Implementation of Labour Codes Likely to be Delayed

The government is unlikely to implement the four labour codes this fiscal due to the slow progress by the states in the drafting of labour rules and for political reasons like elections. The Parliament has passed the four labour codes, but the Central and state government need to notify the rules for their implementation. 

Since labour comes under the concurrent list under the Constitution of India, both the Central and state governments have to notify the labour codes to make them effective in their jurisdictions. The Labour Ministry had envisaged the implementation of the four labour codes from 1 April 2021. 

The Labour Ministry had finalised the rules under the four codes but could not implement them as many states could not notify these rules in their jurisdiction. However, a source stated that it is likely that the four labour codes might be delayed and dragged beyond this fiscal. 

The four labour codes, i.e. Code on Wages, Industrial Relations Code, Social Security Code and Occupational Safety, Health and Working Conditions Code, rationalise 44 Central Labour Laws. Implementation of these codes is significant because, after their implementation, there would be a reduction in the take-home salary of the employees, and companies have to bear a higher Provident Fund (PF) liability.

There will be changes in the pay structure of the employees after the implementation of the labour codes. The provisions under the new codes are as follows:

• As per the Code on Wages, the allowances are capped at 50%, which means that half of an employees’ salary would be basic wages.
• The PF contribution would be calculated as a percentage of the basic wage, which involves the basic pay and dearness allowance (DA). It would result in restructuring the employees’ salary as the requirement under the code will increase the PF liabilities on the employees.
• Currently, the employers have been destructing wages into several allowances for the basic wages to be less to reduce the company’s provident fund and income tax expenses.
• The Industrial Relations Code allows companies with up to 300 workers for retrenchment, lay-offs, and closure with government permission. Currently, the government has exempted all companies with up to 100 workers from approvals for retrenchment, lay-offs, and closure.

Many states have prepared the rules on labour codes. But, many states are yet to finalise the rules on labour codes. Due to elections and delays in drafting the labour rules by the states, there might be a delay in implementing labour codes beyond this fiscal.

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For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in