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What the proposed Labour Codes mean for employers and employees

The Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code were passed during the Monsoon Session of Parliament in 2020 amidst massive criticism and protests. In the Monsoon Session of 2019, the Code on Wages had been passed. Together, these four codes merge 44 pre-existing labour laws.

February 09, 2021 / 03:10 PM IST

The four labour codes enacted by Parliament, beginning with the Code on Wages in 2019, are set to be implemented soon.

According to Labour and Employment Secretary Apurva Chandra, the Labour Ministry will formulate relevant rules and regulations over the coming weeks to implement the four new Labour Codes.

Once the rules are notified, the codes will come into effect.

The government introduced the codes with the aim of streamlining and simplifying the country's existing and overlapping labour laws. Since the subject of labour comes under the Concurrent List of the Constitution, there were hundreds of State and Central labour laws.

During the Monsoon Session in 2020, Parliament passed three labour codes -- the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 -- amidst massive criticism and protests, especially in the northern parts of the country. In the Monsoon Session of 2019, it also passed the Code on Wages. Together, these four codes merged 44 pre-existing labour laws.

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Moneycontrol takes a dive into the four codes, the concerns around them and the announcements in Budget 2021.

Code on Wages, 2019

The Code of Wages was passed in August 2019. It makes provisions for minimum and timely payment of wages to all workers in India.

It consolidates four laws relating to wages and bonus, namely: Payment of Wages Act, 1936; Minimum Wages Act, 1948; Payment of Bonus Act, 1965; and Equal Remuneration Act, 1976.

The Code introduces the concept of floor wages wherein the rates will be fixed by the central government by taking into account the minimum living standards of workers. Once the code is enacted, the minimum rates of wages fixed by the State Government cannot be less than the floor wages determined by the Central Government. The Code applies to all establishments, irrespective of the number of employees working in an establishment. It also applies to all the employees employed in both the organised and the unorganised sector.

The draft rules on the Code on Wages were floated by the government in July 2020. As per the new definition of wages under the Code on Wages, 2019, the government has put a cap on the allowances at 50 percent of the total compensation.

Industrial Relations Code, 2020

The Industrial Relations Code aims to streamline the laws regulating industrial disputes and trade unions in India. The Code will replace three existing labour laws: the Trade Union Act, 1962; Industrial Employment (Standing Orders) Act, 1946 and The Industrial Disputes Act of 1947.

The code stipulates that companies with up to 300 workers will not be required to take prior government approval to fire employees and shut down a plant or factory. However, those with over 300 workers will still be required to seek government approval.

Further, the code also introduces conditions on the rights of workers to go on strike. It proposes that employees working in an industrial establishment will be required to provide 60 days’ strike notice. Further, if there are proceedings pending before an Industrial tribunal or a labour tribunal, the workers cannot go on a strike for 60 days after the proceedings have been completed. Also, flash strikes have been made illegal.

The draft rules for the Industrial Relations Code were floated in October 2020 by the Labour Ministry.

Occupational Safety, Health and Working Conditions Code, 2020

The Occupational Safety, Health and Working Conditions Code aims to regulate the safety, health and working conditions of workers employed in establishments. The Code proposes to widen its applicability to different varieties of workers, namely inter-State migrants, sales promotion employees and audio-visual workers. Further, attempting to promote gender equality, it also proposes to let women workers work during the night after gaining their consent. It also proposes to let inter-State migrant workers avail the benefits of the Public Distribution System in either their home State or the State of employment.

The Code integrates 13 labour laws relating to safety, health and working conditions. The draft rules for the OSH Code were floated in November last year.

According to the draft rules published in November 2020, no employee shall be employed in any establishment unless he has been issued a letter of appointment. It has also made a provision for annual health examinations to be conducted by the employer free of cost for every worker of a factory, dock, mine or building or other construction work, who has completed 45 years of age.

The Labour Ministry has proposed a maximum of  12 working hours in a day, inclusive of intervals, under the draft rules for the OSH Code. However, the weekly working hours limit has been fixed at 48 hours. It will also provide employers the flexibility of providing a 4-day work-week of 12 hours followed by three days of leave.

