At present there are 44 laws that govern labour, employment and working conditions in India. It does not even account for state level labor laws/rules. Labor is a concurrent issue in the Constitution where both the Center and the States can lay down rules and regulations. The central government has taken a major step to rationalize 29 of these laws into four “codes” –
1. Code on Wages, 2019
2. Industrial Relations Code, 2020
3. Social Security Code, 2020
4. Occupational Safety, Health and Working Conditions Code, 2020
What do these new codes mean? There are provisions for working hours, days off, social security, wage restructuring, leave and gratuity.
working hours
The government has capped the daily and weekly hours at 12 and 48 hours respectively. it means that a four day work week could become a reality under the law. It has increased the overtime hours for workers from 50 to 125.
There are specifics to what these rules apply to – the Codes mean they apply to any employee in any industry who is not in a managerial capacity. This means that the Code applies equally to a factory worker and a software developer. Manager’s working hours are still governed by state law.
annual leave
Leave provisions haven’t changed much, but the good news is they are now applicable across all industries (and not just manufacturing). Workers get 1 day off for every 20 days they work (instead of the current 45 days), 30 days leave can be extended. But an employee now needs to be employed only for 180 days (instead of earlier 240 days) to claim leave.
Another positive change leave encashment A company is required to pay holiday encashment every year. For example, if an employee has 45 days off at the end of the calendar year. That 30 can be carried over to the next year and the employer must immediately pay 15 days of leave. Under earlier state law leave encashment was only at the end of the employment period.
social Security
Take home salary will be reduced under the new code Provident Fund The required contribution has increased. The basic pay should be 50% of the total pay and since the PF contribution is based on the basic pay, the contribution has always increased. Similarly, the gratuity payment will increase as it is based on the principal.
exit settlement
Currently, Full and Final (F&F) Settlement when an employee leaves takes 1-2 months. The new code mandates F&F in two working days.
The laws have been passed by the Center and are due to come into force on July 1, 2022. No official announcement has been made for this as what is currently pending is for the Center and the state to notify the rules related to these new codes. While the Center released the draft rules in 2021, only 23 states have published the draft rules. In general, reducing the number of laws, simplifying, clarifying and updating the scope of these laws to reflect current realities is a big step in the right direction.
Kanika Agarwal, Co-Founder, Upside AI