India Incorporated – Differing Views On Codes – Some On One Time Roll Out Versus Phased Roll Out Versus Inadequacy of Preparedness by Others and Where Does This Lead to
Karma Management Global Consulting Solutions Pvt. Ltd. is one of the top 5 consultancy firms, established in the year 2004, with headquarters in the business district of Santacruz East, Mumbai, India, and full-scale operation in all the States, having about 200 direct and indirect staff on its roll, is a leading service provider for payroll and payroll compliances, outsourcing, facility services, HR services, Training & Development, Recruitment & Talent Acquisition, Legal and Para legal services, Disputes and Litigation Handling, Inspection Management and Liaisoning, Advisory Services, Social, Environment and Vendor Audits, Regulatory compliances ad Governance.
Compliance with labour and employment laws has become one of the most important issues that many establishments in India have to deal with. Many employment disputes result in litigation. Karma Global is an Indian HR, Payroll, and Compliance firm advising clients worldwide on local, regional and global regulatory compliances in relation to their business goals, business strategies, and resolving disputes.
It gives valuable suggestions and advice to corporates, investors, institutions, contractors, establishments, industries, etc. on the need for lowering employment risk across all levels and adhering to the laws of the land. It has a lot of expertise on employment-related compliance issues, as well as day-to-day support for the human resource department and in-house counsels. Karma Management is also into employment agreements and policies, structuring of compensation and benefits, employment aspects of merger and takeover, etc.
Karma’s force, strength, and reach has brought in tremendous change over from its earlier image of being a consultancy firm in the period of 2000, to now embarking on setting practices abroad in highly regulated markets and competing in the global arena.
With India overtaking the UK to emerge as the fifth largest economy in the world and setting to become the third largest by2029, Karma is all poised for long-term value in terms of client outreach and giving state-of-the-art technology and excellent services to global clients better than ever before,
For the sake of good reading and understanding, let us divide this subject into 4 parts!!
(1) Preparedness for New Labour Laws
(2) Corporate India’s 34.9% is ready
(3) 67% of the industry wants phase roll-out
(4) 64% of companies in India fear the impact on P&L
(1) Preparedness for New Labour Laws
India will soon be on the binge of embracing a range of new labour codes, and most companies are taking positive steps to brace toward its implementation.
The USP of this fundamental change is that the Central Government has consolidated 29 existing federal labour laws into four codes for the purpose of ease of doing business in India.
“The intent is to bring clarity in the various definitions which are currently giving a different interpretation in different acts and also to bring in uniformity thus reducing the multiplicity of laws by integrating them into 4 labour codes.
It is the opinion of some of the legal experts specializing in this field, that companies should take an urgent call to spearhead in this direction instead of waiting for the last moments to do their preparatory homework. They should get started in carrying out payroll exercises on the basis of the codes and the rules announced by most of the States. We do agree that there is still some work to be done by the central and state governments before these codes can be implemented, however, as it is said that “well begun is half done,” so also, efforts in the preparatory work will relieve them of much of their anxieties and will at least give an indication as to where they stand, its impact and the direction that their policies need to move.
Many small and medium establishments and law firms feel that they need to start taking measures to align practices with the codes,” which will subdue their surprises that may spring up at the eleventh hour.
It is a good sign that some of the implications for violations of minor obligations have been taken out while the number of regulations have been reduced, and many aspects of digitalization have been included but the other side of the coin is that penalties for noncompliance has been raised to an extremely high level as against the trivial amounts that currently exist in the acts for violations. “In some cases, they have been raised up to 20 times the previous fines,”
(2) 34.9% of India Inc. ready to implement new Labour Codes
The new Labour Codes are aimed at simplifying the current labour laws and promoting digitization as well as ease of doing business, thereby reducing the compliance burden for employers and providing social security for the entire workforce including gig and platform workers in the unorganized sector.
India is slowly edging towards the rising of a new sun ray in the atmosphere of labour and employment laws.
According to a Labour Code survey report launched by some Associations and Consulting Firms, it is to be believed that 34.9% of companies in India are in a high state of productivity to implement new Labour Codes while 18.6% of companies have not initiated any action so far.
Some of the main obstructive points of the industry in implementing the Codes include wage restructuring, knowledge, and understanding of all levels of stakeholders who need to implement the codes, increased operational costs, and employee communication.
The new definition is expected to increase the outgo from social security obligations from both the employer and employee if the existing package consists of inclusions, which are lesser than 50% of the wages. This may eventually have a dent in the pay packet of the employees. Even without a change in wage structures, just because of the 50% cap in exclusions, net take-home salary is expected to go down for the mere fact that certain contributions like provident fund will see a rise.
Some ambiguities need to be clarified for calculating the 50% threshold discussed above, there are two different interpretations, one with a view that exclusions cannot go beyond 50% of all remuneration and the other view is that exclusions cannot go beyond 50% of the inclusion component.
(3) 67% of the Industry prefers a phased rollout of the codes
The survey adds that 67% of the industry prefers a phased roll-out of the Codes, rather than all at once, for better preparation and ease of implementation and 83% of the industry clearly understands that the Codes have an all-encompassing implication on the entire employee lifecycle, as opposed to the general perception that the Codes only entail changes to wages.
