Labour laws

Indian labour laws were conceived in the pre-independence period or shortly afterwards
based on an import-substitution and statist (state intervention and control) model of
economic development.
The paradigm has shifted towards global competition, productivity, efficiency and mutual
cooperation.
The country now needs new laws which provide safety standards, caters to the basic needs
of workers, take care of their welfare and are flexible enough to create rather than destroy
jobs.

Issues with the current laws and impact on economy:

The Industrial Disputes Act 1947 (ID Act) states that an employer cannot layoff or retrenches
any worker or close down operations of the establishment without prior permission from
the appropriate government. According to employers and economists it has been a major
bottleneck of employment generation in the organized sector.

The ID Act (through an amendment made in mid 1980s) requires that any firm employing
more than 100 workers needs to get permission from the state government before
retrenching workers. In view of these rigidities, the employers have been resorting to
technology up-gradation with the intention of keeping their workforce below 100. The
clause relating to applicability of the ID Act has kept the Indian enterprises small.

The Trade Unions Act, 1926 requires that at least 10% of the workforce or 100 workers,
whichever is less, engaged or employed in the establishment, must be members of the trade
union connected with such establishment at the time of application. And it is possible for
more than one trade union to be registered in relation to the same employer. The Act
empowers trade unions to strike and represent their members in labour courts in disputes
with the employers. Firms can thus minimize labour related problems as long as they have
fewer workers.

There is multitude of labour laws in India (around 200 including Centre and State) which
creates confusion.

They imply considerable burden on the smaller firms in terms of paperwork and filing
requirements.

Indeed, many firms are not even aware of their precise obligations under the large number
of Central and state legislations.

Corruption by labour department inspectors.

Indian labour laws are chaotic, outdated, overlapping and contradictory that is crying out for
urgent overhaul.
Under the Constitution of India, Labour as a subject is in the Concurrent List and, therefore,
both the Central and the State governments are competent to enact legislations subject to
certain matters being reserved for the Centre.

There have been several legislative and administrative initiatives taken by the government
to improve working conditions and simplify labour laws. Most recent is the consolidated
sets of 4 labour codes which are yet to be implemented.

To streamline operations and move towards universal social security, the government
consolidated 29 central labour laws into four labour codes: the Code on Wages, 2019; the
Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational
Safety, Health and Working Conditions Code, 2020.

Labour Codes

1. Code of Wages, 2019

2. Industrial Relations Code, 2020
3. Social Security Code, 2020
4. Occupational Safety, Health and Working Conditions Code, 2020

The implementation process is delayed as states are yet to finalise their rules under these
codes.

According to a recent study by the government’s VV Giri National Labour Institute, 20 states
and four Union Territories (UTs) have formulated rules under all four codes, while three
states have rules under three codes. West Bengal, Meghalaya, Nagaland, Lakshadweep, and
Dadra and Nagar Haveli are yet to formulate rules under any of the codes.

Trade union opposition: The Central Trade Unions (CTUs) have opposed the implementation
of the codes, citing that they will curtail trade unions' rights and social security measures for
workers.

Government efforts: The government has started efforts to implement the codes, including
holding meetings with trade union representatives. The government is also planning to hold
training for states on labor code sensitization.

The Code on Wages, 2019

It has replaced (repealed) four previous acts viz: Payment of Wages Act, 1936, Minimum
Wages Act, 1948, Payment of Bonus Act, 1965, Equal Remuneration Act, 1976.

A statutory concept of ‘Floor Wage’ introduced which will be applicable on all the workers
either organized or unorganized sector.

Neither Central nor State agencies can reduce the minimum wage below the ‘Floor Wage’
for any kind of employment.
The code provides that there would be a review/ revision of minimum wages at intervals not
exceeding five years. MGNREGA wages have been kept outside the purview of Code on
Wages.

Method of fixation of minimum wage rates simplified. Factors to be taken into account are
types of skills and geographical location as against the earlier system of wage being fixed
employment-wise.

The provisions of the previous Minimum Wages Act and the Payment of Wages Act used to
apply only to workers drawing wages below a particular ceiling and working in scheduled
employments only. However, under the Code, the minimum wages and the payment of
wages provisions cover all establishments, employees and employers.

All employees whose wages do not exceed a specific monthly amount (to be notified by the
central or state government) will be entitled to an annual bonus.

The Occupational Safety, Health and Working Conditions Code, 2020

It has replaced (repealed) 13 previous acts including The Factories Act 1948.

The code deals with the duties of the employer in respect of workplace safety and working
conditions, and makes issue of employment letter a must for all employees, a move that will
promote formalisation of employment.

