The government is all set to regularize the new Labour Codes. With rules expected to come into force shortly the organizations/employers will need to sync themselves with new rules with new upcoming definitions for wages, gratuity and new ways of calculating provident fund and other submissions.

The four new labour codes – Code on Social Security 2020, Occupational Safety, Health and Working Conditions Code 2020, Industrial Relations Code 2020, and Code on Wages 2019 – will subsume the existing 29 central labour and industrial laws and aim to avoid multiplicity of laws. Why does the government want to enact the codes? – The government wants to facilitate ease of compliance and achieve equity for all. The new codes will ensure better use of technology for various compliances and effective enforcement. The new labour codes also raise concerns w.r.t. whether they shall apply only to blue collar employees or would they apply to all employees in general? It is clearly mentioned in the the new labour codes that the codes will apply to all employees of an organization irrespective of their role/level/nature of duties/salary (with minimal exceptions).


One of the major changes that has taken place is the change in the definition of wages. The government has made attempt to bring simplicity in the new common definition of wages across all the four codes. The new definition of wages covers all salary components expressed in terms of money or capable of being so expressed. The new definition also has specific exclusions such as statutory bonus, house rent allowance, conveyance allowance, commission etc. However, these exclusions are limited to 50 percent of the total remuneration (except gratuity and retrenchment compensation). With this change in the definition of wages and its common applicability, there will be an impact on the employees' benefits and employers' cost.


The new definition of wages will specifically impact gratuity cost. For all the current and future employees, gratuity will now be payable under the new definition of wages. The other major change is regarding the period considered for eligibility to gratuity. For fixed term employees, the earlier criteria of minimum five years of service has now been reduced to one year.

This means that now fixed term employees will be eligible for gratuity just after one year of serving an organization. However, the same does not apply for permanent employees who are not employed for fixed period. Permanent employees will continue to be eligible for gratuity after five years of service.

It can further be noted that any worker under the labour codes can now demand leave encashment at the end of each calendar year. Such leave encashment is calculated on 'wages' defined under the Labour Codes.


It can be seen that the look and feel of the codes may appear more as an act of consolidation rather than reform. However, the codes introduce several changes that employers in almost all industry sectors, location and size will need to closely understand and implement the new codes.

  • Employer-centric approach under labour code
    • Single registration and licensing provision
    • Legality of engaging contract workers in core activities in certain cases
    • Increasing threshold for applicability of certain laws for factories and engaging contract workers
    • Increasing worker threshold for applicability of standing orders and government approval for retrenchment (termination) of workers
    • Allowing maintenance of registers in electronic form
    • Providing limitation period for provident fund non-compliances.
    • Transferring labour courts into industrial tribunals and introducing inspector-cumfacilitator concept.
    • It is expected that it will have long-term positive impact on the industry and should contribute towards ease of doing business.
  • Employee-centric approach under labour code
    • Revised definition of wages leading to higher minimum wages, statutory bonus, provident fund, retrenchment compensation and gratuity.
    • Reduction in daily working hour limit in certain cases.
    • Grant of general permission for engaging women with employee consent between 7pm-6am.
    • Need for consent to work overtime.
    • Provision for leave encashment on annual basis.
    • Mandatory provision of same employee benefits and pro-rata gratuity payments to fixed term employees.
    • Payment of wages by the end of next day in case of employee resignation.

The government seems to have made a conscious effort towards balancing the rights of employees vis-à-vis those of employers.

Certain new and interesting concepts have been introduced in the labour codes including provisions in relation to fixed term employees, worker reskilling fund, social security for gig workers and platform workers, recognition of trade union, notice period for strikes, compounding of certain offences, etc.

The new codes also prescribe the changes with respect to hiring of employees through third parties/ contractors.

It is defined that any worker who is hired in or in connection with the work of the establishment by or through a contractor is a 'Contract Labour'. But a worker would not be termed as 'Contract labour' if his/her employment with the contractor is governed by mutually accepted standards of the conditions of employment; and he/she gets periodical increment in the pay, social security coverage and other welfare benefits. For such workers who do not fall within the definition of 'contract labour', the contractor will be responsible for all the compliances under the new labour codes as their employer.

An establishment under the labour code would now have to pay an amount payable to the contractor before the date of payment of wages so that contractor can pay the wages by the due date and must pay a minimum bonus to the employees if the contractor fails to pay the same.

It is also observed that there is severe impact on compliances under the labour codes. Wages will have to be paid within two working days even in the case of voluntary resignation by the employee. There are prescribed formats for the wage register, employee register and wage slip that shall be specified in the rules. Aadhar will be mandatory for social security contributions and benefits. A safety committee must be formed by the employer and it will have to contain representatives of employer and workers.

All the four codes have been passed by both the of Parliament and have received Presidential assent and the rules shall be notified shortly. The organizations are gearing up for wage restructuring for their employees as per the new wage definition.


The transformative changes in the Labour codes are expected to give a major boost to labour reforms and impact many organizations in every sector. It is the objective of the government that the new laws should reduce complexities, improve ease of compliance, bring in more transparency and accountability and should help both employers and workers. The new codes are expected to enhance compliances significantly especially due to increased penal liabilities.

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