Perspective: Employment Laws in India - Challenges, Changes and the Way Forward
Labour laws (also known as employment laws) mediate the relationship between workers, employing entities, trade unions, and the government. Labour Laws emerged when Employers tried to restrict the powers of Worker’s Organisations & keep labour costs low. Employment Laws in India have traditionally been governed by contract as well as various legislations, both at the central and state level. With the objective to simplify, modernize, rationalize and consolidate the various legislations with respect to employment, wages, industrial disputes and other relevant labour/employment related matters, Ministry of Labour and Employment (“Ministry”) introduced four bills in 2019 to amalgamate 29 central laws related to labour laws. These bills have been codified and enacted as:
- The Code of Wages, 2019.
- The Industrial Relation Code, 2020.
- The Occupational Safety, Health and Working Conditions Code, 2020 and
- The Code on Social Security, 2020.
The Indian Parliament passed these four labour codes in the 2019 and 2020 sessions. While the Parliament passed The Code on Wages in August 2019, the other three labour legislations, namely, The Industrial Relations Code, 2020, The Occupational Safety, Health and Working Conditions Code, 2020 and The Code on Social Security, 2020 were passed by the Parliament in September 2020. These four codes will consolidate 44 existing labour laws.
According to sources in the Ministry of Labour, the new wage code had to be implemented from October 1, 2022, extended from the prior proposed date of July 1, 2022. The government has not decided on a deadline to ensure the implementation of the codes which were formulated almost two years back. 25 states have sent their drafts on the Industrial Relations code to the Centre, while 24 states have sent drafts related to Occupational Safety to the Centre. Drafts are yet to be sent by the states to the centre in all four labour codes. The central government wants all the states to implement this code simultaneously.
Currently, many states have different codes. The majority of the states have sent the draft on the four labour codes to the Centre. But draft comments on the code are yet to come from some states. So far, a total of 31 states have sent draft rules on the new wage code. Rajasthan and Mizoram have sent drafts for each code only. So, West Bengal is the only state which has not drafted any code. Reports suggest, so far 23 states including Uttarakhand, Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Odisha, Arunachal Pradesh, Haryana, Jharkhand, Punjab, Manipur, Bihar, Himachal Pradesh and UT of Jammu and Kashmir have framed rules under new labour laws.
Constitutional Provisions on Labour Laws
Article 21 promises the protection of life and personal liberty. Article 23 prohibits forced labour. Article 24 prohibits the employment of children below the age of fourteen years. Article 39(a) provides that the State shall secure to its citizens equal rights to an adequate means of livelihood.
Landmark Judgments on Labour Laws in India
- Clarifying the concept of Lockout and Lay-off – Management of Kairbetta Estate, Kotagiri Po v. Rajamanickam, 1960 AIR 893, 1960 SCR (3) 371.
- Settlement under Industrial Disputes Act – Bata Shoe Co. Ltd. v. D.N Ganguly, 1961 AIR 1158, 1961 SCR (3) 308.
- By apex court for Equal Pay to Equal Work – Randhir Singh v. Union of India, 1982 AIR 879.
- On Bonded Labour – Bandhua Mukti Morcha v. Union of India, 1984 AIR 802.
- On Child Labour – C. Mehta vs State Of Tamil Nadu And Others, AIR 1997 SC 699, (1996) 6 SCC 756.
Features of New Labour Codes 2022
The new labour code deals with wages, social security, industrial relations and occupational safety. After the implementation of the new code, there will be changes in salary, holidays, PF, and working hours of the employees.
- The take-home salary of the employees will be less credited to the account by increasing the HRA as well as the PF categories of the salary structure. There is a provision to change the Basic Salary as well. The government has made new rules regarding payroll. According to the new Wage Code, an employee’s basic salary should be 50 per cent or more of his total pay. An increase in basic salary will add more money to the employee’s PF, as a result, one can get a huge amount at the time of retirement.
- Salaried employees will have the option of working four days a week and three days off. People who opt for three days off in a week will have to work 12 hours a day in the office. That means one must work 48 hours a week in any case. The ones who work for 8 hours a day will have only one week off. People who work for 12 hours a day in an organization will get three-week offs, and the ones that work 9 hours per day will be provided two-week offs. Under the Factories Act, a person working more than the daily limit of 9 hours or a weekly limit of 48 hours is entitled to wages that are twice the ordinary rate of wages. The new Codes retain this overtime wage rate in respect of any work extending beyond the limit of 8 hours per day or 48 hours per week.
