Details about Labour Law Reforms

Last Updated On: Oct. 23, 2020, 9:15 p.m.

Labour Law Reforms


From the early stages of our ruling government, our honourable Prime Minister Mr Narendra Modi emphasizing on ‘Labour Law Reforms’ & ‘Ease Of Doing Business’. Actually, these two terms are interrelated with each other, as we are going to make reforms in our Labour Laws it will significantly impact on our, “Ease of Doing Business”. In India Labour Act falls under the concurrent list; it means both the State Government & the Central Government can make laws on it. At present, more than 1000 Laws of State Government & 40 Laws of Central Government are governing Labour Act in various ways, which make the Labour Law compliance too complex. To resolve this complexity, new reforms in existing labour law is mandatory.

To begin this process of labour reforms Second Commission on Labour Law was formed in 1999. They submitted their report on 2002 mentioning that majority of existed labour acts; are ancient (even before independence) & outdated, hence we need immediate reforms in our existing Labour Act

After considering various aspect, the government has decided to make reforms in our labour law. Government has decided to subsume the majority of laws & bring all of them under 4 major Codes.

1. Code on Wages

2. Code on Industrial Relations.

3. Code on Social Security

4. The Occupational Safety, Health & Working Condition Code.

Code on Wages


The code on wages bill was passed by Lok Sabha on 30th July 2019 and by Rajya Sabha on 2nd August 2019. This code on wages bill 2017 was first introduced before the last Lok sabha on 10 August 2017, then referred to the standing committee, which submitted their report on 18 December 2018. Out of 24 recommendations made by the standing committee, 17 was accepted by the government.


The Code on Wages Bill, 2019 seeks to amend and consolidate laws relating to wages, bonus and matters connected therewith. The Code will subsume four labour laws — Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act.

The new wage code removes multiplicity of wages definitions, which can significantly reduce litigation as well as compliance cost for employers. The new act links minimum wages across the country to the skills of employee & the place of employment. It seeks to universalize the provisions of minimum wages & timely payment of wages to all employees irrespective of the sector and wage ceiling. It seeks to ensure, “Right to Sustenance” for every worker and intends to increase the legislative protection of minimum wage. A national floor-level minimum wage will be set by the centre and will be revised every five years, while states will fix minimum wages for their regions which cannot be lower than the national floor wage rate. Prime Minister Mr Narendra Modi in an interview said that the old minimum wages act covered only 30% of the total manpower/workforce. He also mentioned that earlier there were more than 1000 slabs of minimum wages, they would be now reduced to 200 slabs.


Calculation of minimum wage: The Draft Rules lay down the criteria for fixing the minimum rate of wages per day for employees. These criteria include:

(i) Three adult consumption units per household,

(ii) Daily intake of 2700 calories per consumption unit,

(iii) 10% expenditure on rent,

(iv) 20% expenditure of fuel, electricity, and miscellaneous items, and

(v) 25% expenditure on education, medical requirements and contingencies.


Norms for fixing minimum wage:

Minimum wages will be calculated on the basis of the geographical area of employment and the skill category of an employee. For this purpose, the central government will divide the geographical area into three categories: metropolitan (population of 40 lakh or more), non-metropolitan (between 10 lakh and 40 lakh), and rural areas (all other areas). The Draft Rules categorise occupations into four skill categories: unskilled, semi-skilled, skilled and highly skilled. The central government will constitute a committee (Chair: Chief Labour Commissioner) to advise on modifications in skill categorization of these categories of occupations. A separate technical committee may be constituted to recommend the fixing of minimum wages for working journalists.

Revision of dearness allowance

The Draft Rules state that an endeavour will be made to revise the dearness allowance linked to the minimum wage twice a year; before April 1 and October 1 each year.

Calculation of floor wage:

According to the Code on Wages 2019, the central government will fix a floor wage. The minimum wage must be higher than the floor wage. The Draft Rules provide that the central government will decide the floor wage on the basis of minimum living standards taking into account food, clothing, and housing for a family of three consumption units. The floor wage may be revised every five years, and periodic adjustments may be made to accommodate variations in the cost of living.

The floor wage will be decided in consultation with the Central Advisory Board and certain state governments as the central government deems necessary. The Board will consist of:

(i) Employers,

(ii) Employees (in equal number as employers),

(iii) Independent persons,

(iv) Five representatives of state governments.

The Board will advise the central government on various issues including minimum wage fixation.


