Legal Chronicle

February 2025

Index

India’s New Labour Codes: Key Insights for Employers

1	Introduction
2	Overview of Indian Labour Laws and the New Labour Codes
3	Challenges Addressed By the New Labour Codes
4	The Post-Implementation Impact of The New Labour Codes
5	Key Considerations for Employers
6	Navigating the Labour Code Reforms for Future Success
7	Conclusion
8	Disclaimer
9	About Us
10	Our Team

Dear Reader,

The Legal Department at UJA is delighted to impart certain legal knowledge as construed under the Legal Chronicle to keep the readers aware of the recent updates and developments that revolve around various aspects of the law. Our ultimate goal is to enable our readers to develop a sense of familiarity with the complexities of Indian as well as international law.

In this edition of the Legal Chronicle, we place a strong emphasis on comprehensively understanding the new Labour Codes, with a particular focus on the key areas that are most critical for employers. We will also explore the changes introduced by the Labour Codes and their significance.

We hope that this edition creates a sense of enthusiasm for our readers and successfully delivers the plethora of legal knowledge as intended. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at legal@uja.in

Introduction

The introduction of the Labour Codes marks a significant milestone in the evolution of labour regulations in India, aiming to simplify and streamline existing laws. These reforms have led to notable improvements in key areas such as employee rights, workplace safety, and wage regulations, offering a more cohesive legal framework for businesses to navigate. However, despite these advancements, certain aspects still require further attention and refinement. For employers, understanding and complying with these new codes is crucial, as it ensures not only legal adherence but also promotes a fair and productive work environment. This article explores the key provisions of the New Labour Codes, highlighting their impact on businesses and changes in compliance.

Overview of Indian Labour Laws and the New Labour Codes

Labour laws in India fall under the Concurrent List of the Constitution, meaning both Parliament and State Legislatures have the authority to enact laws governing labour and employment matters. Currently, there are 91 state-level and 43 central laws that regulate various aspects of labour. To streamline and lower the burden of compliances on Employers as well as employees, the Government of India has introduced four significant Labour codes, which are as follows:

The Codes on Wages, 2019
Have introduced significant changes to wage regulations, providing enhanced clarity on the inclusion and exclusion of remuneration, particularly which is given through salaries and allowances, hence it standardizes wage-related laws.
The Industrial Relations Code (2020)
Introduces easier dispute resolution, limits strike, and simplifies the process for hiring and layoffs, improving industrial relations.
The Code on Social Security (2020)
Expands social security benefits to a wider range of workers, including gig and platform workers, and strengthens employee insurance schemes.
The Occupational Safety, Health, and Working Conditions Code (2020)
Enhances workplace safety standards, regulates working conditions, and ensures protection for a broader set of workers, including those in unorganized sectors

Challenges Addressed by the New Labour Codes

Challenges related with Gig, Platform workers and Aggregators
There are emerging concerns related to the protection of gig and platform workers such as ridesharing or food delivery, that are yet to be fully addressed within the existing legal framework in India. Similarly, the rights and responsibilities of online aggregators remain inadequately defined, and there is a lack of comprehensive legislation concerning work-from-home policies. The reforms under the codes, address these gaps and the need for more cohesive and modernized labour laws to keep pace with evolving work structures.

Consolidation of existing Labour laws into the Labour codes
India’s labor laws are historically fragmented, with multiple acts covering different aspects of labor and employment. This created confusion, compliance challenges, and legal ambiguities for businesses and workers alike. The new Labour Codes consolidate the existing labour laws into 4 Labour codes.

Worker Protection and Benefits
While workers’ rights are protected under the existing laws, enforcement is weak, and many workers, especially in the informal sector, lack access to basic protections such as social security, wages, or health benefits. The codes attempt to bridge the gap between worker protection and implementation of benefit schemes.

Worker Safety and Health
There are significant gaps in ensuring worker safety, particularly in hazardous industries, and enforcement of workplace safety regulations was inconsistent. The new codes delve into establishing health and safety standards for workers in all sectors, including construction, mining, and manufacturing. Creating more stringent provisions for workplace hygiene, safety training, and emergency protocols to prevent accidents and injuries.

The Post-Implementation Impact of The New Labour Codes

Assessing the Impact of Labour Codes on Wage Computation.
The introduction of the Labour Codes shall bring significant changes in wage computation, particularly regarding Provident Fund (PF) wages and contributions. Following the implementation of these codes, both the calculation of PF wages and the associated contributions will see revisions, aligning with the new definitions and provisions set forth.

Clarity of the term “wage” under all the Labour Codes.
In addition, the term “wage” has been comprehensively addressed across all four codes, ensuring a clearer interpretation and improved compliance with established regulations. This refinement helps eliminate ambiguities and provides both employers and employees with a more transparent framework for understanding wage-related entitlements.

