By Rishi Agrawal, Co-Founder & CEO, TeamLease Regtech
Recently, India surpassed the UK to become the fifth largest economy in the world, valued at a whopping $3.5 trillion. Despite being the world’s fastest-growing major economy, it lags far behind when it comes to per capita GDP. The reality remains that the average income of an Indian worker is a mere $2,500 per annum while in the UK, it is almost 19 times this amount (at around $47,000 per annum).
As one of the four factors of production, labour plays a crucial role in determining the economic growth of a country. Unfortunately, India has been operating with an outdated and asynchronous legal framework that has slowed worker welfare in the country. The colonial-era labour laws designed to address the socio-economic exigencies of the time have outlived their welcome in the new era of development.
While the need for labour law reforms has persisted for years, it was only in 2020 that India finally embarked on a long-overdue journey of reimagining its labour law regime. The enactment of the four new Codes has set the stage for India to usher in the next phase of economic boom. As the nation eagerly awaits the enforcement of the Codes, this article takes a look at how the changes introduced will impact India’s workforce.
The applicability criteria under the Codes have been broadened to include more establishments and workers. For instance, while the Minimum Wages Act, 1948 applied only to workers in scheduled employment, the Code on Wages, 2019 is applicable to all establishments and employees. The threshold applicability limit of ₹24,000 under the Payment of Wages Act, 1936 has also been removed. Similarly, the Employee’s Provident Fund Act, 1952 applied only to scheduled employment prescribed in the portal. The Code on Social Security, 2020 removes this industry-specific applicability criteria.
Narrower Threshold Limits
Two significant threshold limits have been introduced in the new Occupational Safety, Health and Working Conditions Code, 2020 which narrow the scope of applicability. First, while the Contract Labour (Regulation and Abolition) Act, 1970 applied to every establishment employing 20 or more workers as contract labour, the Code raises this applicability threshold to 50 workers. Second, under the Factories Act, 1948, the minimum applicability limit was 10 workers (with the aid of power) and 20 workers (without the aid of power). Under the Code, this minimum threshold has been increased to 20 and 40 respectively. These provisions will deprive workers in smaller establishments of availing the benefits of the new Codes.
Lower Net Take Home Salary
Under the new Codes, the basic wage component cannot be less than 50 per cent of the total remuneration and hence, the sum of excluded components cannot be more than 50 per cent of total remuneration. This will have two broad implications. First, contributions towards provident fund and pension (calculated as a percentage of basic wage component) will likely increase. Second, employees will get lesser allowances (excluded from basic pay) since these cannot exceed the 50 per cent threshold. Overall, the net take-home salary of the employee will lessen.
Varying Threshold Limit for Gratuity
The new Codes remove the mandatory minimum gratuity threshold of 5 years for certain categories of workers. While regular and permanent employees will have to work for at least 5 years to become eligible for gratuity, fixed-term workers will have no such limit. Instead, their gratuity payment will be payable on a pro rata basis. For seasonal workers, gratuity payments equivalent to salary for 7 days will be provided for every season of work.
Reduced Working Hours
The maximum daily working hours have been reduced from 9 hours to 8 hours although the maximum daily hours inclusive of rest intervals (i.e. spread over) have increased from 10.5 hours to 12 hours. The decrease in daily working limit and the increase in total spread over will allow for longer rest intervals for workers, potentially leading to greater productivity levels. The maximum weekly working hours, however, remain unchanged at 48 hours.
Higher Flexibility in Leaves
The leave conditions have been rationalised under the new Codes. Under the Factories Act, 1948, a holiday must be given on Sunday unless a compensatory holiday (with the prior permission of authorities) is given either 3 days before or after such Sunday. The compensatory holiday should be planned such that the worker does not work for more than 10 consecutive days. The new Codes, on the other hand, mandate that a worker shall be entitled to at least one leave per week, removing the complex provisions on compensatory holidays and providing greater flexibility in granting leaves.
Additional Welfare Provisions for Overtime Work
Under the Factories Act, a person working more than the daily limit of 9 hours or 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. However, there are some additional provisions on overtime work to ensure workers’ welfare. First, the period of overtime is to be calculated on a daily or weekly basis, whichever is more favourable to the worker. Second, a worker cannot be required to work overtime without consent. Third, for calculating overtime, a fraction of an hour between 15 to 30 minutes will be counted as 30 minutes and for any fraction more than 30 minutes, it will be counted as an hour.
Stronger Grievance Redressal Mechanism
Under the Industrial Relations Code, 2020, any establishment with 20 or more employees must have a Grievance Redressal Committee. It can have a maximum of 10 members as against the maximum of 6 members required under the Industrial Disputes Act, 1947. It must have an equal number of members representing the employer and the workers, with the chairperson being elected, alternately, from among employees and workers, on a rotational basis every year. There must also be adequate representation of women, which must not be less than the proportion of women workers in the establishment.
The new Codes have consolidated 29 legacy labour laws and brought down the number of provisions by 61 per cent (from 1,232 to 480). Based on the recommendations of the 2nd National Commission on Labour (2002), these Codes have amalgamated, simplified and rationalized India’s complex labour law regime. This two-decade-long reform exercise will result in much-needed benefits for employees in terms of wages, leaves, working hours and social security.
However, the roll-out of the Codes has been significantly delayed as all 36 States and UTs have not yet notified state-specific rules. Even after two years of their enactment, there is no clarity as to when they will be implemented. Resultantly, the benefits granted to workers under the Codes have been deferred indefinitely. With India reaching new heights on the global economic front, the benefits of this progress must be equitably distributed across the country’s workforce. Timely implementation of the new Labour Codes will be a crucial step in this direction.