Indian Labour Codes: Friend or Foe for International Businesses?

August 24, 2023
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The first step to expanding international business in India is understanding the Indian labour codes. But the Indian laws are intricate as the central and state governments formulate these laws together, increasing the chances of legal risk in international business

However, the Indian government recognised the need to enhance the 'ease of doing business'. It simplified Indian labour laws to create a more business-friendly environment for domestic and international companies. 

These new labour laws not only streamline complex 29 state-specific laws but also create a balance between a well-protected workforce and a favourable environment for business growth. 

This article will break down the Indian labour codes and highlight the implications of these new labour laws on international businesses. 

What Are The 4 Labour Laws In India?

Indian Labour Codes

India has transformed its intricate labour regulations into four simplified labour codes: wages, industrial relations, social security and occupational safety. This aims to modernise worker rights and business practices for a more balanced and adaptable labour landscape.

1. code on Wages, 2019

The Code on Wages, 2019 simplifies employers' compliance and provides more precise guidelines for protecting workers' rights.

  1. The Equal Remuneration Act, 1976: Equal remuneration for men and women workers for the same work or work of a similar nature. It specifies that employers must maintain records of wages and other relevant details, allowing authorities to monitor compliance.
  2. The Minimum Wages Act, 1948: A uniform minimum wage system across industries and regions, ensuring fair remuneration for workers. It also defines the factors determining minimum wages, including the cost of living, skill level and nature of work.
Source
  1. The Payment of Wages Act, 1936: It outlines the permissible deductions, including fines, absence from duty and accommodation provided by the employer. It mandates that wages must be paid within the prescribed period, either daily, weekly, fortnightly or monthly, as the state government specifies.
  2. The Payment of Bonus Act, 1965: Regulates the payment of bonuses to employees, ensuring that workers receive a share of the company's profits. It sets guidelines for calculating bonuses based on the company's allocable surplus and employees' eligibility. It defines the maximum and minimum bonus limits and outlines the distribution process.

2. Industrial Relations Code Bill, 2020

The Industrial Relations Code Bill 2020 consolidates laws related to trade unions, industrial disputes and employment conditions in industrial establishments.

  1. Industrial Disputes Act, 1947: The code provides procedures for appointing conciliation officers, boards and tribunals to address disputes. It defines conciliation initiation, authorities' powers, illegal strike/lock-out grounds and establishes grievance redressal committees. 
  2. Industrial Employment (Standing Orders) Act, 1946: It mandates industrial establishments to draft certified standing orders detailing terms like working hours and disciplinary processes. It requires submission, certification, posting and a worker appeal procedure related to these orders, ensuring transparency and fair treatment.
  3. Trade Unions Act, 1926: The code outlines requirements for forming and functioning registered trade unions. It specifies application, constitution, membership and cancellation grounds. Recognised unions gain privileges like bargaining rights and protection against suits for lawful activities, establishing organised trade relations.

3. Code on Social Security Bill, 2020

The Code on Social Security Bill 2020 consolidates laws related to social security, including provident fund, insurance and maternity benefits.

  1. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Outlines guidelines for the establishment, administration and management of provident funds, including employers' contributions, eligibility criteria and employee benefits.
  2. Employees’ State Insurance Act, 1948: Specifies provisions for establishing and administering employees' state insurance, including contribution rates, coverage criteria and medical benefit entitlements.
  3. Payment of Gratuity Act, 1972: Defines the conditions and calculation methods for gratuity payment based on the employee's tenure and last drawn salary.
  4. Maternity Benefit Act, 1961: Guidelines for maternity benefits, including the duration of leave, payment methods and eligibility criteria.
  5. Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959: Requires employers to notify job vacancies to employment exchanges, detailing the methods and timelines for such notifications.
  6. Cine-Workers Welfare Fund Act, 1981: Establishes specific criteria and methods for the establishment, administration and utilisation of welfare funds for workers in the film industry.
  7. Building and Other Construction Workers’ Welfare Cess Act, 1996: Provides guidelines for collecting, utilising and administering welfare cess funds for workers in the construction industry.
  8. Employee’s Compensation Act, 1923: Outlines criteria for determining compensation amounts in case of workplace injuries, including methods for calculating compensation based on the nature of the injury.
  9. Unorganised Workers’ Social Security Act, 2008: Incorporates provisions for the identification, registration and criteria for extending social security measures to unorganised workers.

