SYLLABUS
GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation
GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Context: The Centre, aiming to rationalize the existing 29 Central labour laws, announced the implementation of four new labour codes that came into effect from November 21.
Need of the Reforms
- Outdated Legal Framework: Many of India’s labour laws date back to the 1930s–1950s, rooted in a very different economic context, with fragmented protections and overlapping regulations.
- Changing Nature of Work: With the rise of gig economy, platform work, contract and fixed-term employment, the old labour laws did not adequately cover new forms of work.
- Ease of Doing Business & Labour Formalisation: The government’s push for “future-ready workforce” and resilient industries required a simpler, unified regulatory framework.
- Fragmented Legislation: Since Labour is a subject on the concurrent list, states have come out with their own laws, and the absence of a central code results in a fragmented approach.
Key Changes in the Labour Codes
- Code on Wages, 2019:
- It defines wage, employee, and minimum wage uniformly for all workers, regardless of sector, industry, wage level, or gender. A National Floor Wage will now act as the minimum benchmark for all states.
- Wage includes basic pay, dearness allowance, and retaining allowance, and will be used to compute benefits and social security contributions. Total deductions cannot exceed 50% of wages. Overtime must be paid at least twice the normal rate for work beyond regular hours.
- Working hours may range between 8–12 hours per day, with a weekly cap of 48 hours. If an employee works fewer than six days a week, or if flexible work is allowed, daily hours cannot exceed 12, including rest breaks.
- Time limits for wage payment will be end of shift (daily), before weekly off (weekly), within 2 days after the fortnight (fortnightly), within 7 days of the next month (monthly), and within 2 days for resignation or termination.
- Employers must issue wage slips physical or electronic on or before wage payment to provide formal proof of employment, pay, allowances, deductions, and net wages.
- Industrial Relations Code, 2020:
- The code recognizes fixed-term employment as a direct contract with full wage and benefit parity with permanent employees, reducing contract worker exploitation.
- Threshold for seeking prior government approval for layoff, retrenchment and closure in factories, mines and plantations hiked to 300 workers from 100.
- It mandates strike and lockout notices to encourage dialogue and reduce industrial unrest.
- The code introduces a ‘negotiating union or council’.A trade union with 51% worker membership will act as the sole negotiating union.
- Code on Social Security, 2020:
- It legally defines gig and platform workers for the first time. Provides for national registration and creation of a social security fund for unorganised and gig workers.
- Social security schemes may be financed by the Centre, states, or CSR contributions. Aggregators must contribute 1–2% of annual turnover towards gig worker social security, capped at 5% of the amount payable to gig workers.
- Fixed-term employees will receive benefits on par with permanent staff and will now be eligible for gratuity after one year of continuous service, instead of the earlier five-year requirement applicable only to permanent workers.
- EPFO coverage extends to all establishments with 20 or more employees, irrespective of industry.
- ESIC will offer pan-India coverage, with mandatory inclusion even where a single worker is engaged in hazardous work (earlier minimum 10 workers). Plantation owners may join ESIC voluntarily.
- Appointment of inspector-cum-facilitators, with governments authorised to introduce web-based inspection schemes and digital information submission.
- Occupational Safety, Health and Working Conditions Code, 2020:
- The factory licence threshold is raised from 10 to 20 workers for power-aided units and from 20 to 40 workers for units without power.
- Contract labour provisions will now apply to contractors with 50 workers (up from 20). Core and non-core activities are clearly defined, and employers may use contract labour even in core functions, subject to specified conditions.
- Allows women to work night shifts (before 6 a.m. and after 7 p.m.) with their consent and adequate safety measures.
- The definition of inter-state migrant worker now includes workers hired directly by employers, not only those recruited through contractors.
- Employers must issue mandatory appointment letters to all employees. The standard format will include personal details, designation, category, wages, and social security information requirements previously absent for many casual workers.
- Employers must provide free annual health check-ups. Establishments with 500+ factory workers, 250+ construction workers, or 100+ mine workers must set up safety committees with representation from both employers and workers.
Significance of the Reforms
- Wider coverage:
- Under the Code on Social Security, Employees’ State Insurance (ESI) benefits will be available pan-India and can apply to establishments with even a single employee engaged in hazardous work.
- The Code also recognises gig and platform workers, with aggregators required to contribute a share of revenue to a social-security fund.
- Minimum wage entitlement has been extended to all categories of workers and a national floor wage is expected to ensure parity across States.
- Gender Equity:
- Women will be permitted to work night shifts across sectors, including in mines and hazardous industries, subject to safety measures and consent.
- The Codes also mandate equal wages and prohibit gender-based discrimination, including against transgender persons.
- Simplified compliance:
- To reduce the compliance burden, the government has introduced a single registration, single licence and single return system for establishments.
- Labour inspections will be replaced by an inspector-cum-facilitator approach intended to emphasise guidance and timely compliance.
- Reformed Dispute Resolution:
- Dispute resolution procedures have been restructured with two-member Industrial Tribunals and faster avenues for workers to take cases forward if conciliation fails.
- Transition in labour landscape:
- According to official estimates cited by the Labour Ministry, social-security coverage has increased from about 19% of the workforce in 2015 to more than 64% in 2025. The implementation of the Labour Codes is expected to deepen this expansion and align India’s labour market with global standards.