Foreign companies looking to establish in India should understand the country’s multiple federal labor laws as well as locally enacted laws that are specific to the state, industry, and the size of the firm. While the federal government has spearheaded major reforms to consolidate the numerous existing laws into four major labor codes, these Codes are yet to be implemented. They are the Code on Wages, the Code on Social Security, the Industrial Relations Code and the Occupational, Safety, Health and Working Condition Code.
[tips title="Important Tip"]Since the implementing rules for these Codes were yet to be notified, as of December 2021, human resource (HR) policies in India continue to be governed by the existing laws.[/tips]
Once the new Codes have their implementation rules in place, the legal regime will provide flexibility to employers in India by easing hiring and retrenchment norms.
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Existing Labor Laws in India |
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Enacted and enforced by federal government |
Enacted by federal government, enforced by federal and state governments |
Enacted by federal government, enforced by state government |
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Note: The list is not an exhaustive account of India’s labor laws; it excludes worker and sector-specific regulation. |
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New Labor Codes and Corresponding Laws it Will Subsume |
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New labor code |
Subsumed laws |
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Code on Wages, 2019 |
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Code on Social Security, 2020 |
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Occupational Safety, Health and Working Conditions Code Bill, 2020 |
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Industrial Relations Code Bill, 2020 |
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Existing regime – Federal labor laws
There are two broad categories of labor law in India. Individual labor laws deal with the employee’s rights at work, like the Rights of Persons with Disabilities Act, 2016, while collective labor laws govern the tripartite relationship between employers, employees, and labor unions, such as the Industrial Employment (Standing Orders) Act, 1946. Federal legislation Act as umbrella laws for state-level implementation. For example, the minimum wage requirement in the state-enacted Shops and Establishments Acts must be in line with the Code on Wages Act, enacted at the federal level.
Existing regime – State labor laws
State governments also enact certain laws, which enumerate compliances for companies established in those states. Key state law is the Shops and Establishments Act, which applies to all commercial establishments – any premise where business, trade, or profession is carried out for profit – and shops, where any business or trade occurs, or services rendered to consumers.
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All terms and conditions of the employee-employer relationship in shops or commercial establishments are governed by this Act. It reiterates federal laws about establishment registration, wages, as well as working scope and conditions, thus consolidating most applicable federal labor compliances.
Certain federal laws, such as the Industrial Employment (Standing Orders) Act, 1946, affect all industrial establishments where 50 or more workers are employed and in establishments where the Shops and Establishments Act is applicable. The Act governs various aspects of employment, addressing the rights and liabilities of employees and employers and other conditions of service. Notably, state governments may amend this Act to better suit industry in its state.
Companies operating in multiple states should be careful of the distinction between respective state labor laws and state-specific amended federal laws, even if the differences are minor.
Code on Wages Act, 2019
The Code on Wages, 2019, also known as the Wage Code, was enacted in August 2019, and commenced December 18, 2020. The Wage Code consolidates the provisions of four labor laws concerning wage and bonus payments and makes universal the provisions for minimum wages and timely payment of wages for all workers in India. The Code repeals and replaces the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. The Code prohibits discrimination of employees on grounds of gender, especially when the employees are doing the same or similar kind of work.
New labor codes on industrial relations, social security, and safety, welfare, and working conditions
India enacted three new labor codes in September 2020, in a historic move to consolidate the country’s labor legislation and compliance norms. The codes are – Industrial Relations Code, 2020; Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020 (OSH). The respective bills bring gig workers and inter-state migrant workers into the ambit of social security for the first time.
[tips title="Did You Know"]Businesses will find that the new codes make it easier for them to be flexible in their hiring and firing decisions as well as in shutting down operations in the country.[/tips]
For example, firms with up to 300 workers can now fire staff without seeking government permission. Conditions restricting worker’s right to strike have also been introduced.
Labor law compliance in India: What businesses must note
Until the implementing rules for the Codes are finalized and implemented by major industrial states, existing labor laws will continue to be relevant.
Implementation status of the four labor codes in India
Since labor is a concurrent subject in India, both the Centre as well as the states can make laws regulating labor. While the Centre has already finalized the rules under these codes, states are also required to frame regulations on these codes.
It is speculated that the four labor codes are likely to be implemented in the next financial year of 2022-23, once all the states have finalized the draft rules.
Here’s a list of different states which have pre-published the draft rules for the four codes:
- The Code on Wages, 2019: Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Tripura, Uttarakhand, Uttar Pradesh, Odisha, Manipur, Telangana, Chhattisgarh, Jharkhand, Kerala, Maharashtra, Mizoram, Punjab, Rajasthan, UTs of Jammu & Kashmir, Puducherry, Chandigarh and Delhi.
- The Industrial Relations Code, 2020: Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Tripura, Uttarakhand, Uttar Pradesh, Odisha, Manipur, Telangana, Chhattisgarh, Jharkhand, Maharashtra, Punjab, UTs of Jammu & Kashmir, Chandigarh and Puducherry.
- Code on Social Security, 2020: Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Madhya Pradesh, Tripura, Uttarakhand, Uttar Pradesh, Odisha, Manipur, Chhattisgarh, Jharkhand, Maharashtra, Kerala, Punjab, UTs of Jammu & Kashmir and Chandigarh.
- Occupational Safety, Health and Working Conditions Code, 2020: Arunachal Pradesh, Bihar, Goa, Haryana, Himachal Pradesh Madhya Pradesh, Uttarakhand, Uttar Pradesh, Odisha, Manipur, Chhattisgarh, Jharkhand, Kerala, Punjab, Gujarat, UTs of Jammu & Kashmir, Chandigarh.
