Background

Any country to attract investment, the first and foremost measuring step would be facilitating the business without many hurdles. India being very diverse in its fundamental structure, has complex and too many laws governing a matter, making it quite uncertain to any entrepreneur to decide. One of such hurdle is humongous amount of labour laws in the country. There was a pressing need to revamp the complete labour legislations and labor reforms have remained a long-pending demand of investors, regulators, workforce. The consolidation of major central labor laws relating to wages, social security, industrial relations, and occupational safety and health, brings much needed change and is clearly aimed at enhancing ease of doing business in India.

The Parliament passed the Code of Wages Bill, 2019 last year, slated to come in effect from April 1, 2021. The New Code Bill consolidates four labor laws. It combines the Minimum Wages Act, 1948; Payment of Wages Act, 1936; Payment of Bonus Act, 1965; and Equal Remuneration Act, 1976. The New Code Bill is the government’s step towards facilitating ease of doing business in India by bringing various administrative, legislative, and e-governance changes to the existing system.

Here are some of the benefits that the new bill is likely to bring with its enforcement.

Important aspects of new code:

Standard Wage Definition

The single most considerable change being introduced by the labor code is a standard, unified definition of ‘wages’ for the Code on Wages and the Code on Social Security. The interpretation of the term ‘wages’ has been aargumentative issue for employers for many yea₹ However, with the new code's coming in, employers will now have a simplified and unified definition. The new ‘wage’ definition comprises three parts: an inclusion part, specified exclusions, and conditions. The exclusions are restricted to not more than 50% of the total wages.

Registrations

New establishments need to register within 60 days by applying electronically in Form-I on the online designated portal. The certificate of registration shall be issued in Form-II electronically, immediately if the application is complete in all respects. If the application is complete in all respect, the certificate of registration is auto generated, within 7 days from the submission. Existing establishments already registered under central laws would not be required to register again but would need an updation.

Universal Minimum Wage

As per the current laws, the Minimum Wage Law is applicable to employees working in scheduled employment. However, the amended code will expand the ambit by including all employees, irrespective of their employment’s nature. The government will set a Minimum Floor Wage depending on the geographical area. Workers belonging to both organized and unorganized sectors will be covered under ESI (Employee State Insurance). Furthermore, an increased contribution to gratuity and PF will help workers lead a pleasant, stress-free life after retirement by offering them enough money to meet their daily expenses.

Exemptions

The Codes on Industrial Relations and Occupational Health and Safety empowers the GoI to exempt any new industrial establishment or class of establishments from the provisions of the Code. The exemption can be granted to ensure larger public interest i.e., creating employment potential, geographical development, sector-based clusters etc.

Model Standing Orders

Industrial establishment with 300 workers or more must prepare rules/orders relating to:

• classification of workers
• drafting work hours, leaves, wage rates etc
• termination of employment
• grievance redressal mechanisms

The GoI will issue Model Standing Orders, based on which the employers must prepare their own draft standing orde₹

A positive role for the Trade Unions

The new Code prescribes that to be registered and recognised any Trade Union must have (and must continue to have post registration) at least the subscription of 10% workmen or 100 workmen employed in an industrial establishment, whichever is less. Despite being considered body corporates unto themselves the Trade Unions shall be excluded from the purview of the Societies Registration Act, 1860, the Cooperative Societies Act, 1912, the Multi-State Cooperative Societies Act, 2002 and the Companies Act, 2013.

Despite retaining the concept of a Works Committee, the new Code also recognises the recognised Trade Union (the Trade Union with the subscription of 51% or more workers in case of more than one Trade Union) as the sole negotiating union or the negotiating council. Disputes between rival Trade Unions or between Trade Unions and its constituent workers will be adjudicated by the Tribunal. As a precautionary measure to the overtaking of such Trade Unions by external vested interest or mere political aspirants, the Code provides that at least a half of the office bearers of the Trade Union in an unorganised sector shall be persons actually employed in the establishment or the industry.

End on Exploitation

The new labor code prevents employers from manipulatingworke₹Now , employers will have to calculate wages considering both the inclusions and the exclusions. However, if the value of exclusion exceeds 50% of the total wages, the excess amount will eventually be included in wages. If the employee’s remuneration is paid in kind, then 15% of the value of compensation paid in kind will be included in wages. The government under the new code has also specified that the salary deduction in various forms, including housing rent, loan, or fines, should not exceed 50% of wages to prevent employees’ exploitation.

