Explainer: New Labour Codes promise better worker protection, cleaner compliance

The new Labour Codes notified last week are being touted as the biggest overhaul of labour regulation in decades as these merge 29 laws into four simplified codes promising stronger worker protection cleaner compliance and greater flexibility for businessesHeres a look at some of the major changes that the Labour Codes will bring about for employees as well as employersChanges in takehome pay for employeesThe new uniform definition of wages caps allowances at 50 per cent of total compensation This means basic pay will rise increasing provident fund PF and gratuity contributions Takehome salary may fall slightly but retirement benefits grow significantlyCurrently a large number of employers offer split allowances to reduce tax and other liabilitiesExperts said this will reduce takehome pay of employees but also increase compliance burden and costs for employersFor employersHigher employer contributions to PF and gratuity They may need to restructure CTCs to remain compliantThis will be effective due to change in definition of wages that caps the quantum of allowances at 50 per cent of the total gross payThis means that 50 per cent of the gross pay is basic wages on which social security benefits and contributions like gratuity and provident fund are calculatedA senior official told PTI that the definition of wages has come into effect immediately after notification of The Code on Wages 2019 on November 21 2025What happens to job security Fixedterm workers get the same statutory benefits as permanent employees including gratuity if tenure conditions are met Clearer disputeresolution mechanisms may improve job security and reduce arbitrary actionFor employersThey can now hire talent on fixedterm contracts without longterm liabilities Threshold for layoffsclosures raised to 300 workers giving them more flexibility in manpower planningWork hoursStandardisation of working hours 48 hours weekly cap improves predictability Overtime rules and leave provisions are clearer and more enforceable Stricter safety and welfare norms enhance workplace conditionsSocial securityGig platform and unorganised workers are now formally recognised Also access to EPF ESI maternity benefits and injury compensation widens Digital registration makes benefits easier to claimPlatforms may need to contribute to dedicated social security funds for gig workersComplianceFor employees simplified rules mean benefits and rights are easier to track and enforce Employers also benefit due to fewer registers and returnsAnother senior official said employers have been splitting wages into numerous allowances to reduce employees tax as well as their outgo towards various social security schemes and benefits such as PF ESIC and gratuityHowever they explained that since the threshold of basic wage for contribution into the Employees Pension Scheme 1995 is Rs 15000 per month employers will continue to contribute 833 per cent of this amount into the schemeBut the remaining balance contribution will go into the Employees Provident Fund they added explaining that this will increase employees EPF benefitEarlier on many occasions the EPFO had cautioned firms to adhere to the norm of keeping 50 per cent of the gross pay as basic wage for the purpose of calculating social security contributionsOne of the most significant issues is the mandate for annual health checkups for all employees aged 40 and aboveThis story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever