Implementation of State Rules by each of the Indian States, under the 4 Labour codes enacted, passed and assent given between 2019 and 2020, in all likelihood to be delayed further beyond October 1, 2021 deadline which was set earlier sometime in May/June 2021 this year as against the original plan to implement the reforms from April 1, 2021.
The Centre has completed the huge task of clubbing or amalgamating 29 central labour laws into four codes which is the biggest change since the independence of India. The broad framework on the 4 labour codes have been rolled out, however, the relative rules are relevant to implement and put into proper perspective the significance of the 4 labour codes.
Some states have accepted the challenges of writing the rules, while there are other States who have been constantly faltering on the deadlines to frame the rules. Believably, framing the rules is a mammoth task for the States since the fallout of passing of the 4 labour codes, has given rise to conflicts between the respective representatives of employers and employees over some provisions in the draft rules which is understood to be the main reason for the latest delay.
It seems that neither the employers nor the employees want a faster implementation of the rules and none of the sides is willing to move an inch from their demands.
One of the contentious provisions in the definition of wages proposes to cap allowances at 50% of the wages. This means if allowances exceed 50%, the employer will have to pay social security, including gratuity, on the excess amount. This will lead to an increased social security burden and hence, the financial burden on employers will lead to an increase in the salary cost.
Employees’ representatives are insisting on keeping the definition of wages, unchanged even if the take-home salary comes down.
Currently, there is no law for defining CTC. Each Organization has the liberty to draw up CTC for individual employees on their own terms and conditions, depending upon the affordability to pay and its relative profitability.
Cost to Company (CTC) is the yearly expenditure that a company spends on an employee. Each employee’s spend depends on their salary and variable. CTC is calculated by adding salary and additional benefits that an employee receives such as EPF, gratuity, house allowance, food coupons, medical insurance, travel expense and so on. CTC in colloquial terms is the cost an employer bears to hire and sustain its employees.
Formula: CTC = Gross Salary + Benefits.
If an employee’s salary is ₹40,000 and the company pays an additional ₹5,000 for their health insurance, the CTC is ₹45,000. Employees may not directly receive the CTC amount as cash.
The new labour laws will prompt the companies to restructure the CTC as they cap several allowances including LTA, house rent, overtime and conveyance at 50% of the total CTC. The definition of the term ‘wages’ has been revised under the Code on Wages 2019 and it comprises of three components now – basic pay, dearness allowance, and retention payment. Some other components have been excluded from ‘wages’ such as conveyance allowance, HRA, pension and PF contribution, over time, gratuity, and statutory bonus. If any of these exclusions, in aggregate, are over 50% of the CTC, barring a special allowance, the extra amount will be added back to the wage.
Employers have gone ahead in putting forth their arguments by insisting that a 50% threshold for basic pay plus dearness allowance should be brought down to 20 to 30% of the total package.
During consultations between the labour ministry, various stakeholders expressed concern over the possible impact of the new definition of wages on a company’s outgo. “However, there will be no change in the definition of wages,” a labour ministry official said.
Besides the various industry-friendly proposals, the new laws ensure minimum wages along with timely payment of wages to all workers and propose to bring them all under the social security net.
Thus the tussle will continue and shifting to the new regime, will be a daunting task and the date to be implemented, seems to look far-fetched at the moment. The issues and challenges that various stakeholders are embroiled in is understandable in the light of the complexities and evolvement of labour laws in India as per the list given below :
Classification of LABOUR LAWS in India
Labour Laws may be classified under the following heads:
III. Laws related to Working Hours, Conditions of Service and Employment such as: