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Proposed Changes to Indian Employment Law

Indian parliament is looking at the proposed Wage Code Bill, combining 44 labor laws into four codes.

Here we look at three of these codes.

#1 Industrial Relations Code 2020

This covers the Industrial Employment Standing Order Act, 1946, Industrial Disputes Act, 1947, and the Trade Unions Act, 1926.

What are the key changes?

The definition of worker will be based on wages being paid. Individuals with a salary up to Rs 18,000 will fall under the category of worker.

An employer can keep fixed-term employees (FTE) for a specific duration, and retrenchment compensation does not need to be paid. These FTE are entitled to the same salary or social security as a regular employee.

An employee can bring an industrial dispute against an employer within 2 years instead – previously, it was 3 years.

Trade unions must give 14 days’ notice before going on strike.

An establishment with less than 300 workers can lay-off, retrench, or close without government approval. Previously this limit was 100 employees.

The number of members in the Grievance Redressal Committee has increased from 6 to 10.

The definition of “appropriate government” has changed to include contractors. Now contractor appropriate government refers to where the contract labor is deployed.

The appropriate government shall set up a reskilling fund to consist of an employer’s contribution equal to 15 days wages in the amount equal to that paid to the worker immediately before the retrenchment. The fund shall be utilized in such manner as may be prescribed, by crediting these 15 fifteen days to the worker’s account within forty-five days of a retrenchment.

A definition of employee has been added. Now the term employee and worker mean the same to ensure no discrimination in the applicability of labor laws.

The definition of employer has been changed. Now it refers to:

  • Head of the department
  • Occupier of the factory
  • Manager of the factory under clause (f) of sub-section (1) of sec 7 of the Factories Act. The person, or the authority, who has control over the affairs of the establishment and where the said affairs are entrusted to a manager or managing director, such manager or managing director, contractor, legal representative of a deceased employer.

Fixed-term employment (FTE) has been incorporated meaning:

  • All fixed-term employees will get all statutory benefits like ESI, EPF, bonus, wages, etc. at par with regular employees who are doing work of the same or similar nature.
  • The termination of a worker’s service because of completion of tenure of fixed-term employment is not a retrenchment.
  • The employee is eligible for gratuity if they render service under the contract for a period of one year.

The definition of industry has changed and now covers any systematic activity carried on by cooperation between employer and his workers, whether such workers are employed by such employer directly or by or through any agency, including a contractor. The definition excludes institutions owned or managed by organizations wholly or substantially engaged in any charitable, social, or philanthropic services; sovereign functions; domestic services.

The definition of an industrial dispute now includes any disputes arising from the discharge, dismissal, retrenchment, or termination of such workers.

Metro railway has been included in the definition of railways.

The maximum number of members in the Grievance Redressal Committee has increased from 6 to 10 in an industrial establishment employing 20 or more workers.

Negotiating union or negotiating council has been inserted in the definition.

The Trade Union dispute has been added, which provides dispute relating to Trade Union arising between two or more Trade Unions or between the members of a Trade Union.

The definition of wages has changed:

  • The first part includes all salary components described in terms of money like basic salary, all reimbursements, all allowances, all benefits.
  • The second part of the definition provides specific exclusion like- bonus payable under any law, conveyance allowance, house rent allowance, overtime allowance, house accommodation, the supply of light water medical attendance, other amenities/ service excluded by a general or special order of the appropriate government, commission, contribution to provident fund/pension, any sum paid to defray special expenses, gratuity, retrenchment compensation, remuneration payable under any award or settlement between the parties.
  • The third part of the definition provides that the total excluded components should not exceed 50% of the total remuneration. It also very clearly specifies the list of exclusions, so anything paid to the employees other than the exclusion would be covered. Within this specific exclusion, the limit cannot be more than 50%.

Additions to the existing codes relating to unions

Introduced a new feature- Recognition of Negotiating Union- providing for a negotiation union in an industrial establishment, having registered trade unions, to negotiate with the employer.

If there is only one trade union in an industrial establishment, the employer must recognize such a trade union as the sole negotiating union of the workers.

    • In the case of multiple trade unions, the trade union with the support of at least 51% of workers on the master roll of that establishment will be recognized as the sole negotiating union by the employer.
    • The provisions of standing orders on industrial establishments will be applicable if they have 300 or more than 300 workers as notified by the appropriate government.
    • The Code prohibits strikes or lockouts in any establishment unless prior notice of 14 days is provided. Similar provisions existed in the Industrial Disputes Act, 1947, for public utility services such as railways and airlines. The Code expands these provisions to apply to all industrial establishments. This will impact the ability of workers to strike and employers to lock-out.  An industrial dispute can be voluntarily referred to arbitration by the employer as well as the workers. The parties to the dispute are required to execute a written agreement referring the dispute to an arbitrator.
    • The worker may approach the Industrial Tribunal for adjudication of the dispute related to dismissal, retrenchment, or termination within 45 days after the application for the conciliation of the dispute was made.
    • Employers of industrial establishments such as mines, factories, and plantations with at least 300 workers are required to get the permission of the central or state government before lay-off, retrenchment, or closure. A fine of INR 1,00,000, which may extend up to INR 10,00,000, is leviable on any person who ignores this provision.
    • In case an employer suspends any worker pending investigation or inquiry, the amount of subsistence allowance payable is 50% of the wages for the first 90 days of suspension; and at the rate of 75% of such wages for the remaining period of suspension.

