The new labor codes will have an impact on the wage structure, but when will they come into force?

The four labor codes, comprising 29 central labor regulations, aim to rationalize, consolidate and simplify these complex labor laws. Streamlining is underway to improve working conditions for workers, help companies comply with rules through increased use of technology, in addition to improving the ease of doing business in India. The codes also seek to extend social security coverage (such as pensions) to include the unorganized sector, the self-employed, migrant workers, etc. within the legislative framework.

The four labor codes that had been approved by the President are the Wages Code, 2019, the Industrial Relations Code, 2020, the Social Security Code, 2020 and the Safety, Health and Working Conditions Code. work, 2020.

While Presidential Trump has been received for all four codes, the central government has yet to notify the effective date of their operationalization. This being a concurrent topic, it is important that states also notify the relevant rules and regulations under the four labor codes. Over the past year, significant progress has been made on this front, with many states issuing respective draft rules, as noted below:

Draft rules published for the four codes Draft rules published for one or more codes Draft rules still awaited

Impact on employers

For a year, the industry has been speculating on the probable date of entry into force of the labor codes. The government has also tried to maintain attention on this subject. Some of them include:

1. The Ministry of Labor and Employment has updated its website with a document on the benefits of the new labor codes, titled “New Labor Code for the New India”

2. The government has worked to encourage more states to publish draft rules under the codes. As previously reported, in April 2022, 29 States/Union Territories (UTs) released the draft rules under the Wages Code, 24 States/UTs under the Industrial Relations Code, 24 States/UTs under under the Social Security Code and 21 States/UT under the Safety, Health and Working Conditions Code. States such as West Bengal, Andhra Pradesh, Nagaland and Meghalaya as well as union territories of Lakshadweep, Ladakh as well as Dadra and Nagar Haveli & Daman and Diu have yet to release the draft rules under one of the codes.

3. Certain provisions of the Wages Code, 2019 (section 42 and section 67 relating to the central advisory board on minimum wages) and the Social Security Code, 2020 (section 142 relating to the identification of employees and their dependants) right for the provision of social benefits through the Aadhaar card) have already been operationalized.

However, the broader provisions of the Code are pending notification. The labor codes aim to standardize the definition of various terms in the four codes, the key being the definition of the term “salary”. This could have a significant financial impact on organizations, especially when it comes to free. The Codes also require: a realignment of the various payroll, compensation and other policy processes, the establishment of various security and compliance procedures as well as specific committees, etc. Organizations need a reasonable lead time to implement these changes, and therefore expect at least 3 months transition time would be granted once the effective date is announced to implement the provisions.

The Minister of Labor and Employment was recently quoted in the media as saying that the codes would come into force in 2022. Obviously, it seems that the central government wants to implement the labor codes quickly and therefore , employers are well advised to study and understand the changes that would be triggered by the codes. Organizations can also assess the impact of labor code changes on their existing personnel costs and policies, so they are prepared for whatever transition time is available once the new codes come into effect. Employers may need to realign their salary structures and human resources policies to comply with the provisions of the code. Given the far-reaching impact of the codes, it is important that the industry has sufficient lead time to implement the new rules.

Impact on employees

With the expanded scope of “salaries” under the new codes, employee retirement benefits are expected to increase upon implementation of these codes. The labor codes read with the draft rules include many beneficial provisions for the welfare of employees such as – extension of social security coverage to workers in the unorganized sector, mandatory issuance of letters of appointment to each employee, balance sheet free annual health insurance for employees, stipulation of payment of overtime at twice the salary of employees, creation of a social security fund for workers in the unorganized sector, early payment of full and final contributions in the event of resignation and removal minimum service condition for gratuity in the case of term employees, among others. The delay in the implementation of labor codes has certainly delayed these benefits for employees.

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Saraswathi Kasturangan is a partner at Deloitte India.
Tarun Garg, Principal, Deloitte Haskins & Sells LLP