LABOUR LAW REFORMS : A Departure From Archaic Rigidity

The New Labour Codes shall subsume 29 labour legislation into 4 major laws,  which have been codified as: (i) The Code on Wages, 2019; (ii) The Industrial Relations Code, 2020; (iii) The Occupational Safety, Health and Working Conditions Code, 2020; and (iv)The Code on Social Security, 2020.

While the Code on Wages, 2019 was passed by the Parliament on August 08, 2019, the other three codes were approved by the Parliament on September 22-23, 2020 and the same shall come into effect from the date that shall be notified by the Central Government. 

The reforms brought about by these four codes specify certain common aspects such as Appropriate Government, Dispute Resolution, Power to exempt establishments and Delegated Legislations, which will be discussed below in detail.


This wage code amends and consolidates following 4 major Labour law enactments and covers various provisions concerned with employees’ wages, bonus and others matters incidental thereto.

  1. The Payment of Wages Act, 1936
  2. The Minimum Wages Act, 1948
  3. The Payment of Bonus Act, 1965
  4. The Equal Remuneration Act,1976 
Labour Law
Labour Law

Coverage: This Code on Wages aims at regulating the scenario around payment of wages and bonuses to the employees and shall be applicable on both organized and unorganised sector, covering employees in Public as well as Private and determines the role of Central and State Governments to act as ‘appropriate government’ for Centrally owned and governed PSUs, any Railway Establishments, oil fields, mines, major ports, insurance and banking companies, telecommunication, as well as private industries respectively, not governed by Central Governments. Furthermore, the Code prescribes and ensures equal and timely payments to both male and female employees in both organised and unorganised sectors, and includes in the ambit of wages all kinds of salaries, allowances or any other monetary allowances.

Fixed Standards of Wages: While prescribing the Floor Wage, certain factors shall be considered by the Central Government viz. standard of living of workers, type of employments, type of work etc. and the same shall be subject to variations in the geographical areas. Furthermore, the Code empowers the ‘Appropriate Government’ to fix a Minimum Wage rate that shall be consistent with the Minimum Wages Act, 1948 and not less than the Floor Wage prescribed by the Central Government, which shall be fixed keeping in account the nature of work, location and skill level.

Working Hours and Overtime: The ‘Appropriate Government’ shall consider the working hours of a normal working day while prescribing the working hours for employees in both organised and unorganised sectors. Furthermore, ‘overtime wages’ shall be paid to any employee whose working hours are more than the number fixed by the government, and shall be at least twice the normal rate of wages.

Payments and Deductions: As per the Code, the salaries/wages paid to the employees shall be calculated inclusive of base pay and dearness allowance (amounting to atleast 50% of the cost-to-company), retention allowance, house rent allowance, along with allowances pertaining to conveyance, overtime, statutory bonus and commissions specifically excluded. Furthermore, the employers shall not be permitted to make any deductions from an employee’s wages other than the ones prescribed in the Code, such as fines on absence from duty, deduction for provision of accommodation, deductions as a compensation for recovering an advances etc. and the code permits the deductions only up to a limit of 50% of the total wages.

Bonus Determination and Payments: The provisions of this code, with respect to determination and payments of bonus to employees, shall be applicable to applicable to establishments in both public as well as private sectors, wherein the number of employees is not less than 20, and whose wages are less than the specific monthly amount fixed by the appropriate government. In such establishments, bonuses paid to those employees shall amount to 8.33% of the wage of individual employees, or Rupees 100, whichever is higher.

Penalties: As per the Code, certain acts of an employer such as paying wages lesser than the fixed wage prescribed by the government or any other act contravening the provisions of the Code shall be considered offenses and the employer committing such an offense is liable to be penalised under the provisions of the Code. Determination of penalties shall subject to the nature of the offence, and the maximum penalty imposed on an employer shall be imprisonment for three months or a fine of up to Rs. 100,000.


The changes brought about by the Industrial Relations Code are a breakthrough departure from the archaic and rigid ‘The Industrial Disputes Act, 1947’, and provides a simplified mechanisms to ease compliance burdens and regulatory barriers, by amalgamating the following enactments into the Industrial Relations Code, 2020:

  • The Industrial Disputes Act, 1947;
  • The Industrial Employment (Standing Orders) Act, 1946; and
  • The Trade Unions Act, 1926

This Code applies to all establishments in both organised and unorganised sectors and which houses more than one Trade Unions, and prescribes a “single negotiating union” constituting more than 50% of workers as members under Section 14, and all negotiations with the employer will be carried out by the “single negotiating union”. Furthermore, it provides a safety net for the distressed employees who have lost their jobs due to any adversity or been laid-off by establishing a ‘Worker re-skilling Fund’, that shall be funded partly by employer and partly by the government. Furthermore, the Code, with respect to permission in case of closure, lay-off or retrenchment, clarifies that the same needs to be sought only by establishments with at least 300 workers, instead of 100 workers.

The Code also provides for a dispute resolution mechanismby way of establishment of national industrial tribunal and one or more industrial tribunal, wherein either party can approach the Tribunal, however, only Central Government shall have the power to refer the dispute National Industrial Tribunal. The IR Code also specifies provisions related to Model Standing Orders applicable to establishments employing 300 or more workers.

Furthermore, certain changes were made with respect to various definitions in the Industrial Relations Code of 2020, wherein The Code defines ‘fixed term employment’ including in its ambit all workers employed for a short stipulated term but the benefits they avail in their employment are same as are extended to permanent employees.  The term ‘Workmen’ was substituted with ‘Worker’, “strike” is defined as mass leave taken by 50% or more employees, the scope of term ‘Industry’ has been broadened to subsume all systematic activities carried on within the establishment and undertaken with a co-operation between employers and workers. However, terms like charitable organisations, domestic service, sovereign functions of the Government and so on, are excluded from the definition.


