Labour Codes: Government Will Stick To New Definition Of Wages - Exclusive
An employee counts rupee currency notes inside a private money exchange office in New Delhi. 

Labour Codes: Government Will Stick To New Definition Of Wages - Exclusive


The Indian government will not change the definition of wages despite concerns from industry over the impact of the new labour law regime on wage bills, a top government official said on Wednesday.

“The definition of wages is a part of the Codes and that cannot be addressed through the rules,” Labour and Employment Secretary Apurva Chandra told BloombergQuint in an interview on Wednesday evening while replying to a question on whether the government will bring any changes to the new definition of wages following concerns raised by the industry.

The secretary said that during the recent consultations on the new labour codes, which will likely be implemented from or before the next fiscal, “the major issue” flagged by the industry was on the definition of wages and “how it will impact the take-home salary of workers and lead to a higher outgo on PF and gratuity.”

Once the new labour codes kick in, the way companies structure employee salaries will undergo a significant change. According to the new law, the salaries will have to be structured in a manner so that all the monetary allowances — house rent, leave travel, overtime, conveyance, among others — are capped at 50% of the wage of an employee, which will include the basic pay, dearness allowance and retention pay.

Higher basic pay would mean increased costs towards provident fund and gratuity which are calculated on the former.

Earlier this month, a top government official had said that the government was planning to issue a clarification to ‘grandfather’ the gratuity payments. This is because gratuity is calculated on the last drawn salary of a worker and is equivalent to 15 days of their salary for every year worked in an organisation. Employees are entitled to receive gratuity from their employers on completion of five years of continuous service in an organisation.

Asked whether the ministry is planning for a ‘grandfathering’ clause to limit the gratuity outgo for industry, Chandra said “I cannot comment on it. What’s there in the code is there in the code.” “It (gratuity payments) won’t go up immediately. In a year, not more than 3-4% of employees avail of it. So, there will be no immediate impact (for the industry). We are examining with the industry bodies but what’s there in the code is there in the code,” the secretary said.

Last year, Parliament passed four labour codes, one each on wages, industrial relations, occupational safety health and working conditions and social security to usher in key changes to India’s labour laws, some of which were framed during the British rule.

Chandra said that the provident fund costs of firms would not be impacted as contribution towards the Employees’ Provident Fund schemes is mandatory for only those earning below Rs 15,000 a month. “Once a worker’s wage limit crosses Rs 15,000, companies are not required to pay EPF towards them,” he said.

The recent protests related to the new farm laws have pushed the government on the backfoot making it difficult for the government to go back to Parliament to amend the labour laws, according to labour law experts.

“Going back to Parliament would mean opening up a Pandora’s box as it will be in response to demands from the corporate world. The government will be ill-prepared as they have already faced a backlash on the new farm laws and they will be seen as poor lawmakers. The government will then also have to accommodate changes suggested by the labour unions who are pressing the government to revisit the codes,” XLRI professor (human resource management) and labour economist K.R. Shyam Sundar said.

The government on Wednesday proposed to suspend three controversial farm laws for a period of 18 months in a bid to end the stalemate with farm union leaders who have been protesting on the outskirts of the national capital for close to two months now.

Industry bodies are also treading cautiously.

“There are certainly some issues that will impact a segment of the industry. Ideally, everyone’s concerns should be addressed but looking at the current situation, we will have to work with individual companies and find an amenable solution than seeking changes that will delay the implementation of the labour codes which have brought about key changes to the business environment,” Chairman of the Confederation of Indian Industry’s National Committee on Industrial Relations MS Unnikrishnan said.

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