THE CODE ON WAGES, 2019

INDIA’S NEW LABOUR CODES

INSIDE PAGES

Key Highlights of the Labour Codes

Key Client Concerns

Impact on the Employer/Suggested ac�ons

THE CODE ON WAGES, 2019

An Act to amend and consolidate the laws rela�ng to wages and bonus and ma�ers connected therewith or incidental thereto.

Acts Repealed

Wages: Sec 2(y) defines “Wages” which was replicated in other codes

All remunera�on (in monetary terms), whether by way of salaries, allowances, or otherwise, would form part of wages

The excluded components are bonus not forming part of remunera�on, house rent (or the value of living accommoda�on), provident fund, commission to the employee, over�me allowance, and conveyance allowances, where the aggregate amount paid under these heads does not exceed 50 percent of the total remunera�on being paid to the employee

The total excluded components should not exceed 50% of the total remunera�on

Na�onal Floor Wage: A floor wage will be fixed by Central Government for different regions which will be the basis for the State Governments to fix the minimum wage. No State Government shall fix the minimum wage below the na�onal floor wage

While fixing the floor wage the Central Government will consult the Central Advisory Board and State Governments

The state or central government shall not exceed a period of five years for revision of minimum wages

If any State Government is already paying more minimum wages, it cannot reduce it so as to bring it on par with na�onal floor wage

The Central Advisory Board is yet to be constituted by the Central Government

The Payment of Wages Act, 1936

The Minimum Wages Act, 1948

The Payment of Bonus Act, 1965

The Equal Remunera�on Act, 1976

THE CODE ON SOCIAL SECURITY, 2020

An Act to amend and consolidate the laws rela�ng to social security with the goal to extend social security to all employees and workers either in the organized or unorganized or any other sectors and for ma�ers connected therewith or incidental thereto.

Acts Repealed

The Workmen’s Compensa�on Act, 1923

The Employees' State Insurance Act, 1948

The Maternity Benefit Act, 1961

The Payment of Gratuity Act,1972

No.9

The Unorganised Worker’s Social Security Act, 2008

The Employees' Provident Funds & Miscellaneous Provisions Act, 1952 No.7 No.8

The Employment Exchange (Compulsory No�fica�on of Vacancies) Act, 1959

The Cine Workers Welfare Fund Act,1981

The Building and Other Construc�on Workers Welfare Cess Act,1996

01 The Code introduced defini�ons for

a) Aggregator

b) Fixed term employment

d) Self-employed worker e) Pla�orm worker

c) Home based worker

f) Gig worker

02 Defini�on of 'employee' was introduced and applicable across all provisions under the Code on Social Security, 2020.

03

The Code has set a statutory limit for 5 years which includes proceedings and inquiries for the determina�on of money dues of an employee i.e., applicability of the provisions of Employees Provident Fund Act (“EPF Act”) and Employees State Insurance Corpora�on Act (“ESI Act”).

04 05

Central Government has the power to frame schemes for providing social security to gig workers, pla�orm workers and all those workers who do not fall under tradi�onal employer- employee rela�onship.

Provident Fund

The contribu�ons paid by the employer to the fund shall be ten per cent of the wages payable towards each of the employees (whether employed by him directly or by or through a contactor)

The employee's contribu�on shall be equal to the contribu�on payable by the employer in respect of him/her and may, if any employee so desires, be an amount exceeding ten per cent of the wages, subject to the condi�on that the employer shall not be under an obliga�on to pay any contribu�on over and above his contribu�on payable under the Code

The Code reduces employer’s contribution from 12% to 10%

Gratuity Act

The comple�on of con�nuous service of 5 years shall not be necessary where the termina�on of the employment of any employee is due to- “expira�on of fixed term employment or happening of any such event as may be no�fied by the Central Government”. The Payment of Wages Act, 1936

Pro-rata Gratuity: In the case of an employee employed on fixed term employment or a deceased employee, the employer shall pay gratuity on pro rata basis

As per the code, gratuity is now to be calculated on 50% of the gross wages and not only on basic and DA as done earlier

Since the wages are defined at 50%, any calculations (leave encashment, gratuity, PF etc) under this Code will now have to be at 50% instead of earlier calculations of only on basic and DA

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Compounding of offences

Offences punishable with a fine or with imprisonment less than 1 year plus fine under the Code are compoundable offences.

