Labour Reforms & Codes
🟠 Topic 75: Labour Reforms & Codes
📌 Introduction
Labour laws in India historically evolved to protect workers’ rights, ensure fair wages, and promote industrial harmony. However, the existing framework became complex, fragmented, and compliance-heavy, posing challenges for both employers and employees. To simplify, modernise, and enhance ease of doing business, the government consolidated 29 central labour laws into 4 Labour Codes. These reforms aim to balance labour welfare with economic growth, attract investment, and boost employment generation.
🔹 Evolution of Labour Laws in India
| Period | Key Features |
|---|---|
| Pre-Independence | Focus on worker protection in industries (Factories Act 1881) |
| Post-Independence | Emphasis on social security, fair wages, industrial relations |
| Post-1991 Reforms | Flexibility in labour laws demanded for global competitiveness |
| 2020 Labour Codes | Comprehensive codification & simplification |
🔹 Need for Labour Reforms
1️⃣ Complexity & Fragmentation
- 29 central laws and over 100 state laws created confusion.
- Multiple definitions of wages, workers, and establishments.
2️⃣ High Compliance Burden
- Multiple registers, returns, and inspections discouraged entrepreneurship.
- Especially problematic for MSMEs.
3️⃣ Informal Sector Exclusion
- Most laws applied only to formal workforce, leaving over 90% informal workers unprotected.
4️⃣ Investment & Job Creation Hurdles
- Rigid labour laws discouraged large-scale investment, especially in labour-intensive sectors like textiles and manufacturing.
🔹 The Four Labour Codes
| Labour Code | Key Focus | Laws Subsumed |
|---|---|---|
| Code on Wages, 2019 | Wages, minimum wages, payment of wages | 4 laws (Minimum Wages Act, Payment of Wages Act, etc.) |
| Industrial Relations Code, 2020 | Trade unions, strikes, dispute resolution | 3 laws (Trade Unions Act, Industrial Disputes Act, etc.) |
| Code on Social Security, 2020 | Provident fund, gratuity, insurance, maternity benefits | 9 laws (EPF Act, ESI Act, etc.) |
| Occupational Safety, Health and Working Conditions Code, 2020 | Working conditions, safety, health | 13 laws (Factories Act, Mines Act, etc.) |
🔹 1️⃣ Code on Wages, 2019
Key Provisions
✔️ Universal Minimum Wage – Covers all sectors, both organised & unorganised.
✔️ Uniform Definition of Wages – Simplifies calculation for EPF, ESI, bonuses.
✔️ Timely payment of wages – Monthly, fortnightly, or daily.
✔️ Floor wage to be fixed by central government, minimum wages set by states.
Impact
✅ Ensures better wage protection for all workers, including gig workers.
✅ Reduces litigation over wage definitions.
🔹 2️⃣ Industrial Relations Code, 2020
Key Provisions
✔️ Easier Hiring & Firing – Industrial units with up to 300 workers can lay off workers without prior government approval (earlier limit: 100 workers).
✔️ Fixed-Term Employment – Legalises fixed-term contracts with same benefits as permanent workers.
✔️ Strikes Notice Requirement – 60-day prior notice mandatory before strikes.
✔️ Simplified Trade Union Recognition – Single negotiating union in large establishments.
Impact
✅ Provides flexibility to employers.
✅ Strengthens dispute resolution mechanisms.
✅ Balances labour rights with industrial growth.
🔹 3️⃣ Code on Social Security, 2020
Key Provisions
✔️ Universal Social Security – Extends benefits to gig workers, platform workers, and unorganised workers.
✔️ National Social Security Board to recommend welfare schemes for gig workers.
✔️ Common registration and compliance platform for all employers.
✔️ Simplified gratuity eligibility – Available for fixed-term workers too.
Impact
✅ Expands social security to 90% of informal workforce.
✅ Encourages formalisation of workforce.
✅ Ensures portability of benefits.
🔹 4️⃣ Occupational Safety, Health & Working Conditions Code, 2020
Key Provisions
✔️ Common Working Conditions Framework for factories, mines, plantations, etc.
✔️ Mandatory free health check-ups for workers above 45 years.
✔️ Welfare provisions for migrant workers, including travel allowances.
✔️ Single Licence for Contractors for multiple states.
Impact
✅ Ensures safe, healthy workplaces.
✅ Reduces bureaucratic approvals.
✅ Provides dignity & welfare for inter-state migrant workers.
🔹 Benefits of Labour Reforms
| Benefit | Explanation |
|---|---|
| Simplification | 29 laws consolidated into 4 codes |
| Flexibility for Employers | Easier hiring, fixed-term contracts |
| Social Security Expansion | Covers gig, platform, and unorganised workers |
| Formalisation Push | Incentivises shift to formal sector |
| Enhanced Worker Protection | Improved safety, timely wages, social security |
Case Study – Fixed-Term Employment in Apparel Sector
- Post 2020 reforms, apparel exporters hired workers for seasonal orders on fixed-term contracts.
- Provided social security benefits to these workers.
- Balanced seasonal labour needs with worker rights.
🔹 Concerns and Criticisms
1️⃣ Dilution of Labour Rights
- Labour unions argue that hire & fire provisions weaken job security.
- Stricter conditions for strikes curtail workers’ right to protest.
2️⃣ Implementation Gaps
- Many states yet to frame rules under new codes, delaying enforcement.
- Capacity constraints in labour departments for monitoring compliance.
3️⃣ Exclusion of Key Sectors
- Agricultural labour and domestic workers largely excluded from formal benefits.
- Gig worker benefits depend heavily on future scheme design.
4️⃣ Wage Floor Concerns
- Floor wage may not reflect living wages in all states.
- States may undercut wages to attract investment.
Case Study – Labour Reforms and FDI in Manufacturing
- Global firms like Apple and Samsung cited labour flexibility as a key factor for expanding operations in India.
- Labour codes improved India’s competitiveness compared to peers like Vietnam and Bangladesh.
🔹 Way Forward
✔️ Ensure effective implementation at state level.
✔️ Expand coverage to domestic workers, agricultural labourers.
✔️ Monitor impact on wages, employment, and working conditions.
✔️ Balance labour rights with ease of doing business.
📚 Practice MCQ
1️⃣ Which of the following laws were subsumed under the Code on Social Security, 2020?
- Employees’ Provident Fund Act
- Employees’ State Insurance Act
- Payment of Bonus Act
✅ Options:
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1, 2, and 3
(d) 1 and 3 only
2️⃣ What is the minimum number of employees for prior government approval for layoffs under the Industrial Relations Code, 2020?
✅ Options:
(a) 100
(b) 300
(c) 500
(d) No limit
3️⃣ Which labour code provides for universal minimum wages?
✅ Options:
(a) Industrial Relations Code
(b) Code on Wages
(c) Code on Social Security
(d) Occupational Safety Code