#2 Occupational Safety, Health & Working Condition Code 2020

What does the new code cover?

  • Factories Act, 1948
  • Mines Act, 1951
  • Dock Workers (Safety, Health, and Welfare Act, 1986
  • The Building and other Workers (Regulation of § Employment and Conditions of Service) Act, 1996
  • The Plantations Labour Act, 1951
  • The Contract Labour (Regulation and Abolition) Act,1970 § The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
  • The Working Journalist and other News Paper Employees (Conditions of Service and Misc. Provision) Act, 1955
  • The Working Journalist (Fixation of rates of wages) Act, 1958
  • The Motor Transport Workers Act, 1961; § Sales Promotion Employees (Condition of Service) Act, 1976
  • The Beedi and Cigar Workers (Conditions of Employment) Act, 1966
  • The Cine Workers and Cinema Theatre Workers Act, 1981

 

What are the key changes that will come into force?

The Code sets up a single registration for an establishment instead of multiple registrations. This will build a centralized database and develop an ease of doing business.

Appointments letters are now statutory.

Female workers can work night shifts- from 7 p.m. and before 6 a.m. – with their consent. This time shall also be approved by the central or state government.

Employees shall take care of their health, shall comply with specified safety and health measures, report unsafe situations to the inspector.

Under the Code, an offense which leads to an employee’s death will be punishable with imprisonment of up to two years or a fine up to five lakh rupee or both. The court can direct that at least half of this fine is given as compensation to the victim’s heirs. Also, where no penalty is in place for violation of the Code by the employer, the employer will be penalized with a fine between two to three lakh rupees. Where the employee violates any Code provisions, he will be subject to a fine of up to Rs. 10,000.

The appropriate government for a factory governed by the central government will be the central government. This includes contractors for the purposes of such an establishment. In other cases, the state government where it is situated.

Audiovisual production including feature films, non-feature films, television, web-based serials, talk shows, reality shows, and as per the new definition of audiovisual worker- singer, newsreader, dancer, stunt person, technical, artist, and supervisor-are subject to some wages ceiling as per the central government.

The definition of contract labor now includes inter-state migrant workers but excludes part-time employees, an individual regularly employed in mutually accepted employment standards and entitled to Social Security benefits.

The new definition of core activity refers to that activity for which an establishment is set-up and other activities like housekeeping, security, the canteen cannot be treated as core activities.

The principal employer must provide welfare facilities, where contract labor is deployed.

The principal employer is liable for the wages of contract labor.

The work hours for different classes of establishments are laid down by central or state governments. An employee who works overtime is entitled to twice the daily wage. No employee, other than motor transport workers, shall work for more than 6 days a week.

The definition of an employee includes a person doing any skilled, semiskilled, or unskilled, manual, operational, supervisory, managerial, administrative, technical, or clerical work for hire or reward.

An employer is a person who employs, whether directly or through any person or on his behalf, or behalf of any person, one or more employees in his establishment, and is:

  • Head of the department
  • Occupier of the factory
  • Manager of the factory under clause (f) of sub-section (1) of sec 7 of the Factories Act
  • Owner of the mine, agent, or manager
  • The person who, or the authority which has ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager or managing director, such manager or managing director
  • Contractor; and legal representative of a deceased employer

The definition of a factory has changed. Now the threshold limit of employees is 20 in case of use of power and 40 in the case without power and excludes hotels, restaurants, eating places, electronic data processing units, or a computer unit.

The definition of a hazardous substance refers to any substance that has the potential to cause physical or health hazards to a human being, or any other living creature.

Industrial premises refer to a premise in which any industry, trade, business is being carried on with or without the aid of power- includes a go down.

The definition of an interstate migrant worker is changed and introduced a ceiling limit of Rs 18000.

Machinery includes any article or combination of articles assembled, used, or intended to be used for converting any form of energy to perform work.

The definition for the manufacturing process has been taken from the Factory Act and refers to other processes as the central government may notify.

The definition of metro railways added, and Metro railways are now treated as railways.

The definition of newspaper establishment now covers all types of establishments run by individuals, partners, firms, or subsidiaries of a common holding company.

The definition of the occupier has changed, and instead of clause a, b, and c in the second proviso, a consolidated definition is provided.

The definition of the principal employer now excludes the manager.

Producer has been added and refers to a person who is making necessary arrangements for production.

The sales promotion Employee now includes a person in a supervisory capacity, managerial, administrative capacity earning a salary up to Rs 18000/- per month or as notified by the central government.

The definition of worker now includes persons in supervisory capacity and working journalists, sales promotion employees getting salary up to Rs. 18000/- per month or as notified by the central government.

