INDIA'S NEW LABOUR CODES: PREPARE FOR

THE CHALLENGES AHEAD

Agenda
• Background
• What’s changing?
• Impact of the wage definition
• Work force categorization
• Offences and penalties
• Way forward
BACKGROUND:-

Labour codes – an overview

Consolidates 29
Uniformity in definitions
existinglegislations Code on wages

Code on
Code on Occupational
Emphasis on Accountabilit Industrial New codes safety, health
use of y and relations and working
technology transparency conditions

Code on social
security
Effective enforcement Ease of implementation

*The codes are awaiting notification of effective date

*The draft rules have been issued
*Existing schemes to be valid for one year to the extent they are not contrary to the provisions of the code
Legislations subsumed

The code on wages 2019

• 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 on Social Security 2020

• • 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 Unorganized Workers' Social Security Act, 2008
Legislations subsumed (cont’d)

The industrial relations code 2020

• The Trade Unions Act, 1926,

• The Industrial Employment (Standing Orders) Act, 1946 and
• The Industrial Disputes Act, 1947

The occupational safety, health and working conditions code 2020

• The Factories Act, 1948;

• The Mines Act, 1952;
• The Dock Workers (Safety, Health and Welfare) Act, 1986;
• The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996;
• The Plantations Labour Act, 1951;
• The Contract Labour (Regulation and Abolition) Act, 1970;
• The Inter-state migrant workmen (Regulation of Employment and Conditions of Service) Act, 1979;
• The Working Journalist and other News Paper Employees (Conditions of Service and Misc. Provision) Act, 1955;
• The Working Journalist (Fixation of rates of Wages) Act, 1958;
• The Motor Transport Workers Act, 1961;
• Sales Promotion Employees (Condition of Service) Act, 1976;
• The Beedi and Cigar Workers (Condition of Employment) Act, 1966;
• The Cine Workers and Cinema Theatre Workers Act 1981
RECMMONDATIONS:-

• What, in your view, would be the effect of the changes in the labour codes to your business?
• Financial implications
• Need for process change
• Realign salary structure
• All the above
• Don’t know/not applicable
Code on wages and code on social security
Salient features

Particulars
Code on wages • Applies to all establishments, employees and employers as defined unless specifically exempt in the code
• Covers all employees including managerial cadre
• Wage definition standardized
• State government minimum wage rates to be aligned to national floor wages
• Need to meet wages payment dates as prescribed
• Recoveries from wages specified with monthly recovery capped at 50%
• Settlement time of dues in case of resignation/dismissal shortened
• Time for preferring claims extended
• Role of inspector widened to include facilitation function
• Penalties and prosecution enhanced

Code on social • Coverage broadened to include gig/platform workers, fixed term employees, and those in the unorganized sectors with the
security organized sector
• Existing schemes valid for a period of one year after effective date to the extent the same is not contradictory to provisions of
the code
• Monetary thresholds to be brought in through schemes/notifications
• Period of limitation introduced
• No specific reference to international workers – expected to be introduced under the schemes
• Stringent penalties and prosecution provisions provided for
9
• A contractor is identified as an “employer” having independent responsibilities – compliance responsibility from the principal employer reduced
Code on wages and code on social security
Areas of impact

Areas of impact Key change triggering the impact Challenges to be addressed

Definition of wages • Uniform and wider definition of wages as • Change in coverage of employees for ESI, Payment of Bonus Act etc.
compared to varied definitions under existing • Impact on PF and gratuity contributions
regulations
Provident Fund (PF) • Change in definition of wages • Increase in quantum of PF contributions for domestic employees drawing
salary below wage ceiling (presently INR 15,000) and international
workers
• Review of employment contracts and policies relating to employees
earning more than INR 15,000 pm
Gratuity • Change in definition of wages • Likely increase in the quantum of gratuity – new inclusions in the definition
• Extending gratuity benefits to fixed term - retroactive impact?
employees • Individuals on fixed term employment entitled to gratuity benefits under
the code on a pro-rata basis in addition to regular eligible employees
Overtime • Employee covered under the schedule • Employees in supervisory and managerial role also entitled for overtime
employment alone are eligible for overtime wages – detailed rules awaited
Gig workers/platform • Presently, there is no specific social security • Government to introduce a scheme enabling such employees to be eligible
workers schemes for the gig/platform workers for social security benefits
• Aggregators will be required to contribute towards such scheme 10

