A Practical Overview of India’s New Labour Codes for Employers

The Wages Code introduces a single, uniform definition of “wages” applicable across minimum wages, bonus, and other statutory payments, replacing multiple definitions under the earlier laws.

Wages include: (a) basic pay, (b) dearness allowance, and (c) retaining allowance. Every other payment component is excluded while calculating wages.

If other allowances exceed more than 50% of the total wages, then the amount that exceeds 50% must be counted towards ‘wages’.

Where an employee receives any remuneration in kind, the value of such remuneration, up to a maximum of fifteen per cent of the total wages payable to the employee, shall be deemed to form part of the wages for the purposes of the Code.

Relevant provision: Section 2(y)

Illustration

Where wages are fixed on a daily basis: wages shall be paid at the end of the shift.

Where wages are fixed on a weekly basis: wages shall be paid on the last working day of the week.

Where wages are fixed on a fortnightly basis: wages shall be paid within two days after the end of the fortnight.

Where wages are fixed on a monthly basis: wages shall be paid on or before the seventh day of the succeeding month.

Where an employee has been removed or dismissed from service or has resigned or became unemployed due to closure of establishment, the wages payable to him shall be paid within two working days of his last day.

State government may provide any other time limit for payment of wages.

Relevant provision: Sections 17 and 18

F&F settlement process to be aligned with timeline of 2 days post last date.

Under the earlier regime, minimum wages applied only to scheduled employments. The Wages Code extends the applicability of minimum wages to all employees across all employments, irrespective of sector or industry.

Relevant provision: Section 6

The Central Government is empowered to fix a floor wage, taking into account living standards, which States cannot go below while fixing minimum wages.

Relevant provision: Section 9

The principle of equal remuneration has been retained and expanded to prohibit discrimination on grounds of gender in matters of wages as well as recruitment.

Relevant provision: Section 3

The wage threshold for applicability of statutory bonus is yet to be notified and will be prescribed by the appropriate government. Until such notification, the existing wage threshold of INR 21,000 per month will apply. The Code also adds termination on grounds of sexual harassment as a ground for disqualification from statutory bonus.

Relevant provision: Chapter IV (Sections 26–29)

The Wages Code permits maintenance of statutory registers and filing of returns in electronic form.

The form of the registers, wage slips will be set out in relevant rules.

Relevant provision: Section 50

The traditional inspector model has been replaced with an Inspector-cum-Facilitator, with a greater emphasis on facilitation and digital inspections.

Relevant provision: Section 51

The Code on Wages imposes monetary penalties and imprisonment for defaults in payment of wages, minimum wages and bonus. Payment of wages or bonus below the amount due is punishable with a fine up to INR 50,000, and if the same offence is repeated within five years, with imprisonment up to three months or fine up to INR 1,00,000, or both.

Contravention of any other provision of the Code or the rules, including non-compliance with statutory wage obligations, attracts a fine up to INR 20,000, increasing on repeat offence within five years to imprisonment up to one month or fine up to INR 40,000, or both.

Failure to maintain or properly maintain statutory records is punishable with a fine up to INR 10,000.

For first-time non-serious violations, the Inspector-cum-Facilitator must issue a written compliance direction and allow time to rectify before initiating prosecution, but this opportunity is not available for repeat violations within five years.

Where offences are committed by a company, the company and every person in charge of its affairs including directors, partners and officers may be held personally liable, unless they prove lack of knowledge and due diligence.

Certain offences may be compounded by paying 50% of the maximum fine, but compounding is not permitted for repeat offences within five years.

Relevant provision: Chapter VIII

The Code introduces a requirement for registration of establishments on a centralised electronic portal. Any establishment that is already registered under another Central labour law will not be required to obtain a separate registration under this Code.

Relevant provision: Section 3

The Code introduces a uniform and expanded definition of “employee”, covering persons employed on wages to perform skilled, semi-skilled, unskilled, manual, operational, supervisory, managerial, administrative, technical, clerical or any other work, whether the terms of employment are express or implied.