The Code of Wages, 2019 (“Wage Code”)
The Wage Code has been notified on August 08, 2019, and received the assent of the President on September 28, 2020. The Wage Code focuses on simplifying the existing labour laws dealing with the payment of wages, overtime, bonus, minimum wages etc. The provisions of the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976, have been rationalised and subsumed therein. The implementation of the Wage Code is expected to have wide implications for industries and it is, therefore, crucial to understand the key aspects of the Wage Code and how they differ from the previous regulations. One of the key changes is the introduction of a uniform definition of the term ‘wage’ across all the four Codes. The uniform definition of ‘wage’ includes all monetary payments and any benefits provided in kind except for the specified exclusions.
Highlights of the Code:
- Definition of wage: – A uniform definition of ‘Wages’ is introduced, thus bringing standardization to multiple issues related to wages and streamlining them. Wages include salary, allowance, or any other monetary component. This does not include bonus payable to employees or any travelling allowance, among others. 
- Floor wage: – As per the code, the Central Government will fix the floor wages considering the workers’ living standards. The floor wage may vary depending on the geographical location. The minimum wages decided by the central or state governments should be above the floor wages. In case the existing minimum wages are higher than the floor wages, the central or state governments cannot reduce the minimum wages. Before fixing the floor wage, the central government may obtain the advice of the Central Advisory Board and may consult with state governments.
- Minimum Wages: – Employers cannot employ people on less than the minimum wage. While fixing the minimum wages, the government should take into account the difficulty level of the work, and the workers’ skill levels also. Also, the minimum wage fixed will be reviewed by the government at least every five years. The central or state government shall not take 5 years period for revising minimum wages. 
- Payment of wages: – Wages will be paid in (i) coins, (ii) currency notes, (iii) by cheque, (iv) by crediting to the bank account, or (v) through electronic mode. The wage period will be fixed by the employer as either: (i) daily, (ii) weekly, (iii) fortnightly, or (iv) monthly.
- Deductions: – Under the Code, an employee’s wages may be deducted on certain grounds including: (i) fines, (ii) absence from duty, (iii) accommodation given by the employer, or (iv) recovery of advances given to the employee, among others. These deductions should not exceed 50% of the employee’s total wage.
The Industrial Relation Code, 2020 (“IR Code”)
The IR Code consolidates and amends the laws relating to Trade Unions, conditions of employment in industrial establishment or undertaking, investigation and settlement of industrial disputes. The code combines, simplifies and amends the 3 Central Labour Laws namely (i) The Industrial Disputes Act, 1947, (ii) The Trade Unions Act, 1926 and (iii) The Industrial Employment (Standing Orders) Act, 1946.
The IR Code provides a new concept for negotiating trade unions or negotiating councils in an industrial company. According to the stated provision: In the case of a single union in an industrial company, the employer recognizes that union as the sole bargaining union of the workers and as such the sole negotiating union shall be permitted to negotiate terms with the employer. The IR Code prohibits strikes and lockouts in all industrial establishments without notice. No unit shall go on strike in breach of contract without giving notice 60 days before the strike, or within 14 days of giving such a notice, or before the expiry of any date given in the notice for the strike. The IR Code provides that the provisions with respect to the standing orders shall apply to all industrial establishments with 300 workers in comparison to the earlier 100 workers. The IR Code includes other provisions related to retrenchment, layoffs, closure of an establishment, etc.
Highlights of the Code:
- Timeline for the disciplinary process: The Industrial Employment Standing Orders Act did not specify a deadline for disciplinary actions to be taken. The Code, however, sets a 90-day deadline for concluding internal investigations into misconduct.
- Applicability of Standing Orders: Standing orders must be written on the subjects mentioned in a schedule to the Code, and they must be used by every industrial plant with 300 or more employees. These concerns relate to four different topics: (i) how employees are classified; (ii) how they are notified about working time, breaks, pay checks, as well as pay rates; (iii) how employment is terminated; and (iv) how they can lodge grievances.
- Employees on fixed-term contracts: It aims to enable employers to hire workers for any period. Fixed-term employees are those who are employed pursuant to a contract that establishes their limited lifetime of employment.
- Reduced Threshold: Companies with fewer than 300 workers are exempt from having to develop codes of conduct for staff members who work in industrial facilities. Companies of a maximum of 100 employees are currently required to comply.
