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A deep dive into the labour codes and what they have in store for India Inc

The government was originally scheduled to implement four labour codes from the beginning of the current financial year. However, it was deferred due to the ongoing state assembly elections and states not framing their own rules.

While the union labour ministry has finalised rules relating to these codes, it is not clear whether they have addressed all the concerns of India Inc and others. Before this, the ministry had come out with draft rules on these codes.

Let us see what would be the scene of labour codes had these come into effect from April one this year with draft rules.

Code on Wages:

The government notified the Code on Wages in August 2019, subsuming the provisions of the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.

The Code envisages uniform applicability of the provisions of timely payment of wages and minimum wages to all employees irrespective of the wage ceiling and sector, unlike the Minimum Wages Act which is applicable to employees engaged in scheduled establishments, and the Payment of Wages Act, which is applicable to employees drawing salary below a statutory limit.

The procedure for determining minimum wages is in line with the provisions of the Minimum Wages Act. However, the Code introduces the concept of a floor wage, which is to be determined by the Centre after taking into account the minimum living standards of workers which may be different for different geographical areas. The state government can, under no circumstance, fix a minimum wage rate which is lower than the floor rate determined by the Centre.  

However, if the existing minimum wages fixed by the appropriate Government is higher than the floor wage, they cannot reduce the minimum wages. Further, the Code prescribes that the minimum rate of wages are to be reviewed and revised by the appropriate government in intervals not exceeding five years.

The code and rules made under it include basic pay, dearness allowance and retaining allowance as the components of wages. However, it excludes different kinds of bonuses, allowances, gratuity and retrenchment compensation from the definition of wages.  

The Code says that that if the aggregate of the excluded components, apart from gratuity and retrenchment compensation,  exceeds 50 per cent of the total remuneration, then that portion of the amount exceeding 50 per cent is also to be calculated as wages.

It is here that the industry has concerns on lack of clarity in the Codes and rules. For instance, the Confederation of Indian
Industry (CII) told the government that given that only bonus payable under law is excluded from the definition of wages, it is unclear how contractual bonus, performance linked bonus, joining bonus, employee referrals, non-commission-based incentives, rewards etc. would be treated and whether they will form a part of wages. It wanted the government to clarify this point with illustrations.

Industry representatives also said that it is mentioned in the code that in case the sum of certain allowances, excluded
from wages is more than 50 per cent of the total remuneration, then the part which is in excess of 50 per cent will be treated as Wages. However, it is not clearly mentioned what would constitute total remuneration, they said.

The rules are also silent on treating benefits like medical allowance and rent free accommodation as part of wages. Industry sought clarity on that too.

Code on Industrial Relations:

This code subsumed three existing laws -- The Industrial Disputes Act, 1947, The Trade Unions Act, 1926 and The Industrial Employment (Standing Orders) Act, 1946. The Code expanded the definition of  worker to include within its ambit working journalists as defined in the Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955; and sales promotion employees as defined in the Sales Promotion Employees (Conditions of Service) Act, 1976.

Besides, persons employed in a supervisory capacity and earning less than Rs. 18,000 per month have been brought under the definition.

The Code introduces a new provision for fixed term employment which means the engagement of a worker on the basis of a written contract of employment for a fixed period. However, hours of work, wages, allowances and other benefits of this kind of worker will not be less than that of a permanent worker doing the same work or work of similar nature. He will also be eligible for all statutory benefits available to a permanent worker. He will also be eligible for gratuity if he renders service under the contract for a period of one year.

The code and rules made under it provide that the provisions with respect to the standing orders will apply to all industrial establishments with three hundred workers. The employers of such establishments are required to prepare standing orders on the matters such as classification of workers, manner of intimating to workers the period of working hours, shift hours, termination of employment and notice for that etc. The Centre is required to make model standing orders. Employer may decide to adopt the standing order of the Centre.

The code changed the provisions of Industrial Disputes (ID) Act for lay off workers and closure of units. Under the ID Act, industrial establishments with more than a hundred workers employed were required to obtain prior permission from the government for this purpose. The Code waived off this requirement for industrial establishments such as mines, factories and plantations employing not less than three hundred workers.

However, it is not necessary to obtain prior permission where such lay-off is due to shortage of power, natural calamity, and in the case of a mine, such lay-off is due to fire, flood, excess of inflammable gas or explosion. In case, the government does not communicate the order either granting or refusing to grant permission to the employer within 60 days of applying for it,
the permission will be deemed to have been granted.

