India: Consolidation of Indian Labour Codes

a. Introduction

Years 2019 and 2020 saw a major development in the Indian employment and labour law landscape with the President of India granting his assent to the four labour codes on wages, industrial relations, working conditions, and social security, respectively. The codes, which aim to consolidate and consequently replace 29 Central labour laws, are yet to be brought into force, barring provisions relating to (a) Central Advisory Board on minimum wages and (b) identification of workers and beneficiaries through Aadhaar number for social security benefits. Initially slated to be brought into force in April 2021, the labour codes may see some delay in their implementation as several states are yet to formulate rules to build an appropriate implementation framework under the new regime. The implementation process may be postponed and deferred until late 2021 or even to the next year.

b. The consolidation exercise

The consolidation exercise in the form of the labour codes does bring with it certain changes in the existing labour law regime. From the standpoint of current and potential employers including those looking to invest in India, the digitization of procedures (relating to registration and intimations) and the concept of deemed registration (in case authorities do not register the establishment within the specified timeline) may be seen as a positive impact on the ease of commencing business as well as the ease of doing business. Similarly, the substitution of the prosecution-oriented framework with a facilitation process, whereby an employer would be given an opportunity to rectify any non-compliance, heralds an important change in the approach of the government.

c. Planning ahead

Having said that, current and potential employers may have to gear up for a relook at their workplace arrangements and workforce engagement structures. Fixed-term employments will see an important change in those employees engaged for a specified duration will also enjoy tenure-based benefits similar to the permanent workforce (albeit on a pro-rated basis). Engagement of contract labour in an establishment’s core activities would be barred except in certain situations. On the cost front, employers may see some impact on their expenses towards social security contributions, gratuity and severance compensation as these computations may have to be calculated on at least 50% of the total remuneration paid to an employee.

Foreign corporations and investors should instruct their Indian subsidiaries, JVs, investee entities and offices to not only closely monitor the implementation and enforcement of the labour codes (and the relevant rules and regulations when they are notified), but also plan preemptive impact assessment and analysis (both from cost and compliance perspectives) under the new legal framework, to ensure a seamless transition into the new regime.

By Deepak Kumar and Deeksha Malik
Khaitan & Co
Mumbai, India

If you have any queries, please reach out to our UIA Team at Khaitan & Co: uia@khaitanco.com.