Government Unveils Draft Rules for New Labour Codes
The Ministry of Labour has released draft rules regarding the implementation of the new labour codes, seeking public consultation over the next 45 days. The rules clarify key aspects of salary, wages, gratuity, and other allowances, with the aim to standardize definitions and regulations across various sectors.
During the transition period, existing regulations will remain effective until the new rules are officially notified, ensuring a smooth shift to the updated framework. Stakeholders are encouraged to review the draft and provide feedback.
Importance of the New Labour Codes
These new labour codes aim to modernize and streamline the existing regulations governing labour rights and employer responsibilities. Significant changes include redefining “wages,” revising how gratuity is calculated, and updating provisions related to employee benefits.
Puneet Gupta, a partner at People Advisory Services-Tax, EY India, stated, “The draft central rules under the four labour codes provide clarity on several operational aspects that employers have been awaiting.” This reflects the urgency of updating the labour landscape in India to accommodate modern work practices.
Understanding Wages and Allowances Under the New Framework
Definition of Wages
The new definition of wages now encompasses basic pay, dearness allowance, and retaining allowance, capping allowances at 50 percent of total remuneration. Any allowance exceeding this limit will be added back to wages for statutory calculations. Specifically, components such as performance-based incentives, Employee Stock Option Plans (ESOPs), and reimbursements will not be classified as wages.
Gratuity Calculations
According to the rules, gratuity will be calculated based on the last drawn wage, excluding elements such as performance-linked pay and medical reimbursements. The cap for maximum gratuity is currently set at ₹20 lakhs, and employees will not need to complete five years of service in cases of death or fixed-term contract expiration.
The changes are significant, as they provide employers with clearer guidelines for estimating their gratuity liabilities, thereby reducing the unpredictability associated with these calculations.
Provisions for Employee Welfare
Overtime and Safer Work Conditions
The new Occupational Safety, Health, and Working Conditions Rules introduce essential measures concerning overtime pay and worker safety. Workers are entitled to double wages for any work carried out beyond 48 hours in a week, along with requisite rest days to improve their quality of life.
“These measures aim to balance productivity with employee well-being,” commented Gupta, emphasizing the importance of a sustainable work environment.
Healthcare and Support for Older Employees
Under the new rules, annual medical check-ups will be mandated for employees over the age of 40 in specific sectors like construction. This proactive approach to health aims to prevent occupational hazards and ensure a healthier workforce.
Moreover, the rules stipulate that employers must provide a minimum creche allowance of ₹500 per child where creche facilities are not available, further prioritizing employee welfare.
FAQs About the Labour Codes
The government has issued a set of Frequently Asked Questions (FAQs) aimed at helping employees and employers navigate the new regulations. These FAQs cover key areas such as the applicability of old rules during the transition, the definition of wages, and specific components related to allowances.
Salary Components During Transition
According to the General Clauses Act, existing rules will remain in effect until the new ones are officially notified. This provides a necessary continuity while ensuring that businesses can gradually adapt to the changing landscape.
Clarifications and Future Steps
Gratuity will apply from 21st November 2025, marking the date of enforcement for the new code. Employers are encouraged to prepare accordingly and make necessary provisions based on established accounting norms.
The overall impact of these codes is geared towards creating a more equitable work environment, which could lead to improved employee satisfaction and potentially enhance business productivity in the long run.
Industry Reactions and Public Sentiment
Industry experts generally welcome these changes, citing the need for modernization in labor laws to meet today’s work culture. The clarity provided in definitions and calculations is seen as a step towards greater transparency.
As stakeholders gather feedback over the next month-and-a-half, the final recommendations will shape the implementation of these codes and influence the labour environment across the country.
In conclusion, the draft rules under the new labour codes signify a crucial evolution in India’s workforce regulations, aiming for a fairer, more structured, and safe environment for all employees.