Payment of wages • Wage ceiling of INR 24,000 pm removed • Impact on settlement timelines, capping of deductions from wages etc.
Industrial relations code and occupational safety, health and working conditions code
Salient features
Particulars
Industrial relations • Limit of worker enhanced from 100 to 300 for applicability of standing order;
code • Constitution of works committee, if 100 or more workers are employed and ordered by appropriate government;
• Grievance redressal committee to complete its proceedings within 30 days of receipt of application;
• Prohibits employers, workers, and trade unions from committing any unfair labour practices such as restricting workers from forming;
trade unions, coercing workers to join trade unions, threatening worker, establishing employer sponsored trade union, etc.
• Increase in retrenchment cost- additional compensation towards re-skilling fund, retrenchment compensation;
• Preference to retrenched worker for re-employment within 1 year;
• Notice of strike, lockout-extended to all industries;
• Additional ground for strike - mass leave;
• Prior approval of government - layoff, retrenchment, closure where 300 or more workers (factory, mine, plantation);
• Introduction of concept of negotiating union
The occupational • Single registration for all establishments;
safety, health and • Working hours: 8 hours with a spread of 48 hours in a week;
working conditions • Issuance of appointment letter to employees/workers is mandatory;
code • Prohibition to engage contract labour in core activities;
• Mandatory free health check-ups for below categories:
– Who has attained age of 45 years for prescribed industries (factory, mine, plantation); or
– Worker who are engaged in hazardous process/mines
• List of benefits for inter-state migrant workers has been extended;
• Flexibility in employment of women;
• Constitution of safety committee and appointment of safety officer in prescribed industries;
• Constitution of national occupational safety and health advisory board for monitoring the implementation of the code; 11

• Enhancement of monetary penalties and introduction of compounding/composition

Industrial relations code and code on occupational safety, health and working conditions code
Impact areas
Areas of impact Key change triggering the impact Challenges to be addressed
Core activity • Introduction of concept of core • Contract labour is prohibited to engage in core activities subject to certain exemptions
activity
a) The normal functioning of the establishment is such that the activity is ordinarily done through contractor; or
b) The activities are such that they do not require full time workers for the major portion of the working hours in a
day or for longer periods, as the case may be;
c) Any sudden increase of volume of work in the core activity which needs to be accomplished in a specified time

Mandatory • Employee covered under extant act • Appointment letter to be issued to every employee in specified format with mandatory details:
issuance of are sale promotion employees – Aadhar number
appointment letter
– Labour Identification Number (LIN) of the establishment
– Universal Account Number (UAN)/Insurance Number (ESIC), applicability of social security EPFO and ESIC benefits
• Appointment letter in specified format shall be issued to existing employees within 3 months of commencement of
code
Leave encashment • Reduction in time limit to be eligible • Worker who has worked for 180 days or more in a calendar year will be entitled for leave with wages
for leave with wages • Worker shall be entitled on his demand for encashment of leave at the end of calendar year
• Leave can be demanded for • Where the leaves exceeds 30 days, worker shall be entitled to encash the exceeded leaves
encashment while in service
Re-skilling fund • Introduction of new concept of • Overall increase in worker’s retrenchment compensation
re-skilling fund
• In addition to existing retrenchment compensation, 15 days wages to be contributed to re-skilling fund maintained
with government: within 10 days of retrenchment
Negotiating union • Introduction of concept of • It is mandatory on the employer to recognize negotiating union where the trade union is registered
negotiating union • Going forward, negotiating union will negotiate on the terms of employment including consultation on standing
orders

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Code on wages/code on social security
Definition of wages

Meaning and inclusions Specified exclusions Conditional inclusions Value of remuneration in kind