THE INDUSTRIAL RELATIONS CODE, 2020

An Act to consolidate and amend the laws rela�ng to Trade Unions, condi�ons of employment in industrial establishments or undertaking, inves�ga�on and se�lement of industrial disputes and for ma�ers connected therewith or incidental thereto.

Acts Repealed

The Trade Unions Act, 1926

Key Highlights

The Industrial Employment (Standing Orders) Act, 1946

Industrial Disputes Act, 1947

01 Defini�ons of both, employee and fixed term employment were introduced.

02 The term 'workmen' got replaced and renamed as 'worker' in the Industrial Rela�ons Code, 2020.

03 Defini�on of “Appropriate Government” has been modified including the establishments of the contractors, thus Contractor appropriate government shall be of the establishment where the contract labour has been deployed

04 Fixed Term Employment : Fixed term employment was not defined under any earlier labour legisla�ons. The Code defines it as engagement of a worker on the basis of a wri�en contract of employment for a fixed period

Note: Several judicial pronouncements held fixed term employment as permissible, especially in projects having a fixed tenure, for eg. Building of roads, damns, bridges, etc. The fixed contracts are supposed to come to an end upon completion of the tenure or the completion of the project. However, many employers continued fixed term employees for number of years

05

The hours of work, wages, allowances and other benefits provided to a fixed term employee shall not be less than that of a permanent worker doing the same work or work of similar nature

06 Sole Bargaining Agent: The Code provides for nego�a�ng union or nego�a�ng council in every establishment wherever there is a registered trade union

- Wherever there is one trade union of workers, the employer shall recognise such trade union as sole nego�a�ng union of the workers. Previously it was only applicable in Maharashtra under MRTU & PULP Act

- In cases of more than one union, the employer will recognise the union having membership of 51% or more workers on the muster roll

- In-case no union has 51% or more membership, then the employer shall cons�tute a nego�a�ng council for nego�a�ons, consis�ng of representa�ves of unions which have support of not less than 20% of the workforce at the rate of one representa�ve for each 20%.

If majority of the nego�a�ng council reaches an agreement it will be construed as a binding se�lement

Permission for lay-off, retrenchment, closure only when 300+ workers. Ease of doing business for smaller firms

10 Every offence that is not an offence punishable with imprisonment or with imprisonment plus fine, is a compoundable offence under the Code.

THE OCCUPATIONAL SAFETY, HEALTH & WORKING CONDITIONS CODE, 2020

An Act to consolidate and amend the laws regula�ng the occupa�onal safety, health and working condi�ons of the persons employed in an establishment and for ma�ers connected therewith or incidental thereto

Acts Repealed

The Factories Act, 1948

The Working Journalists (Fixa�on of Rates and Wages) Act, 1958

Key Highlights

The Motor Transport Workers' Act, 1961

The Working Journalists and Other Newspaper Employees (Condi�ons of Service) and Miscellaneous Provisions Act, 1955

01 If majority of the nego�a�ng council reaches an agreement it will be construed as a binding se�lement

02 03

Applicable to establishments – any industry, trade, business, manufacturing or occupa�on with 10 or more workers

Applicable to contractor’s establishment employing 50 or more contract labourers. The defini�on of contractor includes sub-contractor

The Planta�ons Labour Act, 1951

The Mines Act, 1952

05

Applicable to any establishment engaging 10 or more inter-state migrant workers. Employers shall cover them under social security and pay a lumpsum amount of fare for travel to hometown every year

Defini�on of ‘Factory’ : Increase in number of employees for coverage from 20 to 40 without power and, 10 to 20 with power

06 Defini�on of ‘Industry’: Same as laid down in the case of Bangalore Water Supply –Triple test

07

Defini�on of ‘Employer’: in case of a factory, it is the Occupier. In case of other establishments, it is the manager or managing director

08 The Code defines ‘Core-Ac�vity of an establishment’: ‘any ac�vity for which the establishment is set up and includes any ac�vity which is essen�al or necessary to such ac�vity’ (Amendment to CL(R&A) Act in AP)

09 Inspector under the Code is now renamed as inspector-cum-facilitator. Inspector-cum-facilitator is required to inform and sensi�se employer and worker regarding provisions of the code and compliance

