New Labour Codes usher in a new era of compliance

The IR Code consolidates the following legislation:

• The Trade Unions Act 1926.
• The Industrial Employment (Standing Orders) Act, 1946.
• The Industrial Disputes Act 1947.

The Wage Code consolidates the following legislation:

• The Payment of Wages Act 1936.
• The Minimum Wages Act 1948.
• The Payment of Bonus Act 1965.
• The Equal Remuneration Act 1976.

The SS Code consolidates the following legislation:

• The Employee’s Compensation Act 1923.
• The Employees’ State Insurance Act 1948.
• The Employees’ Provident Funds and Miscellaneous Provisions Act 1952.
• The Employment Exchanges (Compulsory Notification of Vacancies) Act 1959.
• The Maternity Benefit Act 1961.
• The Payment of Gratuity Act 1972.
• The Cine-Workers Welfare Fund Act 1981.
• The Building and Other Construction Workers’ Welfare Cess Act 1996.
• The Unorganised Workers’ Social Security Act 2008.

The OSH Code consolidates the following legislation:

• The Factories Act 1948.
• The Plantations Labour Act 1951.
• The Mines Act 1952.
  The Working Journalists and other Newspaper Employees (Conditions of Service) Act 1979.
• The Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act 1981.
• The Dock Workers Safety (Safety, Health, and Welfare) Act 1986.
• The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act 1966.

Expanded definition of worker: The definition of worker has been broadened to include sales promotion staff, journalists, and supervisory employees earning up to INR18,000 per month. This may result in large-scale changes to employee classification, especially in scenarios of retrenchment in establishments.

Revised definition of wages: Under the revised definition, three components are explicitly included: basic pay, dearness allowance, and any retaining allowance. Conversely, items such as the value of housing, utilities, medical attendance, travel concessions, and commissions on sales or business, previously part of ‘wages’ under the Industrial Disputes Act 1947, are now expressly excluded. These changes may affect the calculation of retrenchment compensation, subsistence allowance, and lay-off compensation. The definition also specifies that any ‘remuneration in kind’ provided to an employee will count towards wages, provided its value does not exceed 15% of total wages. Employers will still take certain excluded components into account when calculating salaries and ensuring gender pay equity.

Novel definition for ‘employee’: In addition to the definition of ‘worker’, the IR Code introduces a separate definition of an ‘employee’ which includes every person employed in an industrial establishment, irrespective of whether they hold a position of supervisory or managerial capacity. Hence, while every ‘worker’ could be an ‘employee’ under the IR Code, every ‘employee’ may not necessarily be considered a ‘worker’. While the intent of the law appears to offer increased labour protection to all categories of people employed in an industrial establishment, employers may need to tread with caution in assessing and determining which provisions of the applicable Labour Codes would extend to ‘employees’, and which provisions would be limited to ‘workers’.

Parity of benefits for fixed-term employees: The IR Code retains the definition of fixed term employment which was previously added to the Industrial Employment (Standing Orders) Central Rules 1946 via an amendment in 2018 as well as in some state-level rules. This provision maintains that fixed-term employees will receive all benefits afforded to permanent workers, including leave, medical, and social security. Having said that, the IR Code goes one step further in including provision for gratuity for fixed term employees, where a fixed-term employee would now be eligible for gratuity if they render services under a contract for a period of one year.

Changes to industrial relations: Industrial establishments, particularly factories, employing 300 or more workers (which is an increase from the previous threshold of 100 workers), must now secure prior permission of the central / state government, as appropriate, for initiating lay-off or retrenchment of workers and closure of establishments. Additionally, a worker re-skilling fund is proposed under the IR Code, where employers are required to contribute an amount equivalent to fifteen days of wages last drawn or such other number of days as may be notified by the central government, for every retrenched worker. This is in addition to retrenchment compensation, and this amount will be credited to the worker’s account within 45 days of retrenchment. This is likely to pose a significant financial burden on employers. Further, establishments employing 20 or more workers are required to adopt a grievance redressal mechanism in the manner prescribed under the IR Code.

Recognition of trade unions: Previously, the concept of recognising trade unions was largely absent, except in certain states such as Maharashtra and Telangana. The IR Code now introduces provisions for recognising trade unions as negotiating bodies and requires each establishment to have either a negotiating union or a negotiating council. Where multiple trade unions exist, the union with at least 51% of the workers as members will be designated as the sole negotiating union.

Revised employee headcount threshold for standing orders: The IR Code provides that standing orders will be made applicable to all industrial establishments employing 300 or more workers, which is a deviation from earlier laws that provided for standing orders to be applicable only to industrial establishments employing 100 or more workers. It may be noted that this revised provision could conflict with exemptions presently provided to certain sectors such as Information Technology / Information Technology Enabled Services establishments in Karnataka, from applicability of standing orders provisions. Whether these exceptions will continue to remain applicable remains to be observed.

Working hours and overtime: The relevant government authority may prescribe working hours, limited to eight per day, with a maximum spread-over of 12 hours. Any overtime worked shall be compensated at twice the regular wage rate.

Fixed floor wage: A national floor wage has been introduced, which the central government will fix, based on workers’ minimum living standards, which may differ based on geographical location. States are required to set their minimum wages at or above this floor wage. The Wage Code also casts an obligation on the central government to fix the floor wage in consultation with state governments and on the advice of advisory board, if required.

Time of payment of wages: Employers are mandated to pay wages to all employees within prescribed timelines for each category of wage period, and complete payment towards their full and final settlement within two working days of termination, resignation, or retrenchment, as the case may be.

Deduction from wages: Permissible deductions under the Wage Code include fines imposed on employees, deduction for absence from duty, deductions for damage to or loss of goods or money in the employee’s custody, deductions for accommodation, amenities or services supplied by the employer, but total deductions cannot exceed 50% of the employee’s wages in any wage period. This uniform rule is applicable to all employees.

