New Labour Code Explained: Key Changes You Should Know

India is currently undertaking one of the biggest reorganisations of its labour systems in decades. The New Labour Code, made up of four new modern labour laws, seeks to balance the need to streamline regulations, improve workers' rights, and aid India's expanding industries. This new code replaces 29 older and more complex labour laws, which will make it easier for employers to understand and will improve employee protections and rights.

This is the first in a series of blogs that will take a basic look at the New Labour Code India and its key features, changes in wage laws, employee rights, and the impact of the New Labour Code on employers and employees.

 

What is the New Labour Code?

New Labour Code India is a new and simplified set of labour laws and regulations, which for the first time in a long time, replaces labour regulations in 29 laws with 4 major codes.

1. Code on Wages 2019

2. Industrial Relations Code 2020

3. Social Security Code 2020

4. Occupational Safety, Health and Working Conditions Code 2020

These codes aim to improve the clarity and simplicity of regulations, improve employees' rights and protections, and also help employers and businesses grow.

 

Why has India implemented the New Labour Law?

Older laws on the subject were:  

• Entangled  

• Duplicitous  

• Over the hill  

• Complex  

The Labour Code India reforms attempt to establish a cohesive approach that benefits both sides of the employment relationship.  

• Safety  

• Wage uniformity  

• Speedy resolution  

• Social security  

This enhances the employment and investment potential of India. 

 

 

Major Changes in the New Labour Law in India

Let’s examine the most crucial changes of which we should be aware on both the employer and employee sides.  

A. Changes in Working Hours. 

The New Labour Code allows working hour flexibility so long as there is adherence to a:  

48-hour work week cap 

Four-day work week may be adopted by companies. However, each working day must be extended.  

Overtime beyond the 48-hour requirement must be compensated at rates as prescribed by the Labour Code 

This also supports employee work-life balance.  

 

B. Overtime. 

Employers must pay employees double the wage they would earn for a similar work shift.  No employee may be compelled to work overtime, as it is required that there be a signed agreement to that effect. This encourages the advancement of employees without other employees being taken advantage of unfairly.

 

C. Impact on Take-Home Salary and PF  

One of the biggest changes relates to the Labour Code Wage Rules.  

 The new rule states:  

- Basic salary must be at least 50% of the total CTC 

If your basic salary is increased:  

- PF contribution increases 

- Gratuity increases 

- Take-home salary may decrease 

This will lead to solid financial stability for employees.  

Under the new Labour Code Wage Rules, your CTC breakdown and EPF contributions directly impact your savings and retirement planning. You can use our EPF calculator to see how these changes affect your take-home salary and long-term investments.

 

New Rules for Leave Encashment

Companies now have to offer: 

- Minimum 180 working days to qualify to obtain leave  

- Options for carry-over leave 

- Encashment of leave at full salary 

This advances employees' rights more than the previous legislation.  

 

Social Security Coverage Extended

The New Labour Code India extends social security benefits to:  

- Gig workers 

- Workers on online platforms 

- Contract workers 

- Temporary workers 

This is a significant improvement to India’s contemporary labour system.  

Provisions include:  

- Provident fund

- Employee State Insurance

- Benefits for maternity

- Medical insurance 

- Gratuity 

This significantly enhances the security net for millions of workers.  

 

(Source: Mint)

 

New Rules for Work From Home

The Labour Code Rules give companies the first opportunity to officially regulate remote work upon mutual consent.

Labour Code Wage Rules: How Does This Affect You?

The Labour Code Wage Rules systematises the concept of wage.

Previously, employers tended to eliminate certain allowances from salaries to avoid including them when calculating the PF or bonus.

Now: 

Basic wage = at least 50% of total remuneration.

Other allowances = at most 50%.

This promotes equity and wage parity within and among sectors.

 Consequences: 

• More PF and retirement savings.

• Improvement in savings. 

• More benefits for employees. 

• Marginal decrease in monthly salary. 

This regulation helps improve the workers' overall financial position in the long term.

 

New Employee Rights Under The New Labour Code

Employees acquire important rights: 

• Right to healthy and safe work.

• Right to reliable and set hours of work.

• Right to receive payment for work on time.

• Right to receive social security.

• Right to protection from arbitrary dismissal.

• Right to protection from inequality.

• Right to maternity leave and maternity health insurance.

• These reforms aim to provide a more worker-friendly and healthy work environment in India.

 

New Compliance Requirements for Employers

Employers also have new obligations under the new regulations:-  

• Digitally maintain employee records.  

• Send letters appointing employees.  

• Conduct audits assessing employees’ working conditions.  

• Comply with all applicable regulations concerning safety.  

• New job termination or reorganisation rules.  

• This mitigates conflicts between employees and employers and enhances transparency.  

 

New Labour Code Impact. What Is It for India?

The new Labour Code will affect many areas:  

Impacts on Employees 

• Improved protection at the workplace.  

• Increased savings for retirement.  

• More granted maternity and social security benefits.  

• Increased clarity on the amount of wages and overtime.  

• Improved job stability.  

 

Impacts on Employers

• More definite rules to comply with regulations.  

• More flexible work hour arrangements.  

• Improved management of staff.  

• Easier to compute wages.  

 

Impacts on the Country's Economy

• Improved ease of doing business.  

• Increased opportunities for investments abroad.  

• Enhanced productivity of the workforce.  

• More robust social security system.  

• With these reforms, India is likely to have a more organised labour market in the world. 
  
  

 

Conclusion

The New Labour Code Indiaseeks to achieve the historical balance between the welfare of employees and the flexibility of the employer as a law whose rules have been amended to reflect modern definitions of wages, social security and protection of rights, and social security. Protection and security of income are enhanced.

For employers, the law's simplification will lessen compliance burdens and allow the structuring of a more effective workforce. The New Labour Code impact will build a more organised, equitable, and prepared labour ecosystem across the country.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.