Four labor codes unlikely to come into force this financial year

Implementation of these laws becomes important as once implemented, there will be a reduction in take-home pay of employees and firms will have to bear higher provident fund liability.

“The Ministry of Labor is ready with rules under the four labor codes. But states have been slow in drafting and finalizing them under the new codes. Moreover, the government is unwilling to implement the four codes due to political reasons, Which are mainly in Uttar Pradesh elections (to be held in February 2022),” the source said. Four codes have been passed by the Parliament. But for the implementation of these codes, rules under these have to be made by the central and state governments with the respective authority. to be notified to be implemented in the region. “It is likely that the implementation of the four labor codes may be extended beyond this financial year,” said the source. There will be significant changes in the way funds are calculated.

The Labor Ministry had envisaged the implementation of four codes on industrial relations, wages, social security and occupational health protection and working conditions with effect from April 1, 2021.

These four labor codes will rationalize 44 central labor laws. The ministry had also finalized rules under the four codes. But these could not be implemented as many states were not in a position to notify rules under these codes in their jurisdiction.

Labor is a concurrent subject under the Constitution of India and therefore both the Center and the states have to notify rules under these four codes to make laws of the land in their respective jurisdictions. According to the source, some states have worked on draft rules on the four labor codes.

These states are Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand. Under the new wage code, the maximum limit of allowances is 50 per cent. This means that half of the gross salary of an employee will be the basic salary. Provident fund contribution is calculated as a percentage of basic pay, which includes basic pay and dearness allowance. To reduce the provident fund and income tax expenditure, employers are dividing the salary into several allowances to keep the basic pay low. The new Wage Code provides for provident fund contribution in the form of a prescribed proportion of 50 percent of the gross salary.

After the implementation of the new code, the take-home pay of the employees will come down while in many cases the provident fund liability of the employers will increase. Once implemented, employers will have to restructure their employees’ wages according to the new code on wages. In addition, the new Industrial Relations Code will improve the ease of doing business by allowing firms with up to 300 employees to go ahead with layoffs, layoffs and closures without government permission. At present all firms with up to 100 employees are exempted from government permission for lay-offs, layoffs and closures.