The Union government looks poised to implement the four labour codes notified in September 2020 in the next financial year. The labour codes contain a combination of reformist zeal and social security steps aimed at boosting labour productivity, but are criticised as anti-worker as they allow greater freedom for businesses to hire and fire.
The four labour codes — the Code on Wages, Industrial Relations Code, Social Security Code and the Occupational Safety, Health and Working Conditions Code — will replace more than 100 central and state laws currently in force that cover various aspects of labour. A highlight of the new labour codes would be the recognition of migrant workers, which is long long-overdue.
As labour is a concurrent subject, the implementation of the codes will require states to frame rules. As the year is coming to a close, only 12 of India’s 28 states have draft rules in place. The slow progress could delay the implementation of the codes. Companies have been abusing loopholes in the existing laws or sidestepping the rules altogether. It remains to be seen if the new laws will do more harm than good as in the case of all legislation.
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Understanding labour codes
The four codes will drastically change the way businesses treat their employees. The changes will impact the working hours, salary and the rights of employees. Significant changes are expected in the way basic pay and provident fund of employees are calculated.
According to the existing laws, companies are required to clearly define the terms of employment such as leave, firings, layoffs, and grievance redressal if it hires more than 100 people. The new Industrial Relations Code will raise this threshold to 300 employees. In India, most factories have fewer than 300 employees. This may make workers more vulnerable to arbitrary dismissal, punishment for misconduct, and discrimination in promotion and transfers. However, the government says greater flexibility to employers has always resulted in more jobs.
Further, the workers will be required to provide 60 days prior notice before striking work and cannot declare a strike if the dispute is being heard by a tribunal. The new laws stipulate that only those trade unions that have the backing of at least 75% of the workforce can negotiate with employers.
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The government also cleared the way for employing fixed-term contract workers, making it easier to move toward a gig economy. The main problem with this is that the workers will not have long-term job security. This translates to an increasing number of employers converting permanent positions into contract jobs that pay less and can be eliminated with ease.
Under the Social Security Code, all permanent, temporary and contract workers will enjoy more or less the same benefits, which means gig workers will also get life and disability cover, health, pension and maternity benefits, old-age protection, and other benefits.
For fixed-term contract workers, the change means an eligibility for gratuity (bonus for time served at the company), which is currently reserved for permanent employees only after five years of service. Migrant workers and other temporary workers are expected to benefit as the government will set up a fund to pay these social security benefits in the unorganised sector.
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The Occupational Safety and Health Code will create a single labour licence that will allow companies to hire workers on contract in different locations. Currently, a company has to apply for multiple licences. The changes also pertain to migrant workers unlike the current laws which only covered workers employed by contractors. The central and state governments will maintain an online database of migrant workers—who can self-register using their Aadhar card. The government will extend public welfare benefits when workers move from one state to another.
The Code on Wages will change the definition of wage, which is likely to impact take-home pay and increase retirement savings. Under the wages code, the Union government will fix a floor wage, factoring in the living standards of workers in different states. State governments cannot fix minimum wage rates lower than the floor rate. The code also bans discrimination in wages for the same work based on the gender of the employees.
The new codes may also bring in the concept of four-day work week, as opposed to the current five-day week. However, as the 48-hour weekly work requirement remains unchanged which translates into 12 working hours a day.
The labour codes were expected to be implemented in April 2021. However, the Union and state governments have constitutional right to notify the rules under these codes. Many states have been moving at a snail’s pace in this regard and are yet to finalise the draft rules. This may delay the rolling out of the codes.
Prachi Gupta is an Assistant Editor with Policy Circle. She is a post graduate in English Literature from Lady Shri Ram College For Women, Delhi University. Prachi started her career as a correspondent with financialexpress.com. She specialises in policy impact studies.