Indian companies to experience escalation in compliance costs under the new labour codes

Experts say there are multiple areas where companies could see higher expenditure.

Indian companies will experience an escalation in compliance costs due to various new provisions introduced by the central government in the new labour codes, experts say. Last week, the government announced implementation of  four labour codes, consolidating 29 existing labour laws into a simplified framework along with strengthening the social security net for India’s work force. The government has given  transition time of 45 days during which companies will have to align their internal structures in compliance with new rules.

However, there are multiple areas where companies could see higher expenditure. To begin with, the government has asked the companies to restructure salaries in such a way that basic pay is 50% of the total wage. This would mean, companies offering lower basic way will have to increase the same to 50%.

Further since provident fund contribution is calculated on basis of Basic Pay, companies may end up contributing higher amounts towards PF of the employees. Higher basic pay also implies higher gratuity outgo from employers.

“The material changes of potential immediate impact include updates like the new definition of wages, need for implementation of updated grievance redressal mechanisms, revised provisions associated with union recognition and bargaining, new leave provisions, a new definition of contract labour and associated compliances, and many more.” Said Atul Gupta, Partner, Trilegal.

The new Labour Code has also increased the bar for other expenses related to employee well-being. Employers are now required to provide free annual health check-ups for workers above the age of 40 years. This impacts large companies more than smaller companies because of the presence of larger work force.

The code also mandates companies to provide an option of office transport to their female workers who work night shifts. In this regard, companies are also required to provide enhanced safety, security, transport and welfare facilities. These provisions especially impact the technology companies where dedicated teams work for clients in different time zones.

“While the new framework introduces opportunities for simplification and increased workforce participation, organisations will need to prepare for changes to wage structures, HR systems, social security provisioning, and compliance governance, " said consultancy firm BDO in a note dated November 22.