India is a labor-surplus economy, protecting its workers through the framework of special labor laws. However, the complexity in some of these laws makes it difficult for businesses to operate; hindering growth in business and limiting employment opportunities. Parliament has revised labor laws because they were obsolete and required serious updates. In September 2020, Parliament approved three new labor codes ; the Industrial Relations Code, 2020, the Code on Social Security, 2020. the Occupational Safety, Health and Working Conditions Code, 2020, the wage with the previously announced code, 2019. Together, these four codes consolidate 44 pre-existing labor laws and aim to avoid a deluge of laws. The new codes will ensure better use of technology for various compliance and enable effective enforcement. For the three new codes announced in 2020, the Ministry of Labor and Employment released the draft rules, which are explained as follows.
The Industrial Relations Code, 2020 repeals and replaces three national labor laws – the Industrial Disputes Act, 1947, the Trade Unions Act, 1926 and the Industrial Employment (Standing Orders) Act, 1946.
Most central labor laws were applicable to firms with 100+ employees and to avoid their complexities; firms preferred to remain small. For example, the Industrial Disputes Act mandated employees (with 100+ employees) to obtain government approval before retrenchment of employees; while firms (with 100 employees) were exempted from this requirement. Given the transaction costs for such a mandate, many companies preferred to stay below the 100 employees limit. In addition, the number of firms kept their workers below 20 (10 without power) from falling under the Factories Act. Under the new rules, firms (those with 300+ employees) will be allowed to take action such as closure, retrenchment and retrenchment without any government approval.
In addition, the bill requires all employees to share / provide information 14 days before the strike or lockout. This in particular reduces the power of trade unions.
Previously, firms had to apply for a location-specific license to hire employees at multiple / different locations. However, the new law allows firms to work on the same license to hire contract workers at different locations.
Social Security Code, 2020
The Code on Social Security, 2020 repeals and replaces nine existing national labor laws. An ideal labor law provides social security to employees; In the earlier regime, most labor laws protected workers in the minority formal sector (relatively strong bargaining power); while ignoring workers in the informal sector.
The Social Security Code 2020 aims to provide universal social security to all workers; including the unorganized, gig and platform workers who constitute 90% of India’s total workforce. Under the new labor laws, the central government aims to set up a ‘social security’ fund for gig and platform workers. The new laws recognize the gig economy and platform workers; as well as aggregators such as cab sharing and food delivery services, including Swiggy, Zomato, Uber and Ola. Gig firms will be required to make an annual contribution towards the social security of their workers; while gig workers will pay 1-2% of their monthly income towards the social security benefit pool. By including gigs and platform workers, the new laws cover millions of self-employed individuals, including contracts with service sector entities. To benefit from the central government, the code mandates gig and platform workers to register with the company.
Under the new law, the term age wage would include all monetary components expressed in salary such as provident funds and gratuity. Specified criteria such as HRA, Conveyance, Statutory Bonus; Overtime Allowance and Commission are excluded under the salary category and should include at least 50% of the total salary. If these specified components exceed 50% of the salary, the remaining amount will be treated as ‘salary’. In addition, the scope of the Employees Provident Fund Organization (EPFO) has widened and will now include / cover all organizations with 20+ workers.
In addition, the gratuity norm for an employee has now been reduced from five years to one year; meaning that any fixed-term employees will now be eligible for gratuity after one year of their service in an organization. Whereas permanent employees – who are not hired for a fixed period; will continue to be eligible for gratuity after five years of their service. In addition, workers can demand encashment of leave at the end of each calendar year. With the new laws, companies are likely to see 3-10%