- Date : 28/06/2022
- Read: 5 mins
The Government plans to introduce a new labour code from 1 July 2022. It may lead to major changes in working hours, contribution to EPF and other retirement benefits, how employees earn leave, etc.
As part of the new labour laws in India, the Government plans to implement four new labour codes from 1 July 2022. These include major steps toward improving the work-life balance and social welfare of employees in the organised and unorganised sectors. As of 25 June 2022, 23 states have made labour codes based on the following four labour codes:
1) Code on Wages, 2019
2) Industrial Relations Code, 2020
3) Code on Social Security, 2020, and
4) Occupational Safety, Health, and Working Conditions Code, 2020
All the above labour codes aim to strengthen employee rights. The Indian Parliament approved the Code on Wages in August 2019. The remaining three codes were approved in September 2020. In the past, the National Commission of Labour had submitted various reports on employee welfare. But recently, the Central Government consolidated 29 labour laws into four labour codes as part of labour reforms in India.
Let us look at some of the salient features of these labour codes.
1) Flexibility in working hours to promote work-life balance
Currently, the Factories Act, 1948 governs the working hours for factory workers. The Shops and Establishment Acts of each state govern the working hours for office workers. The new labour law will give organisations the flexibility to change working hours.
The maximum working hours in a day can be increased to 12 hours instead of the usual 8-9 hours. The maximum weekly working hours have been capped at 48 hours. So, organisations will be able to introduce four-day working weeks and give employees three days off a week. Earlier, the Factories Act allowed workers to do a maximum of 50 hours as overtime in a quarter. The new labour law has increased the maximum overtime hours to 125 hours in a quarter.
While the Government has maintained the total working hours at 48 hours/week, the flexibility will allow companies to promote work-life balance with four-day working weeks. On the one hand, the four-day working week will require employees to put in more working hours every day. But at the same time, they will get three days off in a week, which will allow them to spend more quality time with their family.
2) Changes in salary structure will reduce take-home salary but boost retirement benefits
As per the proposed labour law reforms, an employee’s basic salary will have to be at least 50% of their gross salary. The Employees Provident Fund (EPF), gratuity, and other retirement benefits form a certain percentage of the basic salary. Hence, with an increase in the basic salary, the deduction towards these retirement benefits will increase.
As a result, in the long run, the employee will get greater benefits on retirement. But in the short term, the take-home salary will reduce. Instant gratification with a higher take-home salary will have to make way for delayed gratification with higher retirement benefits. The increase in employee contribution to EPF will also lead to an increase in employer contribution. With this move, the Government is trying to ensure that employees build a higher retirement corpus in the form of higher EPF accumulation and higher gratuity amount on retirement.
3) Changes in leave entitlement
The labour act has modified the way employees earn leave while keeping the number of leaves in a year unchanged. Earlier, employees used to earn one leave for every 45 days of work. But now, they will earn one leave for every 20 days of work. Earlier, new employees were eligible to earn leave after 240 days of employment. Now, they will be eligible to earn leave after 180 days of employment. The limit on the number of leaves an employee can carry forward to the next year remains unchanged at 30.
Impact on gig economy workers
In the last few years, India has seen a big rise in marketplaces such as Amazon, Flipkart, ride-hailing platforms such as Uber and Ola, and food delivery apps such as Zomato and Swiggy. These platforms and marketplaces collectively employ millions of gig economy workers. The four labour codes are expected to have a big impact on the lives of these gig economy workers, self-employed people, contract workers, etc. The labour codes rationalise their working hours and remuneration structure.
Implementation of the labour codes
The labour codes are a part of the Central Government's objective of ‘Minimum Government, Maximum Governance’. The Central Government plans to implement the four labour codes from 1 July 2022. However, as of 25 June, only 23 states have made the state labour codes based on the Central Government's labour codes. Once the labour codes are implemented, they will go a long way in helping employees accumulate a better retirement corpus. It is the need of the hour as the awareness about retirement planning is still low in India but is catching up.
Labour codes will improve the ease of doing business and ease of living
The labour codes will help employees spend quality time with their families and ensure a better work-life balance. And finally, the labour codes are as per the International Labour Organisation (ILO) framework. It will help India improve its Ease of Doing Business ranking and invite more foreign organisations to set up manufacturing or services units in India, resulting in higher employment opportunities in the country. Moreover, the labour codes will also improve the standard of living for employees. So, the labour codes are a win-win for all stakeholders, including the employees, organisations, and the Central and State Governments