- Dispute Resolution: It calls for the establishment of 2 tribunals (instead of a member), with the important cases being made the decision jointly and the less important civil matters by a single member, resulting in a timely response of cases.
The Occupational Safety, Health and Working Conditions Code, 2020 (“OSH Code”)
The OSH Code, 2020 received the President’s assent on September 28, 2020. It is a code to consolidate and amend the laws regulating the occupational safety, health and working conditions of the persons employed in an establishment. The field of occupational health and safety sets standards to mandate the elimination, mitigation, or substitution of jobsite hazards. OSH programs also include processes and procedures to minimize the consequences of workplace incidents. Occupational health and safety are a very broad umbrella. The goal of an occupational safety and health program is to foster a safe and healthy occupational environment. OSH also protects all the public who may be affected by the occupational environment.
The OSH Code consolidates 13 Acts regulating health safety and working conditions. The 13 Acts are; (i) Factories Act, 1948; (ii) Mines Act, 1952; (iii) Dock Workers (Safety, Health and Welfare) Act, 1986; (iv) Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996; (v) Plantations Labour Act, 1951; (vi) Contract Labour (Regulation and Abolition) Act, 1970; (vii) Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979; (viii) Working Journalist and other Newspaper Employees (Conditions of Service and Miscellaneous Provision) Act, 1955; (ix) Working Journalist (Fixation of Rates of Wages) Act, 1958; (x) Motor Transport Workers Act, 1961; (xi) Sales Promotion Employees (Condition of Service) Act, 1976; (xii) Beedi and Cigar Workers (Conditions of Employment) Act, 1966; and (xiii) Cine Workers and Cinema Theatre Workers Act, 1981.
The OSH Code has amended some of the definitions such as Contract Labour, Employee, Employer, Establishment, Principal Employer, Wages and Workers.
Highlights of the Code:
- The workplace ought to be free from any dangers that could endanger the health of the employees who work there, and any dangers should be disposed of responsibly. Workers who are impaired cannot be hired in the construction sector.
- The code stipulates that employers must hold annual medical check-up camps as a requirement.
- The appropriate Government may designate Inspector-cum-Facilitators who will exercise the authority granted with them throughout their jurisdictions and, in addition to other responsibilities to be fulfilled by them, may carry out an electronic web-based inspection and call of the information required by this Code.
- According to the OSH Code, the Central Government shall establish a National Occupational Safety and Health Advisory Board (“National Advisory Board”), which shall have the authority to provide advice to the Central Government.
- The employer must establish and maintain employee welfare programmes as may be required by the Central Government.
The Social Security Code, 2020 (“SS Code”)
The objective of the SS Code is to amend and consolidate the existing labour laws relating to social security with the goal to extend social security benefits to all employees and workers irrespective of belonging to organised or unorganised or any other sectors. The SS Code replaces nine laws related to social security. These include inter-alia The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, the Maternity Benefit Act, 1961, the Unorganised Workers’ Social Security Act, 2008, The Employees’ Compensation Act, 1923, Act, 1952, The Employees’ State Insurance Act, 1948, The Payment of Gratuity Act, 1972, etc.
The SS Code brings the unorganised sector, gig workers and platform workers under the ambit of social security schemes, including life insurance and disability insurance, health and maternity benefits, provident fund, employment injury benefits, housing and skill upgradation, etc.
Highlights of the Code:
- The Code seeks to protect as many workers and employees as possible. It offers a broad definition of “employee” that encompasses contract workers as well as those working in managerial, administrative, and supervisory positions. To determine an employee’s eligibility for different social security benefits, the Code makes distinctions based on the employee’s schedule of employment and/or wage ceiling.
- The definition of “inter-state migrant workers” as used in the Code has been expanded to include individuals who relocate from one State for recruitment in an organisation in a destination State and may effectively influence their organisation within the aforementioned destination State in accordance with an agreement or other employee arrangement. Such workers must earn a minimum of INR 18,000 per month to be considered interstate migrant workers.
- The Code will replace the current employment transactions with career centres that offer career counselling through the enrolment of employers as well as job seekers as well as the collection and transmission of data specific to employment, in addition to offering vocational guidance, career guidance, and assistance with starting a business.
- The Code stipulates enhanced and graded penalties for a variety of offences, some of which may be compensatory under certain circumstances. While the maximum penalty for a violation can reach INR 1,00,000 for some offences and even INR 3,00,000 for a subsequent violation, the maximum period of imprisonment for a violation can range from two months for the initial unlawful act to 3 years for a second or subsequent violation after a prior conviction.
