Decoding the Labour Law Compliance in India

Introduction

Labour law is the body of statutory regulation coupled with executive rule promulgation that applies to matters such as employment, remuneration, hours & conditions of work, industrial relations and social security. It defines the contours of the employer-employee relationship by outlining the rights and duties they have towards each other. Employees are given rights that impose corresponding duties on employers in a Hohfeldian sense and vice-versa. These laws aim to operate to prevent exploitation of workmen as well as safeguard the interests of the employer. Compliance and inspection are an instrumental part of ensuring adherence with laws applicable to industries, factories or shops and establishments.  

Why Labour Law Compliance? 

Labour Law Compliance refers to the process of ensuring conformity with the laws enacted, these may be statutory regulations, executive rules or notifications issued by relevant district-level authorities. This three-tiered system of governance aids in addressing issues specific to certain jurisdictions, however, it also leads to bureaucratic red tape and a confusing scheme of law. The confusion is compounded by the differences between states which throws up diverse compliance requirements for organisations operating pan-India. Thus, compliance with labour laws poses several challenges from an organization’s HR point of view as well as from the perspective of liability for ensuring compliance while dealing with contractor/sub-contractor.

Compliance with labour laws must not be viewed as merely a task to satisfy legal obligations, it offers significant benefits in terms of improving trust between employers and their employees. This, in turn, leads to the creation of a healthy atmosphere in which work can be carried out which is beneficial for productivity and output. 

Labour Laws in India

Under Entry 22 of List-II, I of the Seventh Schedule under the Constitution of India, trade unions, industrial and labour disputes are concurrent subjects. Whereas Entry-52 and 55 of List-I under the Seventh Schedule vest the power in the Central Government to regulate industries over whom control is exercised by the Union Government due to experience and labour safety in mines and oilfields, respectively. State governments enjoy limited scope over labour related matters with respect to the distribution of powers under the Seventh Schedule, therefore it is safe to say that labour is largely centralized under the Constitution.

The scheme of statutory legislation governing labour related matters can be summarized as follows: –

Laws Relating to Wages 

These include the Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965 which regulate the amount and manner of payment of wages. Section 4 of the Act requires that no wage period shall be more than a month. Section 5 of the Act requires that the employer of an establishment with less than one thousand employees pay the wages of the employees before the seventh of the following month, and in other cases pay the wages of the employees before the tenth of the following month. Section 5 (2) of the Act requires that in case of termination, the wages shall be paid before the expiry of the second day from the day an employee is terminated. Section 6 authorizes payment of wages by cheque or by crediting to employees’ bank account on written authorization by the employee. (As per notification S.O. No.2806(E) Published in the Gazette of India (extraordinary) part II, Section 3, Subsection (ii), dated 29th August 2017) this act applies to wages payable to an employed person in respect of a wage period if such wages for that wage period does not exceed rupees twenty-four thousand per month.   

The Minimum Wages Act, 1948 has evolved into a complex system over time wherein scheduled employments differ from state to state and therefore ensuring compliance, especially for pan-India companies has become a significant task. A large proportion of India’s workforce is not covered by this Act due to it being unorganized by nature, this problem has been addressed in the Code on Wages.

The Payment of Bonus Act, 1965 applies to establishments/ factories where twenty or more persons are employed on any day of a particular year. It mandates payment of minimum bonus at the rate of 8.33% when an establishment begins to make a profit. 

The above laws have been subsumed into the recently passed Code on Wages, along with the Equal Remuneration Act, 1976. Although the Act is yet to be brought into effect, its salient features include a national floor minimum wage, which essentially prohibits state governments from setting a wage below the specified threshold. As well as other features like a web-based inspection schedule, increased overtime wage and removal of the system of scheduled employments for minimum wages. 

Laws Relating to Industrial Disputes & Organisation

Trade Unions Act, 1926 and the Industrial Disputes Act, 1947 and the Industrial Employment (Standing Orders) Act, 1946 are the major laws that relate to dispute resolution and right to organize. The main object of the first is to register, regulate and protect the rights of trade unions and includes employees’ associations under its scope.

The Industrial Disputes Act, 1947, regulates disputes in ‘industries’ and contains provisions relating to notice for strikes and lockouts. It defines ‘layoff’ and ‘retrenchment’ and provides for the constitution of industrial tribunals for dispute resolution. The Industrial Employment (Standing Orders) Act, 1946 aims to make terms of employment crystal clear by providing for a mechanism wherein industries must get their documents certified. 

