Labour code rollout to be delayed further beyond October 1 deadline

By: |
August 13, 2021 1:00 AM

There is also a demand from trade unions to implement the labour codes on wages and social security at the earliest, but industry bodies want sufficient preparation time for adhering to the new rules.

The development will also hit India’s prospects of attracting fresh investments at a time when fixed asset creation in the economy needs to gather pace for an economic rebound.The development will also hit India’s prospects of attracting fresh investments at a time when fixed asset creation in the economy needs to gather pace for an economic rebound. (Representative image)

Implementation of rules under the four labour codes passed between 2019 and 2020 is likely to be delayed further beyond the October 1 deadline. The original plan was to implement the reforms from April 1.

The Centre might not immediately give any new date, not even a tentative one, for rolling out the relevant rules, according to sources. This will prolong the wait for increased labour flexibility for existing establishments.

The development will also hit India’s prospects of attracting fresh investments at a time when fixed asset creation in the economy needs to gather pace for an economic rebound.

While the Centre had attributed the April 1 deadline miss to states’ dithering to frame rules — since labour is on the concurrent list — a conflict between the respective representatives of employers and employees over some provisions in the draft rules is being cited as the reason for the latest delay.

“Neither the employers nor the employees want faster implementation of the rules. Neither side is willing to move an inch from their demands,” an official said.

One of the contentious provisions is the definition of wages, which proposes to cap allowances at 50% of the wages. This means if allowances exceed 50%, the employer will have to pay social security, including gratuity, on the excess amount. This will lead to an increased social security burden and hence, the financial burden on employers through an increase in the salary cost.

Employees’ representatives are insisting on keeping the definition unchanged even if the take-home salary comes down.

Currently, employers enjoy flexibility in calculating the compensation package by reducing the components liable for social security and increase the allowances. Employers’ bodies were arguing that the 50% threshold for basic pay plus dearness allowance should be brought down to 20-30% of the total package.

There is also a demand from trade unions to implement the labour codes on wages and social security at the earliest, but industry bodies want sufficient preparation time for adhering to the new rules.

Sources in the government, however, said all four labour codes — on wages, industrial relations, social security and occupational safety & health — will be implemented at one go.

Amalgamating 29 central labour laws into four codes, the Centre wanted to bring in a change in the way business and industry functions. While the code on wages was passed in August 2019, Parliament approved the other three on September 23 last year.

Among the reform proposals are freedom for businesses to retrench workers or close units without prior government permission and fixed-term employment schemes, which are in sync with the nature of business of several establishments, especially the export-oriented ones.

In consultation with the ministry of law and justice, the Centre has finalised rules under codes on wages, industrial relations and operational safety & health. Rules under the code on social security have been finalised and sent to legislative department for vetting, a source said.

While central rules are applicable for the central sphere, such as ports and railways, the codes empower states to make rules modelled on central rules for establishments under their jurisdiction. States such as Uttar Pradesh, Bihar, Madhya Pradesh, Uttarakhand, Gujarat and Karnataka have framed draft rules under various codes, sources said.

Apart from various industry-friendly proposals, the new laws ensure minimum wages along with timely payment of wages to all workers and propose to bring them all under the social security net.

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