Simplifying India’s Labour Laws: Two Steps Forward, One Step Back
A worker uses a press punch to cut keys at a factory. (Photographer: Udit Kulshrestha/Bloomberg)

Simplifying India’s Labour Laws: Two Steps Forward, One Step Back

As the Narendra Modi-led government begins its second term, one of the toughest tasks it faces is simplifying India’s complex and restrictive labour laws. Simplifying these rules in a manner that makes it easier for companies to do business while protecting the interests of workers remains the big challenge facing this government.

The process, which began in the first term of the current government, is focused on streamlining various laws under four Labour Codes ⁠— Code On Wages, Code On Industrial Relations, Code On Social Security and Code On Occupational Safety, Health and Working Conditions.

“The proposed labour codes will consolidate over 40 central laws solving the current issues associated with complying with multiple statutes,” said Rashmi Pradeep, Partner, Cyril Amarchand Mangaldas.

It is expected that outdated laws will be removed. There will be harmonisation of the currently varied definitions and applicability thresholds. The compliance regime will be simplified and made transparent. Employees will also be better able to monitor their benefits and rights.
Rashmi Pradeep, Partner, Cyril Amarchand Mangaldas

Code On Wages

Among the four, the draft Code On Wages is at the most advanced stage. The government hopes to introduce and pass it in the current session of the parliament, according to labour minister Santosh Gangwar.

Key provisions which will be part of the code include:

  • Fixing of a minimum basic rate of wages payable to all employees. A govenment-appointed expert panel headed by Anoop Satpathy, fellow at V. V. Giri National Labour Institute (VVGNLI), had recommended a minimum national wage rate of Rs 375 per day.
  • The minimum wage notified may differ for different states or geographical areas but it cannot be lower than the national minimum wage.
  • Review of the minimum rate of wages at an interval of five years.
  • Apart from a minimum wage rate, the appropriate government (Centre or State) may fix the maximum number of hours of work and provide for a day of paid rest once in every seven days.
  • Industrial or other establishment may be asked to pay wages by cheque or in digital or electronic mode.
  • There will be a specified time limit for payment of wages and timely settlement of dues of employees no longer working with an employer.
  • There will be no discrimination among employees on grounds of gender in determining wages for similar kinds of work.
  • An annual minimum bonus calculated at the rate of 8.3 percent of the wages earned by the employee or a hundred rupees, which ever is higher.

Implications

To date, minimum wages are applicable for about about 66 percent of wage workers, Satpathy, who headed the reform committee, told BloombergQuint. As the number of workers in the informal sector continues to rise, it is critical to have a universal code, he said.

Satpathy added that currently there are over 1,700 minimum wage rates for over 1,000 different occupations in India. Consequently, there is wide disparity in minimum wages and implementation has remained poor.

A consolidation in wage rates will help normalise wage rates across the country, Satpathy said.

Though Satpathy expects the code on minimum wages to sail through soon as it has already been debated and redrafted, he agrees that fixing a national minimum wage will require further discussions with stakeholders including labour unions.

Code On Social Security

The Code On Social Security is intended to expand the coverage of social security across the country.

  • The code proposes an overarching apex body — National Social Security Council. The body would coordinate with state level organisations and execute social security schemes.
  • The present classification of ‘Insured Person’ (Under Employee State Insurance Corporation), Universal Account Number (Under Employees Provident Fund Organisation), Unorganised Workers Identification Number (Under Unorganised Workers Social Security Act) will be merged into one.
  • A consolidated contribution will be made by the employer and by the worker into the State Social Security Fund. The employer’s contribution will be a maximum of 17.5 percent of monthly income. The employee’s contribution will be a maximum of 20 percent of their income.
  • The code provides for a levy of Building and Construction Cess on all construction works above a certain threshold for protection of construction workers.
  • It also intends to enforce maternity benefits payable for 26 weeks.

Implications

The social security code is critical as only eight to 10 percent of all workers are currently covered by existing social security laws, said Satpathy. The code, envisages universal coverage. The code prescribes for registration of all kinds of employers, commercial establishments or households which employ domestic workers.

The code will bring all kinds of employers in the fold of a universal social security system. 

However, progress on the Code on Social Security is expected to be slow considering the complexity of the existing provident fund law, said Ajay Solanki, leader - labour and employment practice at Nishith Desai Associates.

Labour unions are unhappy with social security schemes being bundled into one and believe that the contribution of the employers should be higher than stipulated in the draft code.

Code On Occupational Safety, Health And Working Conditions

This code, which will apply to every establishment employing ten or more employees, is intended to ensure a safe workplace for India’s workers.

  • Employer will ensure that the work place is free from hazards that may cause injury or occupational disease to the employees. Employers will also need to comply with the safety and health standards under this code.
  • Employees will not be allowed to work over the maximum stipulated hours.
  • Every employer shall ensure periodical medical examination and prescribed tests of employees.
  • Manufacturers will ensure that articles designed are safe and and tested with adequate information available on their use.

Even though manufacturing is a large part of the Indian economy, occupational safety has only been discussed in the Factories Act of 1948 and safety compliance requirements are absent in the shops and establishments law. Solanki said that with the enforcement a consolidated law expected to cover factories and commercial establishments alike, that will change.

The Code is likely to be referred to an expert committee, said Satpathy.

Code On Industrial Relations

The Code On Industrial Relations, in its first draft, had suggested allowing companies with up to 300 workers to fire employees without government approval. This provision, however, became contentious and was removed, according to press reports.

Other suggestions in the 2015 draft of the Code included:

  • An employer will give a sixty-days notice before closure of an undertaking, unless the establishment employs less than fifty workers or undertakes construction work.
  • Workers laid-off shall be paid compensation equal to fifty percent of the total of basic wages and dearness allowance payable to them.
  • Workers can be retrenched only after one-month notice and shall get compensation equal to forty five days of their average pay.

A more recent draft of the Code is not available. Discussions over the code continue and it may take a while before substantial progress is made on its enactment, said Satpathy.

Long Road Ahead

Several economists and lawyers that BloombergQuint spoke to believe that the road ahead remains long.

While it appears that there is going to be considerable movement of some of these bills in the upcoming sessions of the Parliament, it still seems unlikely that any bill will be enacted into a law this year, said Solanki. He added that enforcement of the Codes will likely be followed by issues over interpretation.

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