Labour codes to come into force in October

Employees’ take-home salary is likely to reduce, while the provident fund and gratuity component may increase


Come October, and chances are that the four labour codes may come into force. The labour Ministry had initially planned to implement the code on wages, industrial relations, social security; and occupational safety, health and working conditions with effect from April 1, 2021.

The new wage code will apply to the unorganised sector as well. About 29 central labour laws governing occupational safety, minimum wages, and social security have been consolidated into these codes.

Once implemented, the definition of wages will be reviewed, proposing to cap allowances at 50 per cent of the wages. In other words, 50 per cent of the gross pay of an employee will comprise basic wages. That means, if the allowances exceed 50 per cent, then the employer will have to pay social security on the excess amount, including gratuity. This is likely to result in an increase in the social-security burden and therefore, the financial burden of the employers, through an increase in the salary cost. Employees’ take-home salary will also reduce, while the provident fund and gratuity component may increase.

With the implementation of the new industrial relation code, doing business will become easier. Firms with up to 300 workers will be allowed to lay off and even shut down without seeking governmental permission. Right now, only firms with up to 100 employees are allowed to do so. Employees could also enjoy more earned leave.


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