Labour codes unlikely to be implemented this fiscal

The four labor codes are unlikely to be implemented this fiscal in view of slow progress on the drafting of rules by the states and also for political reasons like elections in Uttar Pradesh, a source said. The implementation of these laws assumes significance because once these are implemented there would be a reduction in take-home pay of employees and firms have to bear higher provident fund liability.

”The Ministry of Labour is ready with the rules under the four labor codes. But the states have been slow in drafting and finalizing those under new codes. Besides, the government is not keen to implement the four codes due to political reasons, which are mainly elections in Uttar Pradesh (due in February 2022 onwards),” the source said.

The four codes have been passed by Parliament. But for implementation of these codes, rules under these must be notified by central as well as state governments for enforcing those in respective jurisdictions. ”It is likely that the implementation of the four labor codes may be dragged beyond this fiscal year,” the source said.

Once the wages code comes into force, there will be significant changes in the way basic pay and provident fund of employees are calculated.

The labor ministry had envisaged implementing the four codes on industrial relations, wages, social security, and occupational health safety & working conditions from April 1, 2021. These four labor codes will rationalize 44 central labor laws.

The ministry had even finalized the rules under the four codes. But these could not be implemented because many states were not in a position to notify rules under these codes in their jurisdictions. Labour is a concurrent subject under the Constitution of India and therefore both the Centre and states have to notify rules under these four codes to make them the laws of the land in their respective jurisdictions. According to the source, some states have worked on draft rules on four labour codes. These states are Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka, and Uttarakhand.

Under the new wages code, allowances are capped at 50 percent. This means half of the gross pay of an employee would be basic wages. Provident fund contribution is calculated as a percentage of the basic wage, which includes basic pay and dearness allowance. The employers have been splitting wages into numerous allowances to keep basic wages low to reduce provident funds and income tax outgo. The new wages code provides for provident fund contribution as a prescribed proportion of 50 percent of gross pay.

After the implementation of new codes, the take-home pay of employees would reduce while provident fund liability of employers would increase in many cases. Once implemented, employers would have to restructure the salaries of their employees as per the new code on wages. Besides, the new industrial relation code would also improve ease of doing business by allowing firms with up to 300 workers to go ahead with lay-offs, retrenchment and closure without government permission. At present all firms with up to 100 employees are exempted from government permission for lay-off, retrenchment and closure.