Prohibition of employing Contract labour.

The Contract labour means a worker who shall be deemed to be employed in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer and includes inter-State migrant worker.

Section-2(p) of the Code defines “core activity of an establishment” as any activity for which the establishment is set up and includes any activity which is essential or necessary to such activity. While this definition may seem general at first, it is only when we refer to its proviso can we understand its full import. The proviso lists a set of activities that shall not be considered essential or necessary if the establishment is not set up for such activity.

Section-57 of the OSHWC Code employs the above definition to state that employment of contract labour in core activities of any establishment is prohibited. Here, it is important to note that this prohibition is applicable to the principal employer only, contractors are not covered by this provision.

There is a proviso under Section-57 that allows for the engagement of contract labour through a contactor in respect of a core activity if –

• The normal functioning of the establishment is such that they do not require full time workers for the major portion of the working hours in a day or for longer periods.
• The activities are such that they do not require full-time workers for the major portion of the working hours or longer periods.
• There is a sudden increase in volume of work in the core activity which needs to be accomplished in a specified time.

Ease of Hiring and Termination

The Industrial Relation Code permits companies with up to 300 workers, to retrench workers without prior approval from the government. Companies over 300 workers would require prior approval. However, if the authorities do not respond to their request, the retrenchment proposal will be deemed to be approved. Under the previous regime notice upto 90-day was required before retrenching workmen.

Flexible Working Hours

With its new labor law, there is seen transiting to a 4-day-week work policy fixing the total working hours a week to 48. The employees will be allowed to choose between three shifts, including 4-days a week wherein they’ll work for 12 hours a day, 5-days a week wherein they’ll work 9.5 hours a day, and 6-days a week working 8 hours a day. Thus, employees will have the advantage of choosing the work culture they prefer as per their requirements. Furthermore, employees will be paid twice their pay in case of overtime.

Strikes & Lockouts:

The Code defines “Strike” to include the concerted casual leaves on a given day by fifty per cent or more workers employed in an industry.

No person employed can go on a strike without giving a 14 days’ notice to an employer before a strike. This notice shall be valid for a maximum of 60 days.

Similarly, no employer can lock-out any of its workers without giving a 14 days’ notice of a lock-out. This notice shall be valid for a maximum of 60 days.

Further, Code prohibits strikes and lockouts: (i) during and up to seven days after a conciliation proceeding, and (ii) during and up to sixty days after proceedings before a tribunal or an arbitrator (iii) during any period in which a settlement or an award is in operation.

Employers are required to report to the appropriate government and conciliation officer, within five days from receiving/giving notice of a strike/lock-out.

Penalties

OFFENCES	PENALTIES
Penalty for unfair labour practice	₹ 10 thousand to ₹ 200 thousand.
Penalty for committing unfair labour practice after conviction	₹ 50 thousand to ₹ 500 thousandand/or imprisonment upto 3 months.
Penalty for contravention of provisions on lay off, retrenchment or closure.	₹ 100 thousandto ₹ 1000 thousand.
Penalty on contravening the provisions of lay off, retrenchment and closure after conviction once	Fine of ₹ 500 thousandto ₹ 2000 thousandand/or imprisonment upto 6 months.
Penalty in case of violation of: a. Rights of workers laid off for compensation b. Conditions for retrenchment of workers c. Compensation to workers in case of transfer of establishment d. Compensation to workers in case of closing down of industry	Fine of ₹ 50 thousand to ₹ 200 thousand
Penalty in case of violation after conviction of: a. Rights of workers laid off for compensation b. Conditions for retrenchment of workers c. Compensation to workers in case of transfer of establishment d. Compensation to workers in case of closing down of industry	Fine of ₹ 100 thousandto ₹ 500 thousandand/or imprisonment upto 6 months.

Wrap up.

While the new Code provides a breather for businesses by raising the threshold for the Standing Orders and also takes some laudable initiatives on the dispute’s redressal side, the major provisions pertaining to layoffs, lockouts and retrenchment remain largely the same and hence, continue to be severely regulated.

It is interesting to see, how the implementation and acceptance of this new will benefit India.