The code specifies leave and working hours (which is limited at 8 hours, and any overtime
requires workers’ consent and wages have to be doubled), requires health and safety norms
including adequate lighting and ventilation and other welfare facilities such as separate
toilets for male, female and transgender employees.

A manufacturing unit will be defined as a factory if it employs 20 workers (and uses

electricity) or 40 workers (without using electric power)

The State government may, in public interest, exempt any new industrial establishment
from “all or any of the provisions” of the Codes in the interest of increased economic activity
and employment generation.

Employment of women has been allowed in all establishments for all types of works and in
the night shift, subject to their consent and requires employers to provide adequate
safeguards. This will promote gender equality.

The Industrial Relations Code, 2020

The new Act replaces the following previous acts (some provisions will be repealed as and
when the code comes into effect and some provisions may be repealed in future): The Trade
Unions Act, 1926, The Industrial Employment Act, 1946, The Industrial Disputes Act, 1947
A much larger segment of firms – those with workers up to 300 (as against 100 earlier) will
be able to resort to closure and retrenchment/ lay off without prior government permission.
And the state governments are authorized to increase these 300 thresholds just by a
notification.
Fixed Term Employment has been made applicable for all industries which will help those
businesses that witness seasonal spurt/change in activities.

Requirement of mandatory 14-day notice for strikes and lockouts will now apply to all units
which was earlier for just public utility firms.

Proliferation of Trade Unions will be curbed, as only those unions with support of more than
51% of the workers on the muster roll of the unit concerned will have the right to negotiate
the terms with the management.

Encourages resolution of disputes through negotiation.

Code on Social Security, 2020

The Code on Social Security, 2020 It has replaced (repealed) 9 previous Acts.

The Code proposes social security benefits to all employees and workers in the country
including those in the unorganized sector leading to universalization of social security.

To cater to emerging new forms of employment, new definitions like of aggregator, gig
worker, platform worker have been introduced. A small contribution from aggregator
between one to two per cent of turnover subject to limit of five per cent payable to gig and
platform workers has been introduced.

“Social Security Fund” will be created to fund social security schemes for extending benefits
like death and accident insurance, maternity benefit and pension cover.

Scheme will be framed for unorganized workers, gig workers, platform workers and even
those self-employed and the members of their families for providing benefits.
Establishments will be allowed to join Employees’ Provident Fund Organization (EPFO) and
Employees’ State Insurance Corporation (ESIC) on voluntary basis even if they have fewer
workers (less than 20 in case they use electricity or less than 40 in case they do not use
electricity).

Benefits of labour laws

 Gives industries flexibility in doing business and hiring & firing
 Make industrial strikes difficult while promoting fixed term employment
 Reduces influence of trade unions
 Reduction of cost & complexity in compliance
 Lead to formalization of jobs resulting in increase in wages to employees
 Universalization of minimum wages and making it statutory rights
 Universalization of social security by expanding benefits to informal sector workers

Employees’ Provident Fund Organization (EPFO)

EPFO is a statutory body established under the Employees' Provident Fund and
Miscellaneous Provisions Act, 1952 and is under the administrative control of the Ministry of
Labour and Employment, Govt. of India.

EPFO provides Employee Provident Fund (EPF) and Employee Pension Scheme (EPS).

Employees Provident Fund (EPF) is a scheme under the Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952 and is regulated under the purview of EPFO. Basically, it
is a social security scheme.

If an establishment (factory or service industry) has more than 20 workers then it is

mandatory to get registered with EPFO. But all the employees working in such a registered
(with EPFO) establishment don't need to subscribe to the EPF scheme.

Only those workers whose salary is up to Rs. 15000 need to contributes 12% of his/her basic
salary (including dearness allowance) into this scheme and the same amount is also
contributed by the employer. For other employees earning more than Rs. 15000, it is
voluntary. EPF interest rate for FY 2023-24 is 8.25%.
Employees’ Pension Scheme (EPS) 1995: scheme was formulated for employees’ pension
(existing and new EPF members), wherein the pension fund was to comprise a deposit of
8.33 per cent of the employers’ contribution to be made towards provident fund (EPF)
corpus.

Both the employee and the employer contribute 12 per cent of the employee’s basic salary
and dearness allowance to the EPF. The employee’s entire part goes to EPF, while the 12 per
cent contribution made by the employer is split as 3.67 per cent contribution to EPF and
8.33 per cent contribution to EPS.

Apart from this, the Government of India contributes 1.16 per cent as well for an
employee’s pension. Employees do not contribute to the pension scheme.

Supreme Court judgment November 2022:

Any individual who joined the Employees' Provident Fund (EPF) Scheme on or after
September 1, 2014, will not be eligible to join the Employees' Pension Scheme (EPS) if their
basic salary exceeds Rs 15,000 per month.