Labour Codes 2020: “The Pros and Cons”

Labour Codes 2020: “The Pros and Cons”
Labour codes mitigate the generation gap of seven decades, where the emphasis is much on practising Labour Laws through modern ways.

The year 2020 will be remembered as a year for devastation, Job loss and exodus of Migrant labourers. There are many good things also happening amid this situation of crisis, Introduction of Four Labour codes was one of them. Labour codes mitigate the generation gap of seven decades, where the emphasis is much on practising Labour Laws through modern ways.

Ease of doing Business is one of the quintessential things which are considered by the Government this year.


The Indian Parliament passed four “new” labour codes recently amidst rising hue and cry that the reforms will ease the common labour practices across the country in the form of floor wages and giving leverages to the flexibility of closure of unit without hassle along with simplifying the laws with combing 4 codes i.e. code on wages, code on social security, code on industrial relations, code on occupational safety, health and working conditions which are due for implementation on notification on April 1, 2021.

The code was made with integrating clusters of labour laws and most of the laws were passed during Independence or after Independence, so lost its relevance due to its ancient model framed decades back based upon socio-economic conditions of that period.


Basic Wages: Change in Basic wages and its impact will be 50 % of total Wages as most of the company currently has around 25% to 40% level. So there will be an impact on deciding Basic salary as per the new arrangement. This is with the enhancement of basic salary there will be an impact on employee contribution on PF and at the same time employer contribution will be enhanced. The same is the case with the calculation of gratuity  (even the case of less than 5 years of service) as gratuity is calculated on basic salary at the time of separation.   It will have a positive impact on leave encashment.   With these changes employees take-home salary will be reduced but their retrial benefits will be substantially increased as both in case of gratuity and PF contribution is linked to enhancing basic with the change in law.

Floor Wages: There is a provision of the introduction of floor wages; the minimum wages across the country could be in parity, which means the state cannot keep the Minimum wages less than Floor Wages.  This will control the variation of minimum wages across the states and this decision also helps to stop the migration of labour with respect to more wages in some states and this is due to statutory requirements at same time states who are currently, par bellow with the floor wages has provision for higher wages. East and northeast states labour can expect more wages on implementation of floor wages.


Over a period of time, we have seen changes in social security with up-gradation of benefit to make sure they enhance current and retrial benefits for employees to protect their living standard during old age. Changes like PF eligibility limit is enhanced from Rs. 10,000/- to Rs.15,000/- on revised Basic Salary in 2017. Employees’ Deposit Linked Insurance (EDLI) applies to all employees with a basic salary under Rs. 15,000/- per month, ESIC ceiling enhanced from Rs.15, 000 to Rs.21, 000. Payment of Gratuity (Amendment) Act, 2017 limit on gratuity has been doubled to Rs. 20 lakh from the existing Rs. 10 lakh, Bonus ceiling has been raised to Rs. 21,000. And accordingly, the calculation ceiling has also been raised from Rs. 3,500 to Rs. 7,000, Maternity Benefits got a revision of Paid Leaves from 12 weeks to 26 weeks, Maternity Leave for adoptive and commissioning mothers is made for 12 weeks and Crèches facility is mandatory under new provisions.


Definition of Employer has been changed – one who is employing is an employer.

  • At the same time Permission from the Labour Department is not required to lay off or lock-out the establishments due to external factors if the number is below 300.
  • Fixed Term employee could be hired and retained on the conditions of Permanent employment for the period of contract
  • Number of minimum wages that industries have to comply with set to reduce from 540 to 12 for Central Laws and 200 from 9000 for State Laws
  • Fixed-term contracts for short term / seasonal work (same benefits as employees but no retrenchment compensation) : Possibility of converting existing workforce into a fixed term employees


  • Ease of business and foreign direct investment will attract Multinationals to invest in Indian Market. The old system had an archaic method of maintaining the records in hard registers, which was a subject of periodical inspection as well. The new law allows to maintain the records and file the returns electronically
  • Labour demand and Supply –market-driven will saw due to the huge gap in Minimum wages rate of two states, it was challenging to get and retain manpower, especially migrant labourers which comprise of the largest pool of workforce
  • One nation one Law will drive Labour codes are like ‘Ocean in the pitcher’; unfold a new path of uniformity across the states.
  • Flexibility of Employer by the ease of deployment and removal will enable the industries to run the business in a smoother manner. This flexibility will help employers to run business with the interest of business and no labour law constraints and will help growth in business and enhance employment.
  • Change in basic wages and its impact to be precise, the codes are integration of the numerous labour-related legislation that existed before.  While it is an appreciable an effort to integrate all existing labour laws in the country, bigger questions regarding the utility and workability of the erstwhile and newly-reformed laws loom large.
  • Right of employer to close establishment: Union may feel being deprived of democratic right to strike as to demonstrate their fundamental right to fight with their employer against any difference in opinion and action.


Labour code will come out as a game-changer initiative by the government and with successful implementation will give leverage to workmen uplifting their standard and condition of leaving , employers flexibility to protect the Business interest and build transparency  with digitalization and take interest of employees. This new Labour code will also help ease of Business in India and attract foreign direct investment and attract multinational and Indian entrepreneurs to encourage strengthening the Business opportunity and taking India to new heights. However, the union may lose its control and fundamental rights to demonstrate and use the powerful tools to protect closure of units and interest of workmen in adverse business conditions.


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