The OSH Code provides robust provisions for ensuring workers’ safety and proper health conditions in both organised and unorganised sectors, and has subsumed 13 legislations, which are:

  1. The Factories Act, 1948;
  2. The Plantations Labour Act, 1951;
  3. The Mines Act, 1952;
  4. The Working Journalists and other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955;
  5. The Working Journalists (Fixation of Rates of Wages) Act, 1958;
  6. The Motor Transport Workers Act, 1961;
  7. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966;
  8. The Contract Labour (Regulation and Abolition) Act, 1970;
  9. The Sales Promotion Employees (Condition of Service) Act, 1976;
  10. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
  11. The Cine Workers and Cinema Theatre Workers Act, 1981;
  12. The Dock Workers (Safety, Health and Welfare) Act, 1986; and
  13. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996.

This Code endowsthe employers with specific obligations towards the employees and duty-bounds the employers to act for the welfare of the employees. The code makes it compulsory for the employers to issue appointment letters to each employee. Furthermore, the employers are duty bound to assure a safe, free of hazard workplace and provide appropriate and timely health check-ups to all employees, and carry out other welfare activities as and when required and prescribed by the appropriate government to ensure a decent living standard to the employees. The OSH Code provides certain guidelines with respect to licenses and registrations requiring New Establishments to acquire registrations within 60 days of establishment from the registering officers. As per the Code, the appropriate Central or State Government shall be authorised to prescribe and notify appropriate working hours for respective establishments and employees, and exempts women employees from working before 6 a.m. and post 7 p.m. without their consent.

It also specifies a maximum number of working days of 6 days, as well as a one-day leave entitlement for every 20 working days. Under Section 32 of the Code, leave encashment provisions are also made out for use at the end of the calendar year and provide for encashment at the time of dismissal, discharge, or death on the job site. It also permits leave carryover if a worker does not use all their vacation time in a given year, which is limited to 30 days, and any unpaid leave can be carried forward forever. The Code also establishes safeguards for inter-state migrant workers, requiring employers to pay a lump sum fare for each inter-state migrant worker’s journey to and from his place of employment.

By the Code’s provisions, the Advisory Board for National Occupational Safety and Health is to be established, which will serve as an advisory body to the Central Government to ensure the safe implementation of the Code’s health and safety requirements. There will also be a state-level Occupational Safety and Health Advisory Board. Inspectors-cum-Facilitators are also appointed by the Code to investigate incidents and conduct inspections.


The Code on Social Security was adopted to offer social security benefits to all employees and workers, both organized and unorganized, and to simplify and unify social security legislation by combining nine enactments such as:

  1. The Employees’ Compensation Act, 1923
  2. The Employees’ State Insurance Act, 1948
  3. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  4. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
  5. The Maternity Benefit Act, 1961
  6. The Payment of Gratuity Act, 1972
  7. The Cine Workers Welfare Fund Act, 1961
  8. The Building and Other Construction Workers Welfare Cess Act, 1996
  9. The Unorganized Workers’ Social Security Act, 2008

Other employees, such as gig and platform workers, are now covered under the SS Code. It empowers the federal and state governments to create various programs for gig and platform employees, including life and disability insurance, health and maternity benefits, provident funds, job injury benefits, and housing. Aggregator, gig worker, platform employment, social security, the unorganized sector, and workers were also defined. Social protection refers to the rights and schemes enacted under the SS Code to ensure access to health care and provide income security to employees, unorganized workers, gig workers, and platform workers, particularly in cases of old age, unemployment, sickness, invalidity, work injury, maternity, or the loss of a breadwinner.

Employee Provident Fund (EPF) and Employee State Insurance (ESI) schemes are given under the Code and apply to any establishments with ten or twenty employees and any other establishments that the government has notified. The Code imposes a five-year time limit for filing investigations regarding the EPF and ESI programs’ payment of dues.

The Code provides for payment of Gratuity to employees on pro-rata basis, which requires a minimum of 5 years of continuous employment. The Code also provides maternity benefits such as paid vacation and a medical incentive of up to INR 3,500. (If the employer does not offer prenatal and postnatal care). Every new business and employee/worker, including gig and platform workers, must register using Aadhaar and submit the required paperwork, including an Aadhaar number. According to the Code, such workers’ applications must be given a different number. The term ‘career center’ is also included in the SS Code for providing job seekers with information about employment opportunities and vocational assistance. Any office, location, site, or employment exchange that includes career services shall be built by the central government.


The Indian Government has brought about these reforms at a very crucial juncture of economic development, for the rigidities in the existing labour laws blow a dent on government measures aimed at promotion of investments, and these reforms come as a sigh of relief for those potential investors who consider India an attractive destination for magnifying their operations in India considering the perks it offers in terms of labour cost and abundance of resources, but refrain from entering into the complex environment around a multitude of compliance and regulatory barriers, thereby limiting their investment interests and drawing them towards countries with more simplified and flexible labour laws. The Government, with initiating these reforms, has not only cemented the confidence of its labour force in terms of social and wage security and facilitation of job creation but has also provided an added advantage to the foreign investors to invest in an otherwise labour surplus economy, by promoting ease of doing business in India.

Author: Priya Sharma, Coauthor: Meenakshi Ogra Mukherjee, in case of any queries please contact/write back to us via email or at Khurana & Khurana, Advocates and IP Attorney.

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