Work hours:

The Draft Rules state that a normal working day will constitute a maximum of nine hours of work per day, with a maximum spread over of 12 hours including rest intervals. The spread over may be increased to 16 hours in certain cases, such as: (i) where employment is intermittent, and (ii) the employee is engaged in an unforeseen emergency. Further, every employee will be allowed one rest day per week. The employer may substitute the rest day for any other day of the week, which may fall within five days before or after the scheduled rest day. Substituted rest days will be eligible for overtime wages.


Inspection Scheme:

As per the Code, the appropriate government may specify an inspection scheme which will provide for the generation of web-based inspection and calling for inspection-related information under the Code electronically. The Draft Rules state that Chief Labour Commissioner (Central) will formulate an inspection scheme, with the approval of the central government.


Code on Wages Act 2019: Brief Backdrop

  1. Under the Constitution of India, labour is a subject in the Concurrent List of the Seventh Schedule where both the Central and State Governments are competent to enact legislation.
  2. The Central Government is empowered to fix the floor wages by taking into account the living standards of workers. It may set different floor wages for different geographical areas.
  3. The minimum wages decided by the central or state governments must be higher than the floor wage.
  4. The Code of Wages Aims to transform the old and obsolete labour laws into more accountable and transparent ones and seeks to pave the way for the introduction of minimum wages and labour reforms in the country.

It subsumes the following four labour laws:

  • The Payment of Wages Act, 1936.
  • The Minimum Wages Act, 1948.
  • The Payment of Bonus Act, 1965.
  • The Equal Remuneration Act, 1976.
  • Removes the multiplicity of wage definitions, which can significantly reduce litigation as well as compliance cost for employers.
  • Regulates the wages and bonus payments in all employments where any industry, trade, business, or manufacturing is being carried out.
  • Links minimum wage across the country to the skills of the employee and the place of employment.
  • It simplifies the methodology to fix minimum wage by doing away with the ‘type of employment’.
  • It seeks to universalize the provisions of minimum wages and timely payment of wages to all employees irrespective of the sector and wage ceiling.
  • It seeks to ensure ‘Right to Sustenance’ for every worker and intends to increase the legislative protection of minimum wage.
  • Employees getting monthly salary shall get the salary by 7th of next month, those working on a weekly basis shall get the salary on the last day of the week and daily wagers should get it on the same day.

 Occupational Safety, Health & Working Conditions Code

As the name suggests this code will basically deal with the safety measures & working conditions of workmen. This code will subsume the following acts; Factories Act 1948, Mines Act 1952, Dock Workers (Safety, Health & Welfare) Act, 1986,   Building & Other Construction Workers (Regulations Of Employment & Conditions Of Service) Act 1996, Plantation Labour Act 1951, Contract Labour (Regulation and Abolition) Act 1970, Inter-State Migrant Workmen (Regulations Of Employment & Conditions Of Service) Act, 1979, Working Generalist & Other Newspaper Employees (Conditions of Service and Miscellaneous Provision) Act, 1955, Working Generalist (Fixation Of Rates Of Wages) Act 1958, Motor Transport Workers Act, 1961, Sales Promotion Employees (Condition Of Service) Act, 1976, Beedi & Cigar Workers (Conditions Of Employment) Act, 1966, Cine workers & Cinema Theater Workers Act, 1981.

This code was first tabled in Lok sabha in 23rd July 2019, then it was referred to the standing committee on 9th October 2019.

This code covers every establishment with at least 10 workers or more. This code bars civil courts from hearing matters.

Code on Industrial Relations

This code was introduced in Lok Sabha in 26th Nov 2019 thereafter it was referred to a standing committee in 23rd Dec 2019. This code specifies significant changes; 14 days’ notice is mandatory for strike or lockout, Provisions of fixed-term employment across board, Retrenchment threshold of 100 workers flexible via notification by Central Government, Code permits the Government to defer, reject or modify awards passed by Industrial Tribunals & the National Industrial Tribunal.

This code subsumes 3 major acts; The Trade Unions Act, 1926, The Industrial Employment (Standing Orders) Act 1946, The Industrial Disputes Act, 1947.

Code on Social Security 2019

This code will be focused on EPF & ESI. This code may subsume the following acts: Provident Fund Act, 1952, Maternity Benefit Act, 1961, Unorganized Worker’s Social Security Act, 2008.

This code was introduced in Lok Sabha on Dec 11, 2019, referred to a standing committee on Dec 23, 2019, till now in the standing committee.

As per this code, fixed-term contract workers will be eligible for gratuity on a pro-rata basis, employees may soon have the option of reducing their provident fund contribution, It retains the existing autonomy of EPFO & ESIC, rejecting the proposal to corporatize them.


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