- The regulations limit allowances to 50%, meaning that basic wages would make up half of the salary. The provident fund contribution is calculated as a proportion of basic wages, which includes basic pay as well as dearness allowance (DA).
Delayed Implementation of the Codes
The new labour codes were passed by the ministry of labour and employment, and they were planned to come into effect on July 1, 2022. Since there is still no agreement among the states, the new code is yet to be put into practice.
Due to the concurrent nature of the subject of labour, both the federal government and the states must pass laws and regulations prior to the implementation of the labour codes. There are signs that the Centre is preparing for a delayed deployment with an initial implementation of two Codes with most states having pre-published the draft rules for at least the Code on Wages as well as the Code on Social Security.
Trade unions have alerted the Centre that if the government goes forward with the execution of the Codes, they will turn to protest actions. The four Codes, which have been promoted as reforms, are feared by the unions to weaken workers’ rights. Industry representatives all agreed that despite the fact that expenses like overtime pay and gratuities will rise, recognising and protecting employees’ rights even those that have a “fixed term” nature is a positive step. However, they remained adamant that once the process of implementation gets going, more difficulties might emerge. Participants concurred that in ensuring a smooth transition, the two crucial factors – cost to recruiters and take-home pay for employees must remain unaltered and not be adversely affected during this process.
Other obstacles that might materialise, according to various respondents, were:
- No specific clause addressing the obligations of employers in pandemic-specific circumstances;
- Concerns that merely raising the 300-worker cut-off point for the application of the permission precondition for retrenchment is insufficient of a change;
- Concerns about dealing with unions and recognising them in industries like IT that don’t have much expertise on this front;
- Employee social security is not specifically addressed in small businesses and MSMEs;
- There are no concrete steps taken to help increase career opportunities.
The goal of centralization may not be met because the four codes still contain ambiguities. Therefore, the government should make every effort and issue all necessary regulations to ensure that the labour codes are implemented in the right spirit.
Given the above changes that the new labour codes have brought to the existing Employment Laws in India, it will be important for establishments to assess the implications and revisit the compliance requirements under each Code once it is brought into effect along with the final rules and state amendments. The new labour codes can be termed as much-needed improvements to the current labour regime in the country. The labour codes will ensure the creation of “One India & One Law”, reducing the number of laws with the often conflicting definitions of terms and provisions, to only four codes thereby ensuring tremendous ease in doing business. The “Final Goal” of Labour Laws is to bring both “Employer & Employee” on the same level, thereby mitigating the differences between the two ever- warring groups. The new labour reforms finally overtake the redundant existing labour law regime in terms of simplifying and modernising the labour system. But it is pertinent to note that these labour reforms are more employer-friendly. Although the new reforms have simplified various compliances, they have also created several confusions by not defining key terms in the Codes. Only time will tell how effective these Codes will be in the long run.
 Sec 2(y), The Code of Wages, 2019
 Sec 9 (1) (2) (3) , The Code of Wages, 2019
 Sec 5, 6, 8, The Code of Wages, 2019
 Sec 15, 16, The Code of Wages, 2019
 Sec 18 (2), (3), The Code of Wages, 2019
 The Industrial Relations Code, 2020: Implications For Workers’ Rights by Ramapriya Gopalakrishnan, 24th October, 2021 https://www.livelaw.in/columns/the-industrial-relations-code-2020-implications-for-workers-rights-164921
 Section 28, 29, 30, The Industrial Relation Code, 2019
 India: Evaluating The Code On Social Security, 2020 by Minu Dwivedi and Shreya Chowdhury on 04 November 2020, https://www.mondaq.com/india/employee-benefits-compensation/1001268/evaluating-the-code-on-social-security-2020
 Section 138 of the Code on Social Security, 2020
 4-day work-week, change in salary: India’s new labour codes likely in FY 2022-23, Hindustan Times, Dec 20, 2021, https://www.hindustantimes.com/india-news/4day-work-week-change-in-salary-india-s-new-labour-codes-likely-in-fy-202223-101639970476730.html
Image Credits: Photo by Rubaitul Azad on Unsplash
The labour codes will ensure the creation of “One India & One Law”, reducing the number of laws with the often conflicting definitions of terms and provisions, to only four codes thereby ensuring tremendous ease in doing business. The “Final Goal” of Labour Laws is to bring both “Employer & Employee” on the same level, thereby mitigating the differences between the two ever-warring groups.