The report also revealed that over 133 companies spread across Karnataka, many of them with national operations, participated in the survey,
“The changes that the four codes are expected to bring about have been pending for quite some time and it was the industry who has been persistently asking for this change. The codes aim to enhance the social security of the workforce and guide the implementation of labour law compliance. The codes will cut down on significant systemic complexities and help accelerate economic growth.
However, at the same time, it becomes the onerous duty of all establishments to revisit their HR policies and take a very close look at their employee compensation structure so as to get geared with the impact by carrying out their own analysis and review so as to be compliant with the practices, when the time comes.
There have been a lot of suggestions and feedback received by the Government from various Associations, Agencies, Consulting Firms, Legal Experts, and Industry HR, who have provided readymade provisional insights on the basis of the homework done with regard to the implementation of four Labour Codes. Their perceptions and probable impact analysis gives an idea regarding amendments and other policy prescriptions that governments may undertake in immediate future,” was a response given by the Additional labour commissioner (Industrial Relations & Child Labour), Government of Karnataka.
The survey strongly highlights Corporate India’s clear understanding of, and readiness to implement, the new labour codes with ample focus on digitization and simplification to enable ease of doing business.
This will surely act as an accelerator for the Government to implement the Codes without any delay,”
“Aligning with the Labour Codes will be a full-fledged change management exercise for all organizations. An exercise to understand the true benefits of the Codes must be undertaken at the outset to define clear compliance objectives for the company and balance it with on-ground implementation,” the survey added
(4) Corporate India expects the impact on P & L
A survey that captured information from more than 70 companies underlined that employee experience is the top influencer of long-term employee benefits strategy
At least 64 percent of companies in India are expecting a visible impact on their profit and loss (P&L) as a result of the anticipated changes in the four labour codes, a new survey by global advisory firm Willis Towers Watson (WTW) revealed.
In light of the possible changes via the labour reforms and increasing cost of providing retirement benefits, WTW said 53 percent of organizations in India are considering or have planned to review their retirement or long-term benefits design in the next two years.
The survey that captured information from more than 70 companies underlined that employee experience (49 percent) is the top influencer of long-term employee benefits strategy, followed by regulatory complexity (45 percent), WTW said.
India has consolidated 29 central labour laws into four codes on wages, social security, occupational health, and industrial relations. While the parliament approved the Code on Wages in August 2019, the rest three were passed in September 2020. But none of them has been rolled out as yet.
The labour codes are expected to introduce far-reaching changes with implications for employers and workers. They will offer greater flexibility in rolling out short-term work contracts, make hiring and firing flexible, and make industrial strikes harder.
A change in the definition of wages may impact the take-home amount but will increase retirement savings – something that some entrepreneurs and employers oppose because it could increase their employee costs in the short term.
On labour codes, the survey further said that at least 71 percent of companies have taken some action to assess implications. In contrast, 34 percent are unsure of making changes to their compensation structure in response to the new definition of wages, while 23 percent are planning to include variable pay in the wage definition.
“Organizations are gradually coming out of the pandemic survival mode and focusing on issues such as the long-term implications of retirement adequacy and employee benefits.
The study shows that the retirement benefits landscape in India is evolving, with organizations retaining superannuation as an option in addition to promoting NPS,” said the report.
While both these avenues co-exist, it will be critical for organizations to consider the regulatory environment, flexibility for employees, cost-benefit analysis, and most importantly, employee experience as they review their long-term employee benefits strategy and mix including Flexi pay, perks, stock options, taxation, health schemes, etc.
On NPS, the study said 73 percent of the surveyed companies are currently providing or planning to implement corporate NPS, and amongst those that already provide, 61 percent are exploring strategies to increase the participation rate.
Even while talking about corporate NPS, the WTW survey said almost seven out of every 10 companies believe that the EPFO services have significantly improved with increased administration efficiency and digital enablement.
Conclusion
The earlier contrast in the existing acts has arisen due to the usage of terms like remuneration, wages, total wages, and salary – all relating to payments to employees used in different contexts and at different places.
The current labour codes have defined the term wages more broadly but missed an opportunity to clarify the other terms.
This may specifically lead to uncertainties as all these terms are interlinked. For example, 50% of remuneration must form part of wages but remuneration itself is not defined. Similarly, the term total wages are not defined for the purpose of calculating in-kind remuneration.
At some point, we may end up in a never-ending stage of clarity because to arrive at a value for one term, the other term must be relied upon and vice versa.
By still having half clarity and half vagueness in the four codes, the very object of consolidation may not be achieved to the full satisfaction of all stakeholders. Therefore, to implement the labour codes in the right spirit, the Government, both Central and State, should not leave any stone unturned and issue all necessary clarifications and take into account all the feedback, survey reports, and responses given by Associations, Institutions, Establishments, Agencies, Legal Experts, other Stakeholders, the Unions, etc.
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This blog has been collated and compiled by the internal staff of Karma with the knowledge and expertise that they possess, for its monthly newsletter Issue 05 of November 2022 in case of specific or general information or compliance updates for that matter, kindly reach out to the
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