Employer Compliance: Worker Reskilling Fund, Negotiating Union/ Council, Appointment Letters, and Retrenchment Procedures.
Under the Labour Codes, employers will be required to contribute to the “Worker Re-skilling Fund,” which will be established by the relevant government to support retrenched workers. Specifically, employers must transfer an amount equivalent to 15 days’ wages, based on the worker’s last drawn salary, for each worker who is retrenched. Industrial establishments with a registered trade union will be obligated to establish a “negotiating union or council”, which will serve as the representative body for the workers in negotiations. It should also be mandatory for employers to provide an appointment letter to all employees. Lastly, under the “retrenchment procedure”, establishments that are a factory, mine, plantation can get an increase in the threshold with prior permission from the government for having more than 300 employees.

Reforms for Gig Workers, Platform Workers, and Aggregators.
Gig workers are individuals who perform work and earn income through activities that exist outside the traditional employer-employee relationship. Similarly, there are platform workers who perform tasks or services through online platforms, and these platforms connect workers with clients or companies that need specific services. It is expected that the Central Government shall be framing suitable social security schemes that are associated with gig and platform workers, and with the role of aggregators over matters of benefits related to life and disability cover.

Impact on Fixed Term Employees (FTE)
Fixed Term Employees (FTEs) are employed for a defined duration, and they shall now be entitled to benefits such as paid leave, gratuity, and other statutory rights during their employment, as per the labour codes.

Penalties and Compounding: Lookouts For Employers
The Four Labour Codes also establish penalties and compounding provisions which bring an obligation over the employer to comply with all labour laws. Violations can result in fines and for certain minor infractions, employers can opt for compounding by paying a fine, avoiding severe consequences.

Key Considerations for Employers

Identification Of Gig Workers and Assessment by Aggregators.
Owing to the proposed reforms, employers would be required to identify gig workers in the organization to ensure that appropriate benefits, rights, and protections are extended to this segment of the workforce. Employers must establish clear frameworks for distinguishing gig workers from traditional employees.

The Need for Due Diligence in Standing Orders.
Considering the proposed changes, the HR and Legal teams of employers shall evaluate any proposed standing orders to ascertain the impact of the orders on existing policies of the Employer, and align the employer policies with the standing orders prescribed by the government.

Essential Insights Associated With (FTE) Fixed-Term Employees and Contract labour.
Employers must evaluate the financial impact of FTEs, and a thorough assessment of the processes for renewing Fixed-Term Contracts is needed. Employers need to be aware as to which permanent employee benefits can be extended towards FTEs, and also comparative analysis should be conducted between FTEs and permanent employees with respect to the work undertaken. Similarly, employers need to assess the applicability of contract labour within the organization, and HR teams should thoroughly assess and determine the core activities essential to their establishments.

Navigating The Labour Code Reforms For Future Success

Significant Changes by Labour Codes.
The implementation of the Labour Codes can significantly enhance the management of employee data and facilitate comprehensive tracking of compliance. Hence, Employers must streamline compliance management to avoid penalties and ensure smooth transition and minimize compliance risks.

Payroll systems need to be updated.
All regulations pertaining to minimum wages, overtime pay, leave entitlements, and gratuity payouts will undergo a rehaul. Hence, Employers must reassess CTC components to optimize costs and understand the impact of the new reforms with reference to wages. Wages must now be paid within a prescribed time limit after the wage period, requiring the implementation of better payroll processing systems.

Training compliance teams and upgrading the compliance system.
Employers should prioritize providing comprehensive training for employees responsible for labor law compliances to ensure adherence to regulatory requirements. Additionally, businesses should invest in necessary modifications to their IT systems, particularly to enable efficient tracking of employee categorization. Updating employee handbooks is equally important to reflect the latest legal standards as well. Lastly, employers must conduct a thorough evaluation of existing internal processes and policies to align with current compliance obligations and optimize organizational efficiency.

Conclusion

In conclusion, the introduction of the Labour Codes shall bring significant improvements to various aspects of labour regulations in India. However, there are still areas that require further attention and reform. It is crucial for employers to ensure full compliance with the rules and regulations concerning employee rights, wages, and other critical aspects. Further, businesses in India must remain vigilant in their understanding and adherence to all applicable labour laws. Ultimately, the new Labour Codes offer an opportunity to enhance and streamline existing labour legislation, contributing to a more balanced and efficient regulatory framework.

Disclaimer

“The new Labour Codes in India are yet to be fully implemented. While the Government of India has previously indicated that all 36 States/UTs are expected to complete the harmonization and pre-publication of draft rules by 31^st March 2025, the final implementation timeline remains subject to further notifications.

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