Eligibility for statutory bonus: Employees earning up to the wage ceiling notified by the appropriate government and having worked at least 30 days in an accounting year would be eligible for a minimum bonus of 8.33% of their wages or INR100, whichever is higher.

Payment of dues and claims mechanism: Employers are responsible for timely payment of all dues, and for handling undisbursed amounts in case of an employee’s death. The Wage Code provides a structured process for employees to raise claims for unpaid compensation before the authorities concerned, along with provisions for appeals.

Compliance and inspection: Employers must maintain prescribed registers, returns, and notices for compliance. The Wage Code has introduced the Inspector-cum-Facilitator for advisory roles and digital inspections.

Offences and penalties: Penalties have been specified for non-compliance, and compounding of offences have been allowed to reduce litigation.

Fixed-term employment: SS Code provides that fixed-term employees are entitled to the same hours of work, wages, allowances and other benefits as permanent employees performing the same work or work of a similar nature. Additionally, they will also be eligible for pro-rated statutory benefits irrespective of the qualifying criteria prescribed under applicable law. This definition, however, is distinguished from that which is provided under the IR Code due to the absence of a ‘pro-rated’ gratuity entitlement in the IR Code. It remains to be seen how this conflict will be reconciled.

Platform worker, gig worker and un-organised worker: The SS Code recognises gig, platform and un-organised workers, making a clear distinction of from regular employees and looks at extending social security benefits to gig, platform and un-organised workers.

Wages: The new definition of 'wages' includes all remuneration paid by way of salary, allowances or any other component expressed in terms of money such as basic pay, dear allowance, retaining allowance, if any, and culls out specific exclusions. These revisions are likely to impact compensation restructuring and computation of employment benefits specifically those under the SS Code, such as PF contributions.

The rest of the sections expand upon definitions, registrations and constitution of social security organisations such as Board of Trustees of the Employees’ Provident Fund (to be called the Central Board), the Employees’ State Insurance (ESI) Corporation (to be called the Corporation), the National Social Security Board for unorganised workers, State Unorganised Workers’ Social Security Boards, and State Building Workers’ Welfare Boards.

Voluntary opt-in and opt-out mechanism for employees’ PF and ESI contributions: PF and ESI authorities, on receiving application from an employer (or otherwise by notification) can apply PF and ESI related chapters of SS Code to the employer’s establishment, subject to there being majority agreement of employees. Employers can apply to also opt out of such voluntary application, subject to majority agreement of employees, while complying with relevant conditions.

Limitation of five years for PF and ESI proceedings: No proceeding can be initiated after five years from the date of cause of action in respect of applicability of PF / ESI provisions or non-payment of dues.

Common crèche facility: SS Code permits employers to utilise a common crèche facility belonging to government, municipality, non-governmental organisation, or private entity. Additionally, a group of establishments may combine their resources to establish a common crèche facility in the manner mutually agreed between them.

Compounding of offences: The SS Code introduces compounding of offences in the following manner (albeit with prescribed restrictions): (1) for an offence punishable with fine only: with payment of 50% of the maximum fine provided for that offence; and (2) for an offence punishable with imprisonment for a term which is not more than one year along-with fine, with payment of 75% of the maximum fine provided for that offence.

Penalties: While the SS Code imposes harsher penalties than the extant law, it also presents an opportunity for employers to rectify non-compliances prior to initiation of prosecution, through a written direction, which will specify a duration for rectification, and, if the employer complies with the direction within such duration, then the employer will not be prosecuted, subject to certain conditions.

Expanded coverage: The OSH Code is applicable to all establishments engaged in any industry, trade, business, manufacturing, or occupation where ten or more workers are employed, thereby bringing commercial establishments within its scope. Under the OSH Code, persons employed in a supervisory capacity and drawing wage exceeding INR18,000 per month (increased from the earlier limit of INR10,000) or such amount as may be notified by the Central government are excluded from the definition of ‘worker’.

Additionally, the provisions of the OSH Code pertaining to engagement of contract labours are applicable to establishments which employ at least 50 (earlier, 20) contract labourers in the preceding 12 months. The OSH Code expands the definition of contract labour to include inter-state migrant workers within its purview.

Change in hours of work and leave entitlement: A uniform daily working hour limit has been prescribed, stipulating that no worker in any factory or establishment employing ten or more workers would be required to work for more than eight hours in a day. Further, the period of work in each day will not exceed the hours prescribed by the appropriate government. Employers are also mandated to obtain consent of workers before requiring such workers to work overtime.

Additionally, the OSH Code has reduced the eligibility threshold for paid leave. Workers who have worked for 180 days (earlier, 240 days) or more in a calendar year will be entitled to leave with wages. Further, workers will be entitled to on-demand leave encashment at the end of each calendar year if they have unutilised accrued leaves; and will also be allowed to encash any leave accrued in excess of 30 days in a year.

Prohibition of employment of contract labour: Employment of contract labour in core activities of an establishment, would be prohibited, except in cases where such activities are ordinarily performed through contractors, do not require full-time workers, or involve sudden workload surges. Non-compliance may attract statutory penalties, necessitating establishments to reassess reliance on third-party personnel for core functions.

Removal of restriction on employing women: Women employees may be engaged for work before 6am and after 7pm, provided their consent is obtained and subject to conditions relating to safety, working hours, holidays, and other conditions observed by the employer and as per prescribed safeguards notified by the appropriate government.

Unified registration: Consolidating multiple registration requirements under the earlier laws, a unified registration process has been introduced, where employers will be required to submit an electronic application before the registering officer within 60 days from the date on which the OSH Code becomes applicable to their establishment.