4 New Labour Laws in India: What Does It Mean for Your Business in India?

4 New National Labour Codes in India

The 29 old labour codes not only made HR policies unnecessarily complicated for companies, they were also very outdated. For example, one of the laws had not been updated since 1926. The four new ‘labour codes’ focus on employment, social security, wages, industrial disputes and other relevant matters relating to labour and employment. In many cases, the number of regulations has been reduced and here and there more modern additions have been made. However, the fines for non-compliance are higher than before, in some cases up to 20 times higher than under the old legislation. All the more reason to make sure you are and remain compliant.

Here are the four labour codes and the key changes that companies need to implement to avoid fines:

1. The Code of Wages (Wage Code)

The Code of Wages, as the name suggests, focuses on wages. It merges four old laws, the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.

More transparent wage structures and higher social security contributions

• At present, Indian states determine minimum wages, which means that for the same job, different minimum wages apply in different states. The Wage Code solves this problem by mandating a ‘floor wage’. According to the law, the government has to fix different floor wages. The state governments then fix the actual minimum wages, which cannot be lower than the floor wage fixed by the central government. Less discrepancy and more transparent.
• Another important change is that the basic wage should be at least 50 percent of the total gross wage of an employee. Currently, companies give between 25 and 50 percent of the gross wage as basic wage, and the rest is allowances. This new rule will not only force many companies to review their pay structures, but will also increase employers’ social security contributions.
• Finally, the Wage Code stipulates that men, women and other gender identities should receive the same pay for the same position or a similar amount of work.

2. The Industrial Relations Code (IR Code)

The IR Code covers issues such as trade unions, working conditions in industrial establishments or enterprises, investigation and settlement of labour disputes. It replaces three laws: the Industrial Disputes Act of 1947, the Trade Unions Act of 1926, and the Industrial Employment Act of 1946.

More flexibility in hiring staff

• The IR Code regulates the number of trade unions that can negotiate with employers by appointing a so-called “bargaining union” per sector. This bargaining union must have 51% or more employees in the sector as members. The new code recognises fixed-term workers and stipulates that they are eligible for employee benefits, such as bonuses.
• The code also makes it more attractive for companies to hire more fixed-term workers, as there is more control over the terms of employment than with workers hired through third parties.
• It also adds ‘standing orders’ for all sectors. These are government-determined employment terms and conditions that employers must comply with. Previously, these orders only had to be followed by factories and mines, but in the IR Code this now applies to all companies employing more than 300 workers. It is therefore essential that companies of this size are aware of the established employment terms and conditions of their sector.
• The law also stipulates that every company with at least 20 employees must set up a committee to deal with any complaints.
• Finally, the IR Code eases the dismissal of workers for manufacturing companies with fewer than 300 employees. Under the current law, any factory, mine or plantation with more than 100 employees requires government permission to lay off workers, which has been increased to 300 employees in the new code.

3. The Occupational Safety, Health and Working Conditions Code (OSH Code)

The OSH Code consolidates several important pieces of legislation on the working conditions of workers into one comprehensive law. The OSH Code outlines the obligations of every employer with regard to his employees and the workplace. According to the OSH Code, the employer must provide welfare activities for the employees outside of work.

Higher financial burden due to new travel allowances and leave regulations

• For the first time, a federal law has established that for each company, it must be defined what the “core activity” of the organization is. Currently, many companies, such as in the automotive and IT sectors, hire contract workers for their core activities to whom they do not have to pay premiums. The OSH Code prohibits companies from hiring contract workers for their core activities, but also contains a number of exceptions.
• Previously, employees were required by company policy to take their unused leave until the end of their employment. Under the new code, employees may request to offset their leave at the end of each year. This change will bring a new financial burden for many companies that must be included in their annual budget. Companies may consider possible schemes that encourage employees to take their leave before the end of the year.
• The OSH Code creates more rights for migrant workers from other states, by aligning their position with regular employees. In addition, the law stipulates that the employer must reimburse the migrant worker for the return journey to his or her place of birth from the place where he or she works.
• Finally, the OSH Code allows companies to employ women to work at night between 7pm and 6am, as long as they meet certain conditions to ensure the safety of their female employees. This is beneficial for the outsourcing sector, which employs a large percentage of women.

4. The Social Security Code (SS Code)

The SS Code has expanded the social security system. It replaces the Employees’ Compensation Act of 1923, the Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, the Payment of Gratuity Act of 1972 and the Maternity Benefit Act of 1961. The SS Code introduces several important new terms that are in line with the rapid development of the Indian market. For example, “Aggregator” is defined as a digital intermediary or a marketplace through which a buyer or user of a service comes into contact with the seller or service provider.

Recognition of ‘new professions’ and better regulation of social security checks

• The terms ‘gig worker’ and ‘platform worker’ are also defined for the first time. Although the law now recognises this form of self-employment, the relationship between employee and employer is not seen as a traditional relationship in this case. Companies therefore do not have the same obligations towards these workers as they do towards their full-time employees. However, companies will have to contribute to a special social security fund for these workers, which will be set up by the Indian government. In order to be eligible for these social security benefits, these workers must be registered with the government by the employer.
• The SS Code now limits how far back the authorities can look to check whether a company is complying with all the rules relating to the ‘Employees’ Provident Fund’, India’s version of social security. The code limits an investigation into compliance with these rules to a maximum of five years before the authorities start their audit. It also sets the duration of the investigation to a maximum of two years.

Is your HR policy in India already compliant with the new codes?

Despite the fact that these new labour laws mainly modernize the current rules and do not drastically change them, many companies still have to adjust their Indian HR policy. And that is on top of all the changes that have already been implemented during the drastic corona years.

Make the implementation of these new rules simple and painless with our free HR Health Check. Our HR experts will examine your organization for you and, in addition to compliance, also look at matters such as:

• attracting talent;
• performance management;
• employee engagement and satisfaction;
• succession management;
• benchmark salaries;
• retention.