There are currently 44 laws that govern labour, employment and working conditions in India. This does not even account for state level labour laws/ rules. Labour is a concurrent issue in the Constitution where both Centre and State can set rules and laws. The central government has taken a great step to rationalize 29 of these laws into four “codes” –
1. The Code on Wages, 2019
2. The Industrial Relations Code, 2020
3. The Code on Social Security, 2020
4. The Occupational Safety, Health, and Working Conditions Code, 2020
What do these new codes mean? There are provisions for working hours, days, social security, salary restructuring, leaves and gratuity.
The government has capped daily and weekly hours at 12 and 48 hours respectively. This means that a four-day work week might become a reality under law. It has also more than doubled overtime hours from 50 to 125 for workers.
There are nuances on who these rules apply to – the Codes imply they apply to any worker in any industry that is not in a managerial capacity. This means the Codes apply to a factory worker and a software developer equally. Manager working hours are still governed by State law.
Provisions of leave haven’t changed too much but the good news is they are now applicable across all industries (and not just manufacturing). Workers get 1 day of leave for every 20 days they work (instead of current 45 days), 30 days of leave can be carried forward. But a worker now needs to be employed for only 180 days (instead of the earlier 240) to claim leaves.
Another positive change is for leave encashment — a company is required to pay out leave encashment every year. For eg, if an employee has 45 days of leave at the end of a calendar year. She can carry forward 30 to the next year and the employer must pay out 15 days leave immediately. Previously leave encashment under state law was only at the end of the employment period.
Take home salary will reduce under the new codes as the provident fund contribution required has increased. Basic salary must be 50% of total pay and since PF contribution is based on basic salary, the contribution invariably has gone up. Similarly, gratuity payout will go up as it is based on basic.
Currently full & final (F&F) settlements when an employee leaves takes 1-2 months. The new code mandates F&F be done in two working days.
The laws have been passed by the Centre and are supposed to come into effect on July 1, 2022. There is no official announcement for this because what is currently pending is for Centre and state to notify rules related to these new codes. While the Centre released draft rules in 2021, only 23 states have published draft rules. Generally, the reduction in number of laws, simplifying, clarifying and updating scope of these laws to reflect current realities is a great step in the right direction.
Kanika Agarrwal, Co-founder, Upside AI
