Long Wait For India’s Labour Law Framework 2.0 Continues

Sudarshan, a fresh graduate, who recently joined a well-known MNC as an HR manager was presented with a situation that looked easy on paper but when he took up the task, he was perplexed by the daunting line of actions that lay ahead. 

The long drawn cumbersome maze of labour laws

To an average layman, dismissing a worker for misconduct looks like a standard operating procedure but for an HR manager operating within the ambit of the Indian labour law regime, it meant issuing a written warning followed by the conciliation process. 

And when organisations of repute are involved in a dispute with a worker, representatives from trade unions also knock on the doors to protect a worker’s interest and negotiate on his severance pay. 

While the existing labour law framework is well-intentioned, the elongated procedures and the sheer volume of the laws at play to deal with aspects like wages, compliance, worker rights and their social security benefits made it a maze to unravel rather than a legal regime that makes things easy for an HR manager. Giving a sense of the procedural nitty-gritty involved, Parveen Mahtani, Chief Compliance Officer, Mahindra Lifespace Developers says, 

“Currently, we are maintaining eight registrations and four licenses to run a business and one needs to file several labour returns including the EPFO and ESIC Compliances with the Chief Labour Officer.”

Simplified labour regime awaiting implementation

With an aim to iron out the creases, the new labour codes were introduced by the parliament back in 2019. The fact that the new labour codes look to subsume 29 labour legislations into only four freshly minted codes, made a lot of headlines. It also meant the removal of inconsistencies and eliminating colonial hangovers to make the laws simple from an ease-of-doing-business perspective. 

But four years down the line, the implementation of the new labour codes has not seen the light at the end of the tunnel. 

While reasons range from a lack of common consensus among stakeholders to political considerations, the fact remains that the objective is losing its sheen owing to the delay which is long overdue. 

Delving on the plausible cause of delay, Dr PV Ramana Murthy, Head, Labour And Employment, Economic Laws Practice highlighted that lack of notification of rules by some states is one of the major reasons creating a roadblock for the implementation of the labour Codes. 

Transition based on sound practices sans Labour Codes

If one comes to think of it, the labour legislations, the world over, are based on the cornerstone of fairness and employee welfare. And a look at the leading organisations gives a concrete indication that following the best labour and compliance practices can be done without the notification of the Labour Codes as well. 

Organisations, today, are realising the value that foolproof governance and compliance systems bring. Companies following simplified labour practices based on a disclosure and transparent ecosystem benefit in terms of cost and manpower-related efficiencies.

As Mahtani rightly points out, compliance helps in the creation of a positive brand image. So, while it is a statutory requirement, how stakeholders look at it, really depends on how compliant the company is. 

The loose ends

While separate definitions exist for the terms ‘employees’ and ‘workers,’ they leave room for confusion. Likewise, the definition of wages needs more clarity.

For the unversed, the Code on Wages defines "wages" as follows:

"Wages" means all remuneration (whether by way of salary, allowances, commission or otherwise) paid to an employee for the time he works or for the period he is in employment, but does not include—

(a) any bonus; (b) any contribution paid by the employer to any provident fund, pension fund, gratuity fund or any other fund for the benefit of the employee; (c) any sum paid to the employee to meet the cost of food, clothing, accommodation, education or medical treatment; (d) any travelling allowance or other allowance paid to the employee in connection with his employment; or (e) any sum paid to the employee by way of compensation for the termination of his employment.

The Code on Wages also says that the basic pay of an employee should be at least 50% of the total wages. This means that the component of allowances cannot exceed 50% of the total wages.

Employers are mulling over the 50 percent ceiling and seeking answers on whether the ceiling can be increased. Credit where it is due, the definitions for the term ‘wages’ have been standardized across the labour legislations but concerns hover on the percentage amount with regard to the basic pay of the employee as it has a direct correlation with increasing the cost for the employer,

Citing relevant examples, Dr. Murthy pointed out the lack of common consensus among stakeholders with regard to variable compensation. Touching upon the aspect of social security benefits, he also asked whether employers have made the necessary provisions for passing on the high gratuity benefit to employees as per the mandate of the Code on Social Security.  

Addressing the elephant in the room

Moving on from interpretational issues, an employer also needs to bear in mind the compliance cost the new labour codes will bring with the focus on digitization. 

And while the labour codes seem to have adopted a facilitative approach by decriminalizing certain offenses and making way for compounding provisions, the codes do have hefty penalties in place to keep HR and compliance managers on their toes. 

This calls for advance preparedness on the part of every organisation so that they are not unpleasantly surprised. 

Having said so, the Codes inspire a lot of confidence in the business community. From the ease of doing business to ease of compliance, India’s modern labour law regime ticks the right boxes. However, in the absence of subordinate rules and a clear roadmap for implementation, the employer organisations are riddled with a lack of clarity and are concerned with the element of cost burden, the implementation of the labour codes entails. 

Whether the government will be able to able to strike a fine balance and manage stakeholder expectations while creating the right awareness, only time will tell. And with the 2024 elections approaching, the clock is ticking faster.