fact is that it cuts too close to the 2024 general elections. 
    • The current government might show hesitation in taking this step as these are expected to introduce sweeping changes that would affect both businesses and workers.

Way Ahead & Conclusion

• For these new regulations to be put into effect, all the states and UTs must prepare and notify these laws, which has not yet been done.
  • With labour being a concurrent subject, both the Centre and states have to frame laws and rules.
• The labour reforms will help create significant employment while also protecting the worker by ensuring minimum wage reforms, provision for social security for workers in the informal sector, and minimising government interference. 
  • It will ensure timely payment of wages and give priority to the occupational safety of the workers, thus contributing to a better working environment. 
• The pandemic had made matters worse for women, the young, self-employed, migrants and workers with low and medium skills.
  • Therefore, the government should strive to support a recovery that is robust, broad-based and women-centric and based on social dialogues with all the stakeholders concerned to promote and ensure a seamless transition.

Source: IE