MC EXCLUSIVE Labour codes simplify compliance, offset additional costs for employers: Labour Secretary Gurnani

According to the Labour Secretary, the reduction in procedural processes will benefit MSMEs the most.

The increase in costs such as annual health check-ups for workers and social security contributions for gig workers under the new labour codes would largely be offset by simpler compliance, reducing the overall burden for companies, including small businesses, under the new labour codes, labour secretary Vandana Gurnani has said.

“There is a huge compliance reduction for companies, which will save them a lot of money. Simpler, transparent, and decriminalised laws lead to lesser confusion and litigation,” Gurnani told Moneycontrol. The number of registers that companies need to maintain has now come down from 84 to eight.

The new labour codes require employers to undertake mandatory annual health check-ups for workers over 40 years, contribute to social security funds for unorganised and gig workers and ensure payment of minimum wages for all workers. These provisions are seen as increasing the cost of employers.

“Also, there are timelines imposed now. For instance, if a licence has to be provided, it has to be done in a specific period, else it’s deemed approved,” Gurnani said.

"Eighty-seven criminal offences are reduced to 22, of which 16 are compoundable. Only six are non-compoundable, which are very serious, such as safety violations or non-adherence to social security rules," she said.

Procedural and technical offences have been converted to heavy penalties and fines, and criminal offences rationalised.

According to the labour secretary, the reduction in procedural processes will benefit MSMEs the most, as meeting compliance is “very tough”. “And these codes have ensured a massive cost reduction in these aspects,” she said.

Also read: All worker safety norms intact, no changes in new labour codes, says labour secretary

Moreover, the new category of employees – fixed-term employees —will also help in saving costs for employers, said Gurnani.

"Earlier, to hire workers for a particular job, the employers had to pay contractors," she said.

The new the codes classify workers into three categories — contractual, full-time equivalent (FTEs), and permanent employees. The contractual worker and FTEs are both employed for a particular period but their social security compliance differs.

The new codes mandate that an FTE must receive the same wages, allowances, hours of work, and all other statutory benefits (such as social security, leave, and bonus) as a permanent employee doing the same or similar work.

The contractual worker, on the other hand, is not on the principal employer's payroll. The principal employer is responsible for ensuring the contractor complies with all statutory obligations (such as payment of wages, PF, ESI, etc.) but the day-to-day employment relationship is with the contractor.