THE RACE TO GET READY FOR NEW LABOUR CODES

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THE RACE TO GET READY FOR NEW LABOUR CODES

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• New labour codes arriving: Entrepreneurs feel that the new labour codes will be a net positive, but shifting to them won't be smooth. The human resource management cost will rise suddenly, as people processes and salary systems will change. 
• Go carefully: Entrepreneurs do not speak up openly, but suggest that while framing the final rules, the governments (central and state) must be very careful. India has recently consolidated 29 labour laws into four broad Labour Codes (wages, social security, occupational safety, industrial relations). The final rules are being framed, and launch may be delayed beyond the deadline of April 2021.
• Sweeping changes: Once on, major changes will arrives.

1. Employers will get flexibility to use short-term work contracts
2. Strikes will become very hard to organise
3. A national wage floor will arrive
4. Informal and gig workers will get a social security net
5. Definition of "wage" will change, and "basic wage" component will rise to at least 50% of gross pay (so all statutory deductions will rise, and in-hand will reduce)
6. Employers will shell out much more

• In action mode: Businesses are engaging professionals to prepare themselves for major changes in compensation and finance, talent operations, compliance, and dispute resolutions.
• Salary and compensation: Companies say that over the coming months, many allowances will get merged into basic pay, and the normal trick of keeping it low to minimise statutory deductions would cease to work. It has to be at least 50% of total emolument. Many firms want to let employees decide their salary structures, keeping the basic pay and HRA as fixed items. A challenge for employers will be to ensure that take home of employees is not affected much.
• Retrospective shock: A big worry is that if the new codes are effective retrospectively, then the rise in gratuity and leave encashment will be big, and this is the period of economic downturn. (leave encashment and gratuity is on the basis of last drawn salary, and as rules arrive, companies fear larger payouts).
• Three year window: Some corporates want a three year window to implement these new rules, fearing a jump in grauity liability. Some firms are holding back salary appraisals, while some are going ahead. And all this is happening in the backdrop of a very bad jobs crisis. Disguised employment is growing, and decent jobs are missing.
• Trade unions' worries: Labour leaders worry that the endgame of these Labour Codes may well be in favour of employers, in terms of more flexibility in working hours and salary (in a bad jobs market). Whether many new jobs will be created or not, is not known.
• Low wage contract work: The new codes have completely redefined the role of contract workers and fixed-term employment (FTE). Contract workers will now reduce, and FTE will rise. Since new Code prohibits contract workers in core activities, it's a fundamental change. Entire definitions will now change.
• We love FTEs: Companies are bound to go for FTE in a big way, as not re-engaging a person at the end of their fixed tenure won't be considered retrenchment, and departure not treated as attrition. IT and shared services will go in for FTE and 4-5 workdays a week. 
• End of negotiating unions: The new Codes make it mandatory for a workers' union to have support of 75% of workers, to be eligible as a "negotiating union". This has overjoyed companies, especially manufacturing firms, as workers' power to negotiate will practically come to an end. Unions are extremely suspicious.
• Summary: With all these factors in the background, the government must work hard to take everyone on board. Else, it won't be an optimal solution.

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