Key Implementation and Compliance Issues

INTRODUCTION

India’s labour law landscape has long been characterized by a complex and fragmented array of regulations. With over 40 central labour laws and numerous state-specific enactments, navigating compliance has been a significant challenge for employers and employees alike. Recognizing the need for simplification, modernization, and better protection for workers, the Government of India undertook a historic reform by consolidating these numerous laws into four comprehensive labour codes.

These unified codes – the Code on Wages, 2019, the Industrial Relations Code, 2020, the Occupational Safety, Health, and Working Conditions Code, 2020, and the Social Security Code, 2020 seek to streamline the legal framework, ensure uniform application across states, enhance worker protections including minimum wages and social security, and improve ease of doing business. Together, they represent a transformative shift in India’s labour regulation landscape, addressing issues of outdated laws, overlapping jurisdictions, and inconsistent enforcement mechanisms.

This article delves into these implementation and compliance challenges, discussing their implications for employers, workers, and regulators while highlighting the path forward for realizing the full potential of India’s consolidated labour codes.

OVERVIEW OF INDIA’S FOUR CONSOLIDATED LABOUR CODES

In a major reform to simplify and modernize its labour laws, India has consolidated 29 central labour laws into four comprehensive labour codes. The primary features and purposes of these codes are:

1. Code on Wages, 2019

• Replaces four previous wage-related laws including Minimum Wages Act and Payment of Bonus Act.
• Introduces a centrally mandated floor wage to ensure a basic wage standard nationwide.
• Mandates timely payment of wages and prohibits gender discrimination in remuneration.
• Establishes advisory boards with employee and employer representatives to recommend wage policies.

2. Industrial Relations Code, 2020

• Consolidates laws relating to trade unions, industrial disputes, layoffs, retrenchment, and strikes.
• Introduces provisions for easier trade union registration but also regulates strikes through prior notice requirements.
• Aims for speedy dispute resolution and improved industrial harmony.

3. Occupational Safety, Health and Working Conditions Code, 2020

• Unifies laws governing workplace safety, health, and welfare across establishments with a certain employee threshold.
• Expands applicability to more workplaces including contractors with 50 or more workers.
• Introduces measures for women’s safety at workplaces, defines inter-state migrant workers, and mandates appointment letters.

4. Social Security Code, 2020

• Merges nine existing social security laws covering provident fund, gratuity, insurance schemes, and more.
• Social security benefits are extended to gig and platform workers, as well as employees in the informal sector.
• Frames centralized administration for improved ease of implementation and monitoring.

Collectively, these codes aim to provide a uniform legal framework applicable nationwide, promote worker welfare, ease compliance burdens, and improve India’s ease of doing business ranking. However, the breadth and scope of reforms also present various practical, administrative, and compliance challenges.

IMPLEMENTATION CHALLENGES

1. Phased and Uneven Rollout

Though passed between 2019 and 2020, the labour codes’ enforcement has been delayed repeatedly. The phased rollout process requires states to notify rules for their locality, and many states still have pending notifications, leading to inconsistent adoption nationwide. For example, whereas 31 states have produced draft regulations under the Wage Code, fewer have finalised rules under the Industrial Relations and Social Security Codes.

2. Federal and Jurisdictional Complexities

Labour law is a concurrent issue in India, resulting in overlapping authority between the Centre and the States. This duality complicates rule-making and enforcement, creating ambiguity for employers operating in multiple jurisdictions. Variations in state-level implementation foster regulatory fragmentation and compliance uncertainty.

3. Opposition from Trade Unions and Political Resistance

• Several trade unions criticize the codes as diluting worker protections, especially regarding retrenchment norms and strike regulations. Restrictions like mandatory 60-day notice for strikes and the ban on flash strikes have stirred concerns over limitations on workers’ rights. Political opposition and vocal protests have slowed government efforts for full rollout.

4. Administrative and Infrastructure Gaps

• Many state labour departments face staffing shortages and lack adequate digital infrastructure to administer the new compliance and inspection regimes. The capacity constraints impede training, monitoring, and enforcement, impacting the practical effectiveness of these reforms.

COMPLIANCE CHALLENGES FOR EMPLOYERS

1. Increased Regulatory Burden

• The consolidated labour codes require employers to maintain more detailed records, digitally register employees, and file returns regularly. This poses a significant administrative load on especially small and medium enterprises (hereinafter referred to as “SMEs”) unfamiliar with complex digital systems.

2. Complex Wage and Social Security Calculations

• While the Code on Wages aims to unify wage definitions and ensure timely payments, calculating minimum wages, overtime, and social security contributions under new rules remains challenging for HR and payroll departments.

3. Extending Social Security to Unorganised and Gig Workers

The Social Security Code significantly increases benefits for gig and platform workers. However, identifying eligible workers, enrolling them in schemes, and managing contributions in a largely informal sector presents serious practical difficulties.

4. Industrial Relations Uncertainties

• The Industrial Relations Code changes affect trade union registration, dispute resolution, and strikes. Employers often struggle to comply with new notice periods and other procedural requirements, heightening the risk of disputes or inadvertent violations.

THE WAY FORWARD

To realize the goals of these labour codes and minimize disruptions, the following measures are critical:

1. Central-State Coordination: Greater synchronization to harmonize rules and enable a uniform compliance environment.
2. Capacity Building: Investments in digital infrastructure and training of labour officials to enforce codes effectively.
3. Awareness and Engagement: Proactive outreach to employers, trade unions, and workers for smooth transition and acceptance.
4. Technology Adoption: Leveraging automated systems for payroll, compliance, and reporting to reduce administrative burden.
5. Phased Support for SMEs: Tailored support and timelines to help smaller employers adapt to new regulations without undue hardship.

AMLEGALS REMARKS

India’s four consolidated labour codes represent a historic and transformative overhaul of the country’s labour regulatory framework. The codes promise improved wage security, streamlined industrial relations, enhanced workplace safety, and expanded social security coverage, including for the often-overlooked gig and unorganised sectors.

However, the path to realizing these benefits is fraught with significant challenges. Delayed and uneven implementation across states due to the federal structure has created regulatory uncertainty. Jurisdictional overlaps, resistance from trade unions concerned about erosion of workers’ rights, and administrative capacity gaps further complicate enforcement.

Despite these hurdles, the consolidated labour codes are a foundational step toward modernizing India’s labour market. Effective implementation and compliance with the labour codes can help India create a more transparent, equitable, and efficient labour environment that not only safeguards workers but also attracts investment and drives sustainable industrial growth. The coming years will be critical in determining how these landmark reforms translate from policy into practice, shaping the future of work in India.

– Team AMLEGALS 

For any queries or feedback, feel free to reach out to laksha.bhavnani@amlegals.com or hiteashi.desai@amlegals.com