Labor codes unlikely to be implemented this fiscal due to political reasons

Owing to the slow progress on drafting of rules by the states and the upcoming elections in Uttar Pradesh, the four labor codes are unlikely to be implemented this fiscal. These laws are significant because once these are implemented, there would be reduction in take-home pay of employees and firms have to bear higher provident fund liability.

A source told PTI that the Ministry of Labor is ready with the rules under the four labor codes. “But the states have been slow in drafting and finalizing those under new codes. Besides, the government is not keen to implement the four codes due to political reasons, which are mainly elections in Uttar Pradesh,” the source said. “It is likely that the implementation of the four labor codes may be dragged beyond this fiscal year.”

The four labor codes have been passed by the Parliament, but for implementation of these codes, rules under these must be notified by central as well as state governments for enforcing those in respective jurisdictions. Once the wages code comes into force, there will be significant changes in the way basic pay and provident fund of employees are calculated.

Moreover, the Labor Ministry had envisaged implementing the four codes on industrial relations, wages, social security and occupational health safety and working conditions from April 1, 2021. These four labor codes will rationalize 44 central labor laws. The ministry had even finalized the rules under the four codes. But these could not be implemented because many states were not in the position to notify rules under these codes in their jurisdictions.

Labor is a concurrent subject under the Constitution of India and therefore both the Centre and states have to notify rules under these four codes to make them laws of the land in their respective jurisdictions. According to sources, some states – Uttar Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka, Bihar, Madhya Pradesh and Uttarakhand have worked on the draft rules on labor codes

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Under the new wages code, allowances care capped at 50%. This means half of the gross pay of an employee would be basic wages. Provident fund contribution is calculated as a percentage of basic wage, which includes basic pay and dearness allowance. Employers have been splitting wages into numerous allowances to keep basic wages low to reduce provident fund and income tax outgo. The new wages code provides for provident fund contribution as a prescribed proportion of 50% of gross pay.

Once implemented, employers would have to restructure salaries of their employees as per the new code on wages.