4. Occupational Safety, Health and Working Conditions Code Bill, 2020

The Occupational Safety, Health and Working Conditions Code Bill 2020 consolidates laws related to occupational safety, health and working conditions of workers in establishments with 10 or more employees.

  1. Factories Act, 1948: Defines safety protocols, machinery usage regulations and welfare provisions for factory workers, ensuring regular safety inspections and adequate ventilation standards.
  2. Contract Labour (Regulation and Abolition) Act, 1970: Emphasises that contractors hiring more than 50 workers must provide canteen facilities, restrooms and first aid amenities.
  3. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979: Includes guidelines for employers to provide free and suitable accommodations to inter-state migrant workers, with mandated facilities like clean drinking water and sanitary arrangements.
  4. Plantations Labour Act, 1951: Specifies that plantations must provide housing facilities, free medical aid and childcare facilities for workers and their families.
  5. Mines Act, 1952: Incorporates strict safety measures for mining operations, including regular inspections, proper lighting, ventilation and protective equipment for workers.
  6. Working Journalists and other Newspaper Employees (Conditions of Service) & Misc. Provisions Act, 1955: Outlines provisions for minimum wages, working hours and leave entitlements for journalists, ensuring fair treatment.
  7. Working Journalists (Fixation of Rates of Wages) Act, 1958: Details mechanisms for determining fair and standardised wages based on categories and regions for working journalists.
  8. Motor Transport Workers Act, 1961: Specifies guidelines for the welfare and working conditions of motor transport workers, including regulated working hours and provisions for overtime pay.
  9. Beedi and Cigar Workers (Conditions of Employment) Act, 1966: Defines working conditions of beedi and cigar workers, including regulated working hours, proper ventilation and protective measures against harmful substances.
  10. Sales Promotion Employees (Conditions of Service) Act, 1976: Outlines working hours, overtime pay and leave entitlements for sales promotion employees, ensuring their rights.
  11. Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981: Contains guidelines for the welfare and working conditions of workers in the cinema industry, encompassing adequate rest periods and protection against hazardous substances.
  12. Dock Workers (Safety, Health and Welfare) Act, 1986: Demands safety measures in docks, including provisions for emergency medical aid, protective gear and proper ventilation.
  13. Building and Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996: Comprises guidelines for the welfare, safety and working conditions of workers in the construction industry, emphasising proper sanitation, safety equipment and first aid provisions.

Are State Labour Laws Still Applicable?

While the newly introduced Indian labour codes encompass several existing central labour laws, implementing these codes does not negate the relevance of state labour laws. Some of the significant categories of state labour laws to consider are:

  1. Factories and establishments
  2. Shops and establishments
  3. Contract labour
  4. Construction workers
  5. Minimum wages
  6. Industrial disputes
  7. Labour welfare funds
  8. Professional tax

By understanding and following both central and state labour laws, businesses can effectively manage their workforce and create a positive work environment.

Indian Labour Code Impact On International Businesses

effect of labour law on international business

From contract workers to employee benefits, the new labour laws have streamlined the complex Indian labour laws to make them more inclusive and favourable. However, managing the dual framework can be tiresome for international businesses planning to expand and invest in India. 

Want a simple solution to navigate all these legal complexities and seamlessly hire in India?

Rapid, a leading employer of record (EOR), supports international businesses with 25 years of local expertise. It understands the intricacies of the Indian labour codes and assists companies in managing their workforce. 

It ensures adherence to dynamic regulations and minimises the risk of defaults or penalties. 

From assisting in legal compliance to guiding through proper documentation, Rapid provides smooth operations and helps international businesses confidently navigate India's evolving labour landscape in India.

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