Relevant provision: Section 2 (26)

The Code expressly extends gratuity benefits to fixed-term employees, providing that gratuity shall be payable to such employees on a pro-rata basis for the period of service rendered, without the requirement of completing five years of continuous service. This marks a departure from the earlier position under the Payment of Gratuity Act, 1972, where completion of five years of continuous service was generally required.

Relevant provision: Section 53

The Code mandates that employers obtain compulsory insurance to cover gratuity liability, unless exempted on account of maintaining an approved gratuity fund or being a government establishment.

Relevant provision: Section 57

Provisions relating to maternity benefits have been subsumed into the Code, with entitlements broadly continuing as under the earlier law.

Relevant provisions: Chapter VI

The Code permits electronic maintenance of records and filing of returns and introduces inspections through an Inspector-cum-Facilitator framework.

Relevant provisions: Sections 122 and 123

The Code prescribes criminal and monetary penalties for defaults in payment of statutory social security dues and other compliance failures. Failure to pay contributions is punishable with imprisonment up to three years. Where the employer has deducted the employee’s contribution but failed to deposit it, the punishment is not less than one year’s imprisonment and a fine of INR 1,00,000, in other cases of non-payment of contribution, the punishment is imprisonment between two months and six months and a fine of INR 50,000.

Failure to pay gratuity is punishable with imprisonment up to one year or a fine up to INR 50,000, or both, while offences such as obstruction of authorities, failure to provide maternity benefit, failure to produce records, non-payment of building cess or submission of false information attract imprisonment up to six months or a fine up to INR 50,000, or both.

Other compliance failures such as unlawful deductions, reduction of employee benefits, failure to file returns or pay compensation are punishable with fine up to INR 50,000.

Repeat offences carry enhanced punishment: generally imprisonment up to two years and fine of INR 2,00,000, and for repeated failure to pay contributions, gratuity, maternity benefit, compensation or cess, imprisonment between two and three years and fine of INR 3,00,000.

Where an offence is committed by a company, the company and every person in charge of its business, including directors and partners, may be held personally liable, unless they prove lack of knowledge and due diligence.

For most first-time offences, the Inspector-cum-Facilitator must first give an opportunity to comply before prosecution, and eligible offences may be compounded by paying 50% or 75% of the maximum fine, but compounding is not available for repeat offences within three years.

Relevant provisions: Chapter XII

The Code introduces a requirement for registration of establishments on a centralised electronic portal.

Relevant provision: Section 3

The term “employee” is defined broadly to include any person employed on wages in an establishment to perform skilled, semi-skilled, unskilled, manual, operational, supervisory, managerial, administrative, technical, clerical or any other work, without any wage threshold.

The definition of “worker” is narrower and includes persons employed to perform manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, but excludes persons employed mainly in managerial or administrative capacity, and persons employed in a supervisory capacity drawing wages exceeding INR 18,000 per month.

This distinction is significant, as several provisions of the Code relating to working hours, leave, safety and welfare apply specifically to “workers” and not to all “employees”.

Relevant provision: Section 2 (t) and 2 (zzl)

Compliance obligations relating to working hours, leave, safety, health and welfare facilities should be applied specifically to personnel qualifying as “workers”, while ensuring that general workplace safety duties are extended to all persons at the workplace, including supervisory and contract personnel, as required under the Code.

The Code expressly sets out statutory duties of employers to ensure a safe, healthy and hazard-free workplace. These duties cover workplace safety standards, health monitoring, waste disposal, issuance of appointment letters, and prohibition on recovery of safety-related costs from employees.

Relevant provision: Section 6

(a)         Ensure the workplace is free from hazards that may cause injury or occupational disease and comply with occupational safety and health standards notified under the Code and applicable rules.

(b)         Provide annual health examinations or tests, free of cost, to prescribed categories of employees.

(c)         Provide and maintain, so far as reasonably practicable, a working environment that is safe and without health risks.

(d)         Ensure safe disposal of hazardous and toxic waste, including e-waste.

(e)         Issue appointment letters to all employees in the prescribed form, if existing employees have not been issued an appointment letter, such employees must be issued appointment letters within three months of commencement of the Code.