The code has provisions for setting up a re-skilling fund for  those workers who have been laid-off so that they are able to secure employment again.

This fund will consist of contribution by employer equal to 15-day wages last drawn by the worker who has been laid off.

Among other things, the code and rules made under it talk of notice period before going for strike  or lockout, constitution of industrial tribunals, grievance redressal committee and appointment of negotiating union or council.

On re-skilling fund, India Inc. suggested that instead retrenched workers should be issued skill vouchers by the employers. These can be encashed or redeemed by the workers at any government authorised technical training institute, it suggested. In this case, the employer can pay the government.

The rules on industrial relations also say that the government can review its order granting permission or rejecting permission for retrenchment. Industry representatives suggested that in case of deemed approval after a period of 60 days, there should not be any option for the government to review it and this should be explicitly mentioned in the rules.

The Occupational Safety, Health And Working Conditions (OSH) Code:

It subsumed and replaced 13 labour laws relating to safety, health and working conditions. These laws include Factories Act,
1948; Mines Act, 1952; Dock Workers Act, 1986; Contract Labour Act, 1970; and Inter-State Migrant Workers Act, 1979. The Code
applies to factories having at least 20 workers if manufacturing process is being carried on with the aid of power. In case manufacturing process is being done without power, the requirement is at least 40 workers.

Under this code, employers are required to ensure that the workplace is free from hazards which cause injury or occupational disease to the employees, provide free annual health examination or test, free of costs to certain classes of employees;
provide and maintain a safe working environment, issue letters of appointments to employees; and ensure that no charge is levied on any employee for maintenance of safety and health at workplace including conduct of medical examination and investigation for the purpose of detecting occupational diseases.

The code gives employees rights to obtain from the employer, information relating to their health and safety at work and represent to the employer regarding inadequate provision for protection of the employees safety. Employee can approach the inspector-cum facilitator if he is not satisfied with the work activity in the workplace.

The code also safeguarded the rights of the inter-state migrant workers by ensuring that the contractor extends all benefits which are available to other workers under the various labour laws to inter-state migrant workers as well. Also, the employer of every establishment will have to pay to every inter-state migrant worker a flat fare for to and fro journey to his native place from the place of his employment.The code says in the event of change of employer by the inter-state migrant worker and in case he has not availed the journey allowance from his previous employer, then on the basis of a certificate to be given by the worker, the employer where the inter-state migrant worker is now working will pay this journey allowance if the worker completes 180 days with an employer in a calendar year. Industry, however, said the time period spent with previous employment should not be considered for a current employer to pay Journey Allowance.

The code also says that the employer will issue a letter of appointment to every employee on his appointment with such information and in such form as may be prescribed by the government. Industry representatives, however, said the format of the appointment letter should not be mandated and should be as per the requirements of each organisation.

The new legislation also provides that  where an employee has not been issued such appointment letter on or before the commencement of the code, he will, within three months of such commencement, be issued such a letter. India Inc. however said the requirement for issuance of fresh appointment letter to existing employees should be removed.

The Code on Social Security:

It subsumed nine laws including 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; and The Unrecognised Workers Social Security Act, 2008.

The code empowers the Centre to notify various social security schemes for the benefit of the workers such as Employees' Provident Fund (EPF) Scheme, Employees' Pension Scheme (EPS) and Employees' Deposit Linked Insurance (EPDLI) Scheme.

The code also empowers the Centre to frame any other schemes for the self-employed, unorganised workers, gig workers and platform workers and the members of their families.

The Centre has clarified that once it sets up a fund, companies will not be required to incur any additional costs towards social security of its gig workforce and may choose to withdraw their ongoing schemes.

One of the draft rules says that if a gig worker was not employed as gig worker for less than 90 days in the preceding 12 months, he will cease to be beneficiary of social benefit schemes. Industry representatives said the limit should be raised to two years as 90 days are too less.  

The Centre may also notify an Employees' State Insurance (ESI) Scheme to provide medical benefits to the insured persons and members of his family. It would also provide for gratuity to workers on completing five years of employment or less than five years in certain cases such as for journalists and fixed term workers; maternity benefit to women employees; cess for welfare of building and construction workers; and compensation to employees and their dependants in the case of occupational injury or disease.

The code prescribes penalties for various offences such as failure to pay gratuity or other obligations. If the employer repeats offence, he is punishable with a minimum imprisonment of two years which may extend to five years and also a fine of Rs three lakh. 


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