Explained: New Labour Code may make the employer happier than the employees

How will it benefit employers?

The Industrial Relations Code 2019, also called the Labour Code, is a set of draft rules aimed at simplifying the labour laws in the country.

This regulation is not just meant to simplify the existing rules on the type of employment but also to give equal footing to both, permanent and contractual workers.

The idea is to improve the working conditions of the contractual staff and bring them on par with the regular employees. From an HR perspective, this will mean that a company need not have multiple employment policies for contractual and regular staff.

Especially for areas like maternity leave and extended leave for mothers, a similar policy will be followed which would make the management process easier. In the past, leaves were a bone of contention between companies and labourers.

A crucial aspect of the new draft code is the fixed-term employment proposal that has also been welcomed by the industry. This will mean that the respective companies would not need to engage with any third-party contractors. Instead, under the new regime, they will be able to hire contract workers directly for a fixed tenure. 

Based on the type of job role, the contract period can be tweaked making it easier for firms to hire and fire. Earlier, the contractors would play a role in these matters. Now, the employment period can be decided by the company itself. Later, if the particular job gets redundant, the worker can let go.

For instance, if a welding professional has been hired, and the company is able to procure a machine to perform the same function at a later date, this professional can be laid off. In the past, firing staff would lead to a dispute since there was no concept of a fixed-term employment.

How will it help employees?

At present, labour disputes take a long time to be resolved. The Industrial Relations Code has proposed setting up of a two-member tribunal for settling labour disputes. Earlier, there was a one-member team that led to delays in getting a resolution.

Further, a few government officers would also be given the power to look into cases and also impose penalties. This is expected to ease the burden on the tribunals that are already handling several thousand cases.

This will ease the pain for employees who otherwise lose pay while attending the often-prolonged tribunal hearings.

For workers, being relevant from a skilling perspective has been a cause of concern in India. Re-skilling of staff will be a key priority under the new regulations. The government has said that there will be re-skilling fund that will be utilised for crediting to workers.

Closely linked to reskilling is the fear of retrenchment. Due to machines replacing mundane roles, involuntary separation in factories has been a reality. While there was fear of only mid-sized companies (with 300 or more employees) being mandated to take government permission to retrench staff, the draft code has retained it for companies with 100 employees or above.

This means even if a small company/factory were to take a retrenchment decision, they would have to get prior permission from the government to do so.

As far as benefits are concerned, the draft code has said that set social security benefits will be extended to all types of workers. This means that all company benefits including insurance and leave encashment could be provided to these workers (contractual or temporary workers). Earlier, contractors would be passed on these benefits, and there were reports of leakage of cash/insurance amount.

What next?

Once this code gets a nod from both the houses of the Parliament, it will be drafted into a law. This will subsume all the existing rules used for defining employment contracts of staff.