Your Money: What new labour codes mean for the salaried

Fixed-term employees need to be offered the same benefits as permanent employees for similar roles.

Your Money: What new labour codes mean for the salaried
These labour codes will replace 29 current central labour laws.

The government is in the process of transforming the labour law framework in India with the introduction of four new labour codes. These labour codes will replace 29 current central labour laws.

How would this impact salaried employees? What can salaried employees expect from these codes? Let’s have a look.

Gratuity payout

The Code on Social Security, 2020 requires employee benefits such as gratuity to be calculated on ‘wages’ as defined under the codes. This was earlier calculated only on basic salary. This will mean a higher quantum of lump-sum gratuity pay-out to eligible employees.

The Occupational Safety, Health and Working Conditions Code, 2020 (OSHWC Code) covers special provisions for working hours, overtime and leave for a certain category of employees, defined as ‘workers’ under the codes. A normal working day will cover eight hours of work. State governments have been given authority to prescribe the weekly working hour limit and the hours beyond which overtime will be payable.

For every hour worked over such prescribed limits, ‘workers’ will be entitled to overtime pay at twice the rate of ‘wages’. These provisions apply to employers across sectors and even individuals in so-called white collared jobs if they fall within the definition of ‘workers’.

Leave encashment

The OSHWC Code has specific provisions for earned leave and leave encashment for workers. Workers will be eligible for one day of leave for every 20 days of work and can carry forward up to 30 earned leave to the succeeding calendar year. Workers will be eligible for leave encashment on their demand at the end of each calendar year. Where the total number of leave exceeds 30, workers will be eligible to encash such exceeded leave. All leave encashment for workers under labour codes, whether annually or on termination of employment, is to be calculated based on the definition of ‘wages’.

The Code on Wages, 2019 requires full and final settlement of wages within two working days of end of employment. Thus, employees will be eligible for early payout after leaving employment and may not have to wait for full and final settlement.

The labour codes have also recognised the ‘fixed term employment’ model. Such fixed-term employees need to be offered the same benefits as permanent employees for similar roles. Also, fixed-term employees are eligible for gratuity after one year of service.

From an employee’s perspective, labour codes aim to achieve their twin objectives of equity by ensuring social security to all and acting as a catalyst for generating employment opportunities.

The writer is a tax partner, EY India. Views expressed are personal.

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