(f)          Ensure that no charges are recovered from employees for safety, health or medical examinations related to occupational hazards.

(g)         In factories, mines, docks, construction sites and plantations, ensure and remain responsible for the safety and health of employees, workers and other persons present at the workplace, whether with or without the employer’s knowledge.

The OSH Code mandates employers to maintain prescribed standards of health, safety, working conditions and welfare facilities, and empowers the Central Government to notify detailed requirements covering workplace hygiene, environmental conditions, medical facilities, welfare amenities and employee support infrastructure.

Relevant provision: Section 23 and 24

(a)          Maintain prescribed standards of cleanliness, hygiene, ventilation, temperature, humidity, lighting and prevention of overcrowding at the workplace.

(b)          Ensure availability of potable drinking water and adequate, hygienic sanitation facilities, including separate facilities for male, female and transgender employees.

(c)          Provide an environment free from dust, fumes, noxious gases and other workplace pollutants, and ensure effective treatment and disposal of wastes and effluents.

(d)          Provide and maintain welfare facilities such as washing and bathing facilities, lockers, sitting arrangements, first-aid facilities and medical amenities, as prescribed.

(e)          Establish and operate canteen facilities in establishments employing 100 or more workers, including contract labour, where applicable.

(f)           Establish or arrange access to crèche facilities for establishments employing more than 50 workers, including through common or pooled crèche facilities.

The OSH Code consolidates and codifies provisions relating to working hours, weekly rest, overtime and leave with wages, and expressly applies these requirements to ‘workers’ as defined under the Code.

Relevant provision: Section 25

(a)         Ensure that working hours of workers do not exceed eight hours per day, exclusive of intervals for rest.

(b)         Ensure that workers are not required to work for more than 6 days in a week.

(c)         Pay overtime wages for work performed beyond the daily or weekly limits specified under the Code, at the rate prescribed.

(d)         Grant annual leave with wages to eligible workers, including compliance with provisions relating to accrual, carry forward and encashment of leave.

Women are permitted to work in all establishments and at all hours, subject to prescribed safety conditions and consent requirements.

Relevant provision: Section 43

The Code enables electronic maintenance of registers, filing of returns and inspections through an Inspector-cum-Facilitator regime.

Relevant provision: Section 33 and 35

The Code prescribes heavy monetary penalties and imprisonment for breaches of workplace safety, health and welfare obligations. A general contravention of the Code, rules, standards or orders attracts a penalty between INR 2,00,000 and INR 3,00,000, with an additional INR 2,000 per day for continuing defaults.

Obstruction of inspectors, refusal to produce records or non-compliance with official directions is punishable with imprisonment up to 3 months or fine up to INR 1,00,000, or both, rising to imprisonment up to 6 months or fine between INR 1,00,000 and INR 2,00,000 for repeat offences or both.

Failure to maintain or produce statutory registers and returns attracts penalties from INR 50,000 to INR 1,00,000, increasing up to INR 2,00,000 for repeat defaults.

Falsification of records, false returns, false statements or forged compliance documents is punishable with imprisonment up to 3 months or fine up to INR 1,00,000, or both, and for repeat offences imprisonment up to 6 months or fine between INR 1,00,000 and INR 2,00,000, or both.

Where safety violations result in an accident, the penalties escalate sharply: death attracts imprisonment up to 2 years or a fine of at least INR 5,00,000, and serious bodily injury attracts imprisonment up to 1 year or fine between INR 2,00,000 and INR 4,00,000, with courts required to direct at least 50% of the fine as compensation to victims or their families. Repeat convictions carry double punishment.

Where offences are committed by a company, the company and every person in charge of its affairs including directors, partners, managers and officers may be held personally liable, unless they prove lack of knowledge and due diligence.

Certain first-time violations (except accidents and repeat offences) are subject to a mandatory 30-day opportunity to comply before prosecution, and many offences may be compounded by paying 50%–75% of the prescribed penalty.