• Means all remuneration • Statutory bonus payable but not forming part of • Where the aggregate of specified • Where an employee is given
whether by way of salaries, remuneration; exclusions as highlighted: remuneration in kind
allowances or otherwise, • Value of house accommodation and utilities – Exceeds one-half or such other – In lieu of either the
expressed in terms of money or (such as light, water, medical attendance, etc.); notified percentage of all whole or part of the
capable of being so expressed remuneration calculated under this
• Employer contribution to provident wages payable to him
which would, in terms of clause,
fund/pension together with accretions; – Value of such
employment, express or – Amount which exceeds such
implied, where fulfilled, be • Conveyance allowance or value of travelling remuneration as does not
concession; one-half or other percent, so exceed 15% of total
payable to a person employed notified
in respect of his employment, • Sum paid to defray special expenses due to wages payable to him
nature of work; – Shall be deemed as remuneration
and includes – • Shall be deemed to form
– Basic pay; • House rent allowance; – And shall accordingly be added part of wages of such
under this clause employee
– Dearness allowance; and • Remuneration payable under any award
settlement; • Conveyance/value of travel
– Retaining allowance, if any
• Any overtime allowance; concession, house rent allowance,
remuneration payable under award or
• Any commission payable;
settlement and overtime allowance
• Any gratuity payable on termination; shall be taken for computation of
• Any retrenchment comp/benefit payable or wage – for the purpose of equal
ex gratia payment made wages to all genders
Key impact areas
Change in the definition of wages

• Need for companies to map the definition with specific reference to the salary structure of
• Wages – was defined in a varied manner the company and analyze the impact e.g.,
under the existing regulations
– Quantum of contributions to retiral benefits impacting cost to the company/take home pay
• Attempt to simplify and have a standard
of employees
definition across all subsumed
regulations – Coverage of employees under the Payment of Bonus Act, employees state insurance etc.

Impact areas

1 2 3 4

• Increase in gratuity • Requirement to pay higher • Mandatory requirement to • Higher contributions to PF

contributions – applicable gratuity – impacting take cover employees from ESI/ for employees with wages
for past service periods home pay of employees for statutory bonus not exceeding
impacting P and L account future perspective INR 15000 pm
Code on wages/code on social security
Definition of wages

Conditional
All Specified inclusions /
exclusions Wages
remuneration benefits in
kind

All remuneration (INR) Specified exclusions (INR) Conditional inclusions (INR) Wages (INR)
Basic 8,000 HRA 4,000 Specified exclusions – 500 Total remuneration - 12,500
50% of total exclusions + inclusions
HRA 4,000 Commission 4,000
remuneration
DA 1,000 Conveyance 5,000 (25,000 – 13,000 +
(13,000 – 50%*25,000) 500)
Medical 3,000 Total 13,000
Commission 4,000
Conveyance 5,000
Total 25,000

• Specified exclusions - capped at 50% of total remuneration

• Remuneration in kind as does not exceed 15% of total wages be deemed to form part of wages
The code on social security, 2020
Impact of the new wage definition – illustration
Pay components Reference Existing laws (INR) Social security code (INR)
CTC including variable pay/ bonus Total remuneration 15,00,000 15,00,000
Cost to company excluding variable pay CTC 12,00,000 12,00,000
Basic pay (40% of CTC) A 4,80,000 4,80,000
House rent allowance (40% of basic pay) B 1,92,000 1,92,000
Leave travel allowance C 1,00,000 1,00,000
Fuel reimbursement D 1,20,000 1,20,000
PF contributions E 57,600 1,04,375
NPS contributions F 48,000 48,000
Telephone reimbursement G 24,000 24,000
Sodexo meal e-vouchers H 26,400 26,400
Gratuity I 23,088 41,837
Special allowance J 1,28,912 63,389
Variable pay/ bonus K 3,00,000 3,00,000
Total wages to be considered for gratuity Existing laws – A 4,80,000 8,69,789
Social security code – (A+H+J+K)
Total of exclusions (B+C+D+E+F+G+I) 6,30,211

Understanding the impact for an employee with 7 years of service

Monthly wages for gratuity purpose 40,000 72,482
Total gratuity amount 1,61,538 2,92,717