 

#3 Social Security Code 2020

What does the new code cover?

  • The EPF and M.P. Act, 1952
  • The ESIC Act, 1948
  • The Maternity Benefit Act,1961
  • The Building and Other Construction Workers Cess Act
  • The Payment of Gratuity Act, 1972
  • The Employees Exchange (Compulsory Notification of Vacancies) Act, 1959 q The Cine Workers Welfare Fund Act, 1981
  • The Unorganized Workers’ Social Security Act, 2008 q Employees Compensation Act, 1923

 

What are the key changes?

New categories of worker added

Gig worker refers to a person who earns from work outside the traditional employer/employee relationship. Gig workers are independent freelancers who are employed on project-based work and short-term work. Most commonly, it is platform-based work where workers earn money by providing specific services, including food delivery services.

Platform worker means a person involved in a form of employment where organizations or individuals use an online platform to access other organizations or individuals to solve specific problems or provide specific services in exchange for payment.

There is no major difference between gig workers and platform workers.

This is the first time that application-based assignments performed by many workers are getting recognized as employee-employer relationships.

 

A revised definition of wages:

The first part refers to all salary components like basic salary, reimbursements, allowances, and benefits.

The second part provides specific exclusions such as bonus payable under any law, conveyance allowance, house rent allowance, overtime allowance, house accommodation, supply of light water medical attendance, other amenities/ service excluded by a general or special order of the appropriate government, commission, contribution to provident fund/pension, any sum paid to defray special expenses, gratuity, retrenchment compensation, remuneration payable under any award or settlement between the parties.

The third part of the definition provides that the total excluded components should not exceed 50% of the total remuneration. It also specifies the list of exclusions so anything paid to the employees other than the exclusion would be covered, and within this specific exclusion, the limit cannot be more than 50%.
Impact: As of now, HRA is a part of minimum wages, and with the implementation of code, HRA will not be part of minimum wages which may impact the EPF contribution.

 

What’s new about the Employees Provident Fund (EPF) scheme:

A limitation of 5 years for initiation and 2 for concluding inquiries is applied to the EPF scheme.

Aadhaar based registration is mandated.

All establishments having 20 or more workers come under the purview of EPF; previously it was applicable only to those establishments included in the schedule.

Systems have been designed to cover the category self-employed or any other category under the purview of the EPF scheme.

There is an increase in the penalty for the deduction of employee contribution from salary and non-depositing from 10,000 to 1,00,000 and imprisonment of one to three years. Subsequent failure to pay contributions could lead to imprisonment of two to five years and a fine of three lakh rupees.

 

What’s new about the Employees State Insurance (ESI) scheme:

If the employer and most employees agree then, voluntary registration is allowed, and the ESI scheme will apply. The government can extend the ESI scheme to any hazardous occupation- even if a single employee is employed.

ESI is available to all 740 districts.

Gig workers and unorganized sectors will also be able to link with ESI.  Plantation workers will also fall under the purview of ESI.

If an employer fails to pay ESI contributions, ESI must pass on the benefits to the employee. The ESI can recover it from the employer to the extent of the benefit’s net capitalized value of any payment of contribution amount, interest, and damages payable by the employer.

 

Gratuity:

Permanent employees are currently eligible for gratuity after completion of five years. Fixed-term employees have no such criteria. Such employees are paid based on their tenure of employment with one organization. The Code has fixed different thresholds regarding eligibility for the gratuity of permanent and fixed-term employees.  The threshold gratuity period for working journalists reduces from five years to three years.

 

Employment information and monitoring:

Employers, job seekers looking for vocational guidance, individuals looking for career counseling, and anyone self-employed must register with career centers.

All establishments except agriculture, domestic service, or employment opportunities of less than ninety days must notify the vacancies to career centers electronically or otherwise.

The employer files the return to the concerned career center.

 

Maternity Benefit:

Every woman is entitled to a medical bonus of up to Rs 3,500 where the employer does not provide pre-natal confinement and post-natal care. The central government can amend this upper limit up to Rs 20000/-.

 

Employee’s Compensation Act, 1923, Building and other Construction Workers, The Unorganised Workers’ Social Security Act (2008),

The creation of social security boards for unorganized workers.

Implemented coverage of gig, platform workers, and unorganized workers under the social security scheme.

Code to expand to include funds from corporate social responsibility or any other source as specified in the scheme and also contains enabling provision for constituting the special purpose vehicle for the purpose of implementation of schemes for unorganized workers.

Bill also makes the provisions for registering of all three categories of workers – gig workers, platform workers, and unorganized workers.

Contribution from an aggregator will be at a rate notified by the government, which can fall between 1-2% of the aggregator’s annual turnover. However, the maximum limit of such contribution is fixed at 5% of the amount paid or payable by an aggregator to gig workers and platform workers.
General Change

Renaming the designation of Inspector as Inspector cum Facilitator who is expected to supply information and give advice to employers and workers concerning the most effective means of complying with the provisions of the proposed Code.