The Code on Industrial Relations has been drafted to subsume the above laws and modernize the dispute resolution process. It includes provisions on arbitration, conciliation and the setting up of a National Industrial Tribunal. Additionally, it aims to expand the scope of standing orders and includes a list of acts that constitute unfair labour practices in its annexure.

Laws Relating to Social Security 

Employees State Insurance Act, 1948, Employees Provident Fund and Miscellaneous Provision Act, 1952, Payment of Gratuity Act, 1972, Maternity Benefits Act, 1961, Unorganised Workers’ Social Security Act, 2008 are some examples of such laws. They aim to safeguard the worker’s livelihood by supplementing ordinary wages through contributions from both the employer and employee. The Central Government in the case of EPF contributions fixes the rate of contributions on behalf of employer and employee.

The above laws are part of nine laws that are being subsumed into the Code on Social Security that has been drafted. The Code specifies applicability thresholds for the different schemes, provides for the establishment of bodies to administer the schemes and vests power in the government to notify specific schemes relating to gig workers, platform workers and unorganised workers. 

You might be interested in Gig/Platform Workers: India’s Biggest Growth Opportunity

Laws Relating to Safety, Health and Working Conditions 

Factories Act, 1948, Plantation Labour Act, 1951, Mines Act, 1952, Bonded Labour System (Abolition) Act, 1976, Child Labour (Prohibition and Regulation) Act, 1986, Dock Workers Act, 1986, Contract Labour Act, 1970 and Inter-State Migrant Workers Act, 1979 are some of the related laws. 

The draft Occupational Safety, Health and Working Conditions Code, subsumes the above laws in addition to five other laws and provides for a unified body of law that regulates health and safety of workers in establishments employing 10 or more workers. It proposes establishing National and State level boards on occupational health and safety to advise governments at both levels on rules, standards and regulations to be framed under the Code. The Code has special provisions for certain classes of establishments such as factories, mines, dock workers, and construction workers. It contains provisions on working hours, welfare facilities and leave at a general level as well as specific to certain types of employment.

Miscellaneous Laws 

Apprentices Act, 1961, Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959, Sexual Harassment of Women at Workplace (Prevention, Prohibition, Redressal) Act, 2013 are examples of some laws that do not fall under the scope of the four labour codes. It is thus highly likely that they shall continue to operate independently. 

Broad Areas for Management of Labour Law Compliance in India

The following parameters form the broad areas where firms must adhere to labour law compliances in India: 

1. Maintenance of statutory registers and records. 
2. Filing of statutory forms and returns. 
3. Ensuring statutory displays at notice boards of the firm, in the language understood by the majority of the workmen/labour. 
4. Adherence to substantive legal provisions, as discussed above.  

Labour Law Compliance Audit 

Audits help an establishment ascertain the degree of their compliance/non-compliance with applicable laws. They also aid in determining the appropriate corrective steps to be taken to avoid legal liability. A labour law audit involves a thorough check of the company’s policies and protocols, not only to avoid litigation but also to facilitate a cordial working relationship between management and staff. 

Before conducting an audit, the auditor must ascertain the labour legislation applicable to an establishment. The scope of the same differs based on the nature of the undertaking at hand. For example, shops & establishments, as well as factories, have diverse compliance requirements, that differ from state to state. Apart from this, ensuring that the establishment is aware of the latest departmental notifications and filing systems is another pertinent aspect of a labour law audit. 

Conclusion

Compliance closely tied to the very need for regulation and the nature of a nation’s workforce. India’s workforce is still largely unorganized and therefore the calls for dilution of labour laws to facilitate ease of doing business is one that partially suffers from the red herring fallacy. This is because the real need of the hour is to regularize the large number of workers in the unorganized sector and to ensure that they receive adequate social security and benefits. This will lead to ease in the collection of data which will give both employers and policymakers a real-time perspective on the state of the labour market. Deregulation is an important policy objective but is one that in the author’s opinion must come after the above is achieved. 

What are your views on the above paradigm shift in India’s labour law framework? Drop your thoughts in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney. Simpliance makes no representations or warranties in relation to the information on this article.