India's economic landscape has been undergoing significant transformations, driven by technological advancements, globalization, and evolving global geopolitical scenario. Amidst these changes, the introduction of new labour codes by the Indian Government aims to reshape the way companies compensate, regulate, and manage their workforce. In this dynamic environment, Indian companies must proactively prepare themselves to adapt to the new regulatory framework while remaining agile and competitive.
In furtherance of its motto of ease of doing business and with a view to harmonize the multiple labour legislations prevailing in the country, the government has consolidated 29 central labour laws (out of 44 existing central laws) into four labour codes i.e. Code on Wages, 2019; Code on Social Security, 2020; Industrial Relations Code, 2020 and Occupational, Safety, Health and Working Conditions Code, 2020 – (collectively referred to as the “Labour Codes”).
It is worthwhile to note that labour codes had received the approval of both houses of the parliament as well as Hon. President’s assent in the year 2019 and 2020 and the draft central rules on all the four labour codes have already been pre-published by the Central Government. As labour is a concurrent subject any change requires even the State Governments to be on board. As per the latest published data, many of the states and Union Territories had also published the state level draft rules for all four or few of the Labour codes. However, the final notification of making these codes effective is something which has been on the anvil for some time now.
With the groundwork laid and the spotlight on post-election priorities, the implementation of the labor codes may take center stage for the new government. But the pressing question remains: are businesses adequately prepared for this monumental shift?
As the countdown to potential enforcement begins, we have unveiled key strategies that companies may need to consider to stay ahead of the curve in India's evolving business landscape.
Analyzing the codes and assessing the financial impact
The first step in testing for readiness could be to understand the changes introduced by the new labour codes and its impact on the business from a financial perspective. Introduction of uniform definition of ‘wages’; social security benefits/scheme for ‘fixed term employees’, 'gig worker' and 'platform worker' etc. requires a detailed assessment of its impact on the existing compensation structure, social security contributions, retirement/terminal benefits payable to the employees.
The financial impact (if any) may need to be assessed when developing future business plans. Some of the big-ticket compensation elements which are likely to undergo a change and have a direct financial impact includes gratuity, provident funds, leave encashments, maternity benefits, overtime, etc.
Re-visiting / drafting new HR policies
There may be a need to identify the amendments to the HR policies and procedures to comply with the new labour codes. In this regard, the existing HR policies and processes relating to (but not limited to) the working hours, over-time, leave entitlements, provision of health benefits, grievance redressal mechanism, appointment letter, employing of contractual workers for business operations, fixed term staff, full and final settlements, etc may need to be re-visited. The changes may vary depending on the region and industry in which the company is operating.
New age businesses which engage employees in a more non-traditional manner – e.g., platform workers, gig workers could also have to factor in social security policies and benefits for this type of workforce.
Decode compliance requirements and training employees
To ensure adherence to the applicable labour laws and regulations, businesses would need to establish robust processes and systems as per the provisions of the new labour codes. Companies should adopt a proactive approach in identifying and addressing new/modified compliance requirements under the new labour codes.
Companies may need to focus on investing in upgrading their compliance processes including technology and training of the employees responsible for carrying out the labour law compliances to ensure smooth implementation and transition to the new labour codes.
Aligning internal systems with updated reporting requirements
Implementation of new labour codes may necessitate significant changes as to how companies manage employee data and track compliance. This could lead to the need for modifications to existing IT systems, including:
- Payroll Systems: New regulations regarding minimum wages, overtime pay, leave entitlements, gratuity payouts, etc. might require updates to payroll calculations and reporting functions;
- HR management software (‘HRMS’): Any changes to record-keeping requirements, additional benefits, administration of employee facilities might necessitate adjustments to HRMS functionalities.
By proactively identifying and addressing potential IT system issues, companies can ensure a smooth transition to compliance with new labour codes.