10 The Code provides for "common license" for factory, contract labour and beedi and cigar establishments and introduced the concept of a Pan India license for a period of five years to engage the contract labour

Under the OSHWC Code, 2020 an employee qualifying as a ‘worker’, is en�tled to encash unu�lized leave at the end of a calendar year

- This will be an addi�onal cost to the employer as under the current laws, workers are eligible to encash their unu�lized leaves only upon termina�on of employment

- Hence, employers, depending on role and profile of employees in various en��es, need to analyze whether they qualify as ‘workers’, before determining applicability towards this provision

Under the Code on Social Security, 2020, gratuity will have to be paid on the basis of the defini�on of wages for the en�re tenure of employment of the employees (including the past period). This will result in a substan�al increase in the cost to the company on account of the incremental base on which gratuity will be calculated

The provisioning for gratuity, including contribu�ons to be made by the company, will have to be done accordingly, based on the actuarial valua�on as per the terms of gratuity policy of the respec�ve en�ty

The Code covers journalists working in electronic media and digital media, such as newspaper, radio or other like media establishments in the defini�on of "working journalists”

The Code provides for employment of women (with consent) before 6 am and beyond 7 pm in all establishments for all types of work, subject to the condi�on that the employer would take necessary steps to ensure their safety and other condi�ons of work.

The Code provides for overriding powers to the Central Government to regulate general safety and health of persons residing in whole or part of India in the event of declara�on of epidemic or pandemic or disaster; like COVID-19

Compounding is available for offences such as non-maintenance of registers and records, not filing of returns, disclosure of certain informa�on, contraven�on of provisions of du�es rela�ng to safety provisions resul�ng in an accident, general penal�es etc.

OTHER CONCERNS

House Rent Allowance - Upto 50% of Basic is tax-exempt, therefore HRA allowance could go up

Group Life and Accidental Insurances - If linked to Basic Pay, the insurance covers would move up leading to higher premiums

Superannua�on - Employer contribu�on Superannua�on could increase

Leave Travel AllowanceWhere Leave Travel Allowance is linked to Basic (for e.g. 1 months Basic Pay), the alloca�on towards LTA would move up

Employees State Insurances - Could impact eligibility as current ESI wages includes HRA but the Labour Code defini�on of Wages excludes HRA poten�ally resul�ng in more employees falling within the threshold of ESI

Statutory Bonus - Poten�al exclusion of some employees if eligibility salary is higher than the current Basic Pay used for eligibility threshold (INR 21,000)

SUGGESTIONS FOR EMPLOYERS

Financial impact assessments on various scenarios –Social Security/Fixed Term Employees/Consult ants etc.

Set-up an internal Task-Force (HR, Legal, Finance, etc.) to review various aspects of the Labour Codes along with the Labour Law experts

Realign components of salary as per the Code on Wages, 2019

Incorporate Labour Code impacts within 2021 salary budgets

Assess Technology readiness Representa�ons to Govt through trade/industry associa�ons

Focus on 100% Compliance

M U M B A I

9th Floor, Mafatlal Centre

Vidhan Bhavan Marg

Nariman Point, Mumbai 400 021

T: +91 22 6636 7000

NE W D ELH I

801 A, 8th Floor, Konnectus Tower, Bhavbhuti Marg

Opp Ajmeri Gate Railway Station, Nr Minto Bridge

New Delhi 110 001

T: +91 11 4152 8400

AH M E D A B A D

801, 8th Floor, Abhijeet III

Mithakali Six Road, Ellisbridge

Ahmedabad 380 006

T: +91 79 6605 4480/8

P UN E

202, 2nd Floor, Vascon Eco Tower

Baner Pashan Road

Pune 411 045

T: +91 20 4912 7400

BEN G A L UR U

6th Floor, Rockline Centre

54, Richmond Road

Bengaluru 560 025

T: +91 80 4168 5530/1

C HENNA I

No 18, BBC Homes, Flat-7 Block A South Boag Road

Chennai 600 017

T: +91 44 4210 4863

G IF T C I T Y

GIFT CITY Unit No 605,

Signature, 6th Floor Block 13B,

Zone – I GIFT SEZ, Gandhinagar 382355

D IS C LAI M E R :

The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice

This document is not intended to address the circumstances of any particular individual or corporate body Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation There can be no assurance that the judicial/quasi judicial authorities may not take a position contrary to the views mentioned herein

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