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Labour Law Changes - Things You Need to Know

Updated: Apr 17

The government recently has brought about sweeping changes which would reduce the entire labour law regime of the country to four codes: The Code on Wages, The Industrial Relations Code 2020, The Code on Social Security 2020 and The Occupational Safety, Health and Working conditions Code 2020. These four codes would subsume various central labour laws such as the Industrial Disputes Act, EPF Act etc. Some unprecedented changes such as bringing in gig workers within the ambit of social welfare laws would have far-reaching effects. Let us examine what these changes are and how would they affect employers.

Key Changes in Labour Laws and their Implications for Employers:-

1. Gig Workers to be Provided Social Security Benefits

Gig workers are those workers who perform work or participate in an arrangement which is outside the traditional scope of employer-employee relationship. For instance, your Uber cab driver is a gig worker and so is your Zomato delivery boy. Gig workers often procure work through digital platforms. For example, an Uber cab driver is listed on the Uber platform which acts as an aggregator and you approach him through this platform. The new Social Security Code would now entitle the gig worker to avail of social security benefits such as EPF and ESI contribution. Earlier, these benefits were available only to those workers who were covered under the traditional definition of the term `employee’. Such contributions would be borne jointly by the central government and the digital aggregator.

Hence, if a start-up is functioning as an e-commerce platform and engages gig workers, they may need to make changes in their policies to account for social welfare benefits to gig workers.

2. Gratuity for Fixed Term Workers

Typically, an employee becomes eligible for gratuity payment if he/she has worked for not less than five years with the employer. The new Social Security Code, now makes a fixed-term worker eligible for gratuity if he/she has worked under contract with the employer for a period of one year. Hence, if you hire an employee for a period of one year on a fixed-term employment contract, you would still be required to pay them gratuity when they leave after the completion of their employment term. This change would need to be reflected in the employer’s policies and across their employment agreements.

3. Written Employment Agreement

As per the Social Security Code, 2020, an appointment letter is required to be furnished to every employee at the time of joining the establishment. The Occupational Safety, Health and Working conditions code also mandates the provision of ‘a letter of appointment to every employee on his appointment in the establishment. Many employers, especially start-up entities, do not issue formal appointment letters to their employees. This practice would need to change and every employee would be entitled to receive a written formal appointment letter at the time of the commencement of their employment.

4. Change in the Definition of Industry

The definition of the term ‘industry’ has been changed and now includes any systematic activity carried on by cooperation between the employer and their workers. Hence, a direct employer-employee relationship is no longer necessary to create an industry. The entities should assess whether in view of this change, they would fall within the ambit of industry and if yes, they may be required to comply with the Industrial Relations Code.

5. Change in the Definition of Employer

Now a legal representative of a deceased employer is also included within the ambit of the term `employer’. A manager of a factory is also now considered to be an employer.

7. Change in Thresholds for Applicability of certain Compliances

The threshold for adopting Standing orders has been increased from 100 to 300 workers. Earlier, permission was sought from the government for the retrenchment, lay-off and closure in mines, factories and plantations if the number of workers was 100 or more. This threshold has now been increased to 300.

8. Definition of Wages has been revised

The definition of wages has been revised to include all salary components which can be expressed in monetary terms. Dearness allowance and retaining allowance are also included. Provident fund contributions, commission to employees etc. have been excluded from the definition of wages HRA would now not be a part of minimum wages and this may have a bearing on the EPF contribution being made by the employer.

9. Changes in Applicability of EPF

Earlier only those establishments which were mentioned in the schedule, were included within the ambit of the EPF Act. However, now, all establishments with more than 20 employees would be included within the ambit of EPF Act. The employer’s and employee’s contribution would be 10%. An Aadhar based registration would be required. The penalty for non-submission of EPF contribution has also been increased from INR 10,000 to INR 100,000 and the imprisonment term has now been increased to 3 years.

10. Applicability of Gratuity

Gratuity is now applicable to all factories, mines, oilfields, plantations and shops and establishments employing 10 or more workers. Moreover, as stated earlier, gratuity is now also to be paid to fixed term workers who have worked for at least one year on a contract basis with the employer.

11. Employment Information and Monitoring

Employers would be required to register with career centres and notify all vacancies through electronic means or otherwise.

To summarize, the three Codes aim to bring about some far-reaching changes. This would lead to changes in major compliances. You as an employer should look at:

  • Revamping your HR policies in order to ensure compliance.

  • Further, assess and examine your employment contracts and appointment letters to modify them in consonance with the changes.

  • If you run a digital platform, make sure that you have a list of gig workers who work in your company and formulate a plan to provide them social security benefits.

  • If you are an entity who was not earlier covered by EPF but have employed more than 10 workers, you would need to obtain an EPF registration and start with your EPF contributions.

  • Ensure gratuity to fixed-term workers on a contract of at least one year.

  • Assess the wages on which you are calculating EPF contributions.

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