*Gratuity is payable on last drawn wages, for simplicity's sake, it is assumed that last drawn salary and average salary for 12 months is same
Workforce categorization
We believe that the workforce can be bucketed in the following categories based on the provisions of thelabour
codes

Fixed term employees – interns,

trainees, employees hired for a
fixed period, employees on
assignment from group companies
Contract employees –
contracted through manpower Gig workers, platform workers –
agency, sub-contract employees 03
consultants, retainers
02 04
Regular employees – domestic
employees with wages more
than INR 15,000 pm, less than
INR 15,000 pm, workers for
leave encashment purposes, Foreign nationals on local
01 05
women employees Work force payroll including expatriates
categorisation

• Review of processes/documentation relating to the workforce engagement required to ensure right categorization and related compliances
Impact

What do you believe could be the impact of the change in the definition of wages?
• Significant financial impact
• Minimal financial impact
• No impact
• Not assessed
• Don’t know/not applicable
Offences and penalties:-

• For non-compliance such as non-maintenance/improper maintenance of records, failure to

General non-compliance submit draft standing orders within prescribed time, non-compliance/contravention of any
other provision or rules – fine from Rs. 10,000 to Rs. 10,00,000

• For second or subsequent default- Fine up to Rs. 20,00,000 or imprisonment up to 6 months or

Second offence both

Non compoundable • Failure to pay/deposit contribution deducted from employees’ wages – fine of INR 100,000 in
addition to imprisonment for a term ranging between 1 to 3 years

• Factory-occupier, mines-owner/agent/manager
Officer in default • Establishment – the person who has ultimate control over the affairs of the establishment
• Employer in other cases

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Focus areas:-
The areas that are critical for establishments transition smoothly from the existing laws to the New
legislation with optimal efficiency

Understand “wage” and quantify Aligning compensation structure Aligning HR policies Work force categorization Being compliant
financial impact • Defining the employee across
• Basis the impact of the definition • Align the impacted policies– e.g. different cadres – • Identify and understand the
• Understand the impact of the of “wage”, the organization align Maternity benefit, Gratuity, PF change in compliance
– on-roll regular employees;
definition of “wages” the compensation structure to etc. requirements, timelines,
contracted / third party
• Analyzing the salary structure, optimize the impact employees;
• Align working hours, leave policy, • Map the current compliance
identify inclusions and exclusions – fixed term employees; processes
to determine wages • Determine the impact of revising overtime policy, rest days and
gig workers.
the salary structure and conclude related HR policies, timelines for
• Quantify the financial impact on on the financial impact, the take wage settlement – Consultants/ retainers; other • Identify areas of changes and
account of the changed definition home pay of the employees, the non-traditional employer- realign the internal processes to
of wages retrials and possible tax • Align appointment letters employee arrangements meet the compliance
• Identify the impact on coverage of implications • Engaging of contract work in core- requirements under the codes
employees • Align retrenchment policy, non-core activities and identifying
medical examination facility etc. compliances relating to the same
Why commence the journey now?
Understanding of the implications, better preparedness, smoother transition
• Stringent penalty prescribed
for non-compliance with no
1 April 2021: new codes
window available to defer the
expected to be enforced
implementation
Keep pace with changes
• State rules on concurrent topics such as working hours,
leave encashment, minimum wages etc. to draw
reference from central rules; course corrections with
minimal disruption

Why now?

• Definition of wages and other key provisions of the codes

not expected to change; enabling impact analysis and
Where it stands? revisiting of salary structure
• Payroll processes changes are triggered from the provisions
• All four labour codes have received the presidential
of the code
assent and are Acts today
• Industry at large is looking to gear up for the
• Draft rules have been issued for all the four codes –
implementation of the codes
were open for feedback only for a limited window upto
mid-December in respect of 3 codes
• Government on track to implement the codes from
April 2021
Recommendations

What do you believe is the key area of focus for your company, basis the discussions we have just concluded?
• Review of salary structure and impact analysis
• Review of compliances and timelines
• Review of policies and processes
• All the above
• Don’t know/not applicable