Relevant provisions: Chapter XII

The Industrial Relations Code, 2020 applies to all industrial establishments, which include factories, mines, plantations and any other establishment carrying on an “industry”. However, key compliance obligations are now linked to workforce size.

The requirement to have certified Standing Orders applies only to industrial establishments employing 300 or more workers.

Further, the requirement to obtain prior government permission for lay-off, retrenchment and closure applies only to factories, mines and plantations employing 300 or more workers (or such higher number as may be notified).

Relevant provisions: Sections 28 and 77

The Code continues the statutory requirement for registration of trade unions, and provides that a trade union must be registered in order to function as a legally recognised body. The Code prescribes eligibility conditions for registration, including a minimum membership of ten per cent of the workers or one hundred workers, whichever is less, subject to a minimum of seven members.

Relevant provisions: Sections 5 and 6

The Code introduces a statutory framework for collective bargaining through a negotiating union or, where no single union has majority support, a negotiating council. A trade union having 51% or more worker support becomes the sole negotiating union, otherwise, unions with at least 20% support are represented on a negotiating council.

Relevant provisions: Sections 14

The requirement to have certified standing orders now applies only to industrial establishments employing 300 or more workers (earlier 100). Until certification, Model Standing Orders automatically apply.

Standing Orders are written rules that govern the terms and conditions of employment in an industrial establishment, including matters such as classification of workers, working hours, leave, misconduct and disciplinary procedures. Once certified or adopted, standing orders are binding on both employers and workers and provide a uniform framework for workplace discipline and service conditions.

Relevant provisions: Sections 28

Under the Industrial Disputes Act, 1947, the prohibition on strikes and lock-outs without prior notice and during the pendency of conciliation or adjudication proceedings applied only to public utility services. Under the Code, this prohibition has been extended to all industrial establishments, regardless of sector. Strikes and lock-outs without giving the mandatory notice, or during the pendency of proceedings, are now treated as illegal across all industries. Further, the time period within which a strike or lock-out may be commenced after giving notice has been increased from six weeks to sixty days.

Relevant provisions: Sections 62

Special government-permission requirements apply to factories, mines and plantations employing 300 or more workers (or higher threshold notified by Government). Prior approval is required for lay-off, retrenchment and closure, except in limited emergency situations.

Relevant provisions: Sections 78

The Code prescribes penalties for contraventions relating to lay-off, retrenchment and closure without approval, breach of standing orders, unfair labour practices, illegal strikes and lock-outs, breach of settlements or awards, and trade union filing and disclosure violations.

Violations of the lay-off, retrenchment and closure provisions attract fines of INR 1,00,000 to INR 10,00,000, increasing to INR 5,00,000 to INR 20,00,000 and/or imprisonment up to six months for repeat offences. Failure to submit or modify standing orders attracts fines of INR 50,000 to INR 2,00,000, while breach of certified standing orders attracts INR 1,00,000 to INR 2,00,000, increasing to INR 2,00,000 to INR 4,00,000 and/or imprisonment up to three months for repeat breaches.

Unfair labour practices attract fines of INR 10,000 to INR 2,00,000, increasing to INR 50,000 to INR 5,00,000 and/or imprisonment up to three months for repeat violations. Participation in an illegal strike attracts INR 1,000 to INR 10,000 and/or imprisonment up to one month, while an illegal lock-out attracts INR 50,000 to INR 1,00,000 and/or imprisonment up to one month. Instigating or funding an illegal strike or lock-out attracts INR 10,000 to INR 50,000 and/or imprisonment up to one month.

Breach of a binding settlement or award attracts INR 20,000 to INR 2,00,000 and/or imprisonment up to three months, with INR 1,000 per day for continuing breaches. Trade union filing defaults attract INR 1,000 to INR 10,000 plus INR 50 per day, and false or misleading union filings attract fines up to INR 20,000.

Where offences are committed by a company, both the company and persons in charge of its affairs may be held personally liable. Most offences are compoundable on payment of 50% or 75% of the maximum fine, except repeat offences within three years.

Relevant provisions: Chapter XIII