Labour Laws

Central government has merged the existing labour laws into four labour codes. These four
labour codes have become acts but has not come into force yet.

1. The Code on Wages, 2019

It has replaced (repealed) four previous acts viz:
 Payment of Wages Act, 1936
 Minimum Wages Act, 1948
 Payment of Bonus Act, 1965
 Equal Remuneration Act, 1976

 The central government shall fix floor wage (which will be applicable for both
organized and unorganized sector) taking into account minimum living standards of
a worker in such manner as may be prescribed. Provided that different floor wage
may be fixed for different geographical areas. State governments will fix the
minimum wages (which may be different for different skill-category of workers) for
their states which cannot be lower than the floor wage (of the central government).
The code also provides that there would be a review/ revision of minimum wages at
intervals not exceeding five years. Further, the rate of wages for overtime work shall
not be less than twice the rate for normal wages. MGNREGA wages have been kept
outside the purview of Code on Wages.

 In case the employee is removed, dismissed, retrenched, resigns or becomes

unemployed due to closure of an establishment, the wages are required to be paid
within two working days.

 The Code has expanded the definition of “employer” as well as “employee”, resulting
in a broad based applicability of the regulations and is now applicable to employees
in both organised and unorganized sectors.

 The provisions of the previous Minimum Wages Act and the Payment of Wages Act
used to apply only to workers drawing wages below a particular ceiling and working
in scheduled employments only. However, under the Code, the minimum wages
and the payment of wages provisions cover all establishments, employees and
employers.

 The definition of “wages” includes basic pay, dearness allowance and retaining
allowance. It specifically excludes components such as statutory bonus, utilities
(light, water, medical etc.), conveyance allowance, house rent allowance, overtime
allowance etc. The specified exclusions however may not exceed 50% of the total
remuneration. This is aimed at ensuring that companies do not adopt
compensation structures which result in wages being reduced below 50% of the
total compensation.

 All employees whose wages do not exceed a specific monthly amount (to be notified
by the central or state government) will be entitled to an annual bonus. Bonus is
payable on higher of minimum wage or the wage ceiling fixed by the appropriate
government for payment of bonus. Minimum bonus prescribed under the Code is
8.33 percent and the maximum bonus payable is 20 percent of the wages.

 The cut-off date for salary disbursement has been advanced to the 7 th of the
subsequent month.
2. The Occupational Safety, Health and Working Conditions Code, 2020
It has replaced (repealed) 13 previous acts including The Factories Act 1948.

 The code deals with the duties of the employer in respect of workplace safety and
working conditions, and makes issue of employment letter a must for all
employees, a move that will promote formalisation of employment.

 The code specifies leave and working hours (which is limited at 8 hours, and any
overtime requires workers’ consent and wages have to be doubled), requires health
and safety norms including adequate lighting and ventilation and other welfare
facilities such as separate toilets for male, female and transgender employees.

 A manufacturing unit will be defined as a factory if it employs 20 workers (and uses

electricity) or 40 workers (without using electric power)

 The government may, in public interest, exempt any new industrial establishment
from “all or any of the provisions” of the Codes in the interest of increased economic
activity and employment generation.

 Employment of women has been allowed in all establishments for all types of
works and in the night shift, subject to their consent and requires employers to
provide adequate safeguards. This will promote gender equality.

3. The Code on Social Security, 2020

It has replaced (repealed) 9 previous Acts.

 The Code proposes social security benefits to all employees and workers in the
country (around 50 crores) including those in the unorganized sector leading to
universalization of social security.

 “Social Security Fund” will be created to fund social security schemes for extending
benefits like death and accident insurance, maternity benefit and pension cover to
all of the 90% (basically informal) of the country’s over 50 crore workforce who do
not till now come under any sort of social security cover.

 Scheme will be framed for unorganized workers, gig workers, platform workers and
even those self-employed and the members of their families for providing benefits.
Establishments will be allowed to join Employees’ Provident Fund Organization
(EPFO) and Employees’ State Insurance Corporation (ESIC) on voluntary basis even
if they have fewer workers (less than 20 in case they use electricity or less than 40
in case they do not use electricity).

 EPFOs coverage would be applicable on all establishments having 20 workers.

Earlier it was applicable only on establishments included in the relevant Schedule.
4. The Industrial Relations Code, 2020
The new Act replaces the following previous acts (some provisions will be repealed as and
when the code comes into effect and some provisions may be repealed in future):
 The Trade Unions Act, 1926
 The Industrial Employment Act, 1946
 The Industrial Disputes Act, 1947

 A much larger segment of firms – those with workers up to 300 (as against 100
earlier) will be able to resort to closure and retrenchment/ lay off without prior
government permission. And the state governments are authorized to increase this
300 threshold just by a notification.

 Companies having more than 300 workers need to apply for approval to layoff any
worker, but if authorities do not respond to their request then it will be deemed
approved.

 The government may, in public interest, exempt any (existing or new) industrial
establishment from “all or any of the provisions” of the Codes for a specified period.

 The Code prohibits the employment of contract workers in any core activity, and
specifically permits employment in a specified list of non-core activities including
canteen, security and sanitation services.

 Fixed Term Employment has been made applicable for all industries which will
help those businesses that witness seasonal spurt/change in activities.

 Requirement of mandatory 14-day notice for strikes and lockouts will now apply to
all units which was earlier for just public utility firms.

 Definition of strike has been amended to include ‘mass casual leave’ within its
ambit. Concerted casual leave on a certain day by 50% or more workers will be
treated as a strike.

 Proliferation of Trade Unions will be curbed, as only those unions with support of
more than 51% of the workers on the muster roll of the unit concerned will have
the right to negotiate the terms with the management.

 Encourages resolution of disputes through negotiation.

 Arguments in favour of labour laws
 The new labour codes were the demand of the changing time and changing
requirements as some of the labour laws dates back to pre-independence period. It
balances the labour welfare and industry welfare.

 Will simplify the labour laws and ensure a conducive environment for doing
business which will immensely help the country in brining much needed economic
growth and will help in employment generation.

 Will promote investment and will create harmonious industrial relations in the
country.
 As a relaxation to small enterprises, the Occupational Safety Code (which prescribes
safety standards and maximum work hours) exempts small establishments from its
purview.

 Labour issue is in the Concurrent list of the Constitution and therefore states have
been given the flexibility to make changes in the labour laws as they wish to attract
companies for investment. Many essential features which were present in the
previous laws are no longer specified in the new labour Codes but have been
delegated to be prescribed by the government through Rules (for example
retrenchment threshold, social security schemes, safety standards etc.)

 The labour reform was two decades in the making. It drastically reduces complexity
and internal contradictions, increases flexibility & modernizes regulations on
safety/working conditions.

Criticism
 Tilted in favour of the employers and would adversely affect industrial peace
 Bargaining power of the worker has been diluted
 The power given to States to exempt provisions of the codes can have serious
implications on workers’ rights and safety

Key Points/Highlights of Labour Laws

 Gives industries flexibility in doing business and hiring & firing
 Make industrial strikes difficult while promoting fixed term employment
 Reduces influence of trade unions
 Reduction of cost & complexity in compliance
 Lead to formalization of jobs resulting in increase in wages to employees
 Universalization of minimum wages and making it statutory rights
 Universalization of social security by expanding benefits to informal sector workers

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