Code on Social Security, 2020

The Code on Social Security, 2020, has for the very first time extended social security benefits such as maternity leave, disability insurance, gratuity, health insurance and old age protection to workers in the country’s booming unorganised sector. These include gig workers, platform workers, contract workers, freelancers and home-based workers.

It also stipulates the gratuity benefits to fixed-term employees without any conditions on minimum service. The Code proposes the creation of a social security fund to extend these benefits to workers in the unorganised sector. The scheme for the social security fund envisages that the platforms and aggregators make contributions to the fund that would be either 1-2 percent of the turnover or 5 percent of the worker’s wages. Central and the State governments can also contribute to the social security fund.

The draft rules on the Code on Social Security were released in November 2020. It integrates nine previous regulations relating to social security namely, The Employees Compensation Act, 1923; The Employees Provident Fund and Miscellaneous Provisions Act, 1952; The Employees State Insurance Act, 1948; The Maternity Benefit Act, 1961; The Unorganised Workers’ Social Security Act, 2008; The Payment of Gratuity Act, 1972; The Employment Exchanges Act, 1959; The Building and Other Construction Workers Cess Act, 1996 and The Cine Workers Welfare Fund Act, 1981.

Why are Trade Unions seeing the Codes as a cause for concern?

Many experts and labour union bodies across the country have deemed the labour codes to be highly anti-worker and pro-employer in nature.

For instance, one key feature that has emerged from the labour codes is that they provide size-based applicability to industrial establishments. Thus, thousands of industrial units employing fewer workers do not fall under the ambit of the Codes.

While the government argues that raising the threshold for government approval in the case of winding up and firing employees to 300 will increase employment creation, labour unions are of the opinion that this move would allow employers to hire and fire as many 300 workers freely as per their will. The IR code is therefore seen as being highly skewed in favour of employers.

Furthermore, by increasing the strike notice period to 60 days, the negotiating power of the unions has been diminished. This has made it difficult for workers to collectively agitate against wrongful practices of employers and in fact, has yielded more power into the hands of industrial establishments. The unions say that the government has rolled out the code to delegitimise the system of strikes. The unions have also noted that the right to strike has not been extended to workers in the unorganised sector.

The difference between the proposed Labour Codes and earlier Labour Laws

Earlier, the unorganised sector was not eligible for social security cover, but now, it can avail of benefits under the Code of Social Security, 2020. Another feature is that workers with only one year of service are eligible to draw gratuity whereas earlier they were eligible to do so after five years of service.

Previously, there was no provision for minimum wages for workers, while now, under the Code on Wages, the central government will determine the minimum wages. Under the OSH Code, the maximum work hours should not exceed 12 hours a day unlike the previous provision of 9 hours a day.

As for the IR Code, 2020, earlier, firms with up to 100 workers didn't require the government's permission to fire workers. However, now firms with up to 300 workers don't require governmental permission to fire workers. Also, earlier, two weeks’ strike notice was required to be submitted whereas now 60 days’ notice is required.

What did Budget 2021 have in store for Labour?

Union Budget 2021-22 proposed to set to set up a database of informal sector employees including gig and platform workers, which may help in offering social security and welfare benefits to them.

“To further extend our efforts towards the unorganised labour force, migrant workers particularly, I propose to launch a portal that will collect relevant information on gig, building, and construction workers, among others. This will help formulate Health, Housing, Skill, Insurance, Credit, and food schemes for migrant workers,” Finance Minister Nirmala Sitharaman had announced.

The Labour Secretary recently said that the portal would be rolled out by May or June for registration and other facilities for workers in the unorganised sector. Workers enrolled on the portal will be provided with an incentive of accidental and disability cover under the Pradhan Mantri Suraksha Bima Yojana (PMSBY), which will be free for one year.

“We will conclude a process that began 20 years ago, with the implementation of the 4 labour codes. For the first time globally, social security benefits will extend to gig and platform workers. Minimum wages will apply to all categories of workers, and they will all be covered by the Employees’ State Insurance Corporation. Women will be allowed to work in all categories and also in night shifts with adequate protection. At the same time, the compliance burden on employers will be reduced with a single registration and licensing, and online returns, Sitharaman had added.
Shreeja Singh
first published: Feb 9, 2021 03:10 pm

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