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GS-II : Governance


  • 13 July, 2022

  • 15 Min Read


  • The Central Government notified the implementation of four broad labour code which was introduced in the year 2020 by replacing 29 sets of labour laws:
  • The code on wages 2019
  • The industrial relations code 2020
  • The code on social security 2020
  • The occupational safety, health, and working condition code 2020

Need for the New Labour Code

  • It brings them in the line with the present workplace ecosystem and allows for more uniformity in both organised and unorganised sectors.
  • It will help in improving working conditions and changing existing processes to achieve company outputs more sustainably and effectively.
  • Social security, social equity, health, and ease of doing business are the most important factors driving the need for a reformation of labour laws.
  • The labour codes will bring in sweeping reforms and it will help industries to be more self-reliant and compliance becomes a way of life.

Feature of the proposed Labour Code

Labour codes are based on the recommendations of the Second National Commission on Labour (2002).

Code on Wages, 2019

  • It will apply to all the employees in organized as well as unorganized sectors.
  • Under this new code, several aspects related to employment and work culture, in general, might change including the take-home salary of employees, working hours, and even the number of weekdays.
  • According to this wage code, once an employee quits or is fired, or is removed from employment and services, a company is required to pay the full and final settlement of their salaries within two days after the last working day of the employee.
  • Currently, firms require anywhere from 15 to 60 days, and in some situations even up to 90 days, to pay the full settlement of wages.

Code on Industrial Relations, 2020:

  • Employees in India may be able to enjoy a 4-day work week, as opposed to the current 5 -day workweek.
  • In that case, however, an employee will have to work for 12 hours on those four days since the Labour Ministry has made it clear that even if the proposal comes through, the 48-hour weekly work requirement has to be met anyhow.

 Code on Social Security, 2020:

  • The regulations restrict allowances to 50 per cent.
  • This implies that half of the salary would be basic wages and contribution to the provident fund is calculated as per the percentage of basic wages that involves the basic pay and dearness allowance (DA).
  • Under the current labour regulations, the employer's percentage-based contribution towards the PF balance depends on the employee's basic pay and dearness allowance.

The Occupational Safety, Health and Working Conditions Code, 2020:

  • Bill provides that women will be entitled to be employed in all establishments for all types of work.
  • It also provides that in case they are required to work in hazardous operations, the government may require the employer to provide adequate safeguards prior to their employment.


  • Consolidation and simplification of the complex law

The three codes simplify labour laws by subsuming 25 central labour laws which have been on the table for more than 17 year

  • Ease of doing business

It will improve the ease of doing business by boosting investment and reducing the complexity and internal contradiction and allowing the firm with up to 300 workers to go ahead with layoff, retrenchment and closure without government permission.

  • Short-term work contract

Employers would have greater flexibility in rolling out short-term work contracts.

  • Gender parity

Even at night, the women can work but it has to be ensured that provision for their security is made by the employer and the consent of women is a must. The maternity leave has also been increased from 12 weeks to 26 weeks, even the clause of pay parity for women workers as compared to their male counterparts has been made clear.

  • Four-day work week

The employees may be able to balance work life by enjoying four days work week even it will also drastically change the way industrial houses treat their employees.

Challenges faced by Labour Code

  • Constitutional challenge

As labour is a concurrent subject which means both the Center and State have to frame laws and rules, while the centre cleared the four labour codes in 2020 but some state governments are yet to complete the process.

  • Impact take-home pay

A major change in the definition of wage would impact take-home pay, but increase retirement savings, which is something that a section of employers are opposed to as it may increase their employee costs.

  • Urban centric

The code has failed to extend any form of social protection to the vast majority of informal sector workers which is mainly dominant in the rural area including migrant workers, self-employed workers, home-based workers and other vulnerable groups.

  • Burden on firm and companies

High provident fund liability has to be borne by firms. Companies would also need to adjust their payroll operations if the wage code were to become law and would have to work around the deadlines and moot methods for determining the full settlement of salaries within 2 working days.

  • The strike may become harder

Industrial strikes may become harder due to these new changes which is a negative impact on the worker and their right to peaceful protest.

  • Concern of exclusion

It mandates the registration of all workers with Aadhaar cards on the Shram Suvidha Portal, to be able to receive any form of social security benefit which would lead to Aadhaar-driven exclusion.

Way Forward

  • To make these codes successful all the States and UT must prepare and notify these laws, which has not yet been done.
  • Both the State and Centre need to find a way out for making converging points on reforms, as labour is a concurrent subject which will strengthen cooperative federalism.
  •  No doubt that labour reform will help to create significant employment and protect the workers by ensuring minimum wages but the government should work to support its implementation that is robust, broad-based and women-centric.

Source: The Hindu


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