The four labour codes under preparation by the Labour Ministry are unlikely to be implemented this fiscal in view of the slow progress on the drafting of rules by states and also for political reasons like elections in Uttar Pradesh, a source said.
The implementation of these laws assumes significance because once these are implemented, employees will see a reduction in take-home pay and firms will have to bear a higher provident fund liability.
“The Ministry of Labour is ready with the rules under the four labour codes. But states have been slow in drafting and finalising 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 (due in February 2022 onwards),” the source said.
The four codes have been passed by Parliament. But for implementation of these codes, the new rules must be notified by the Central as well as state governments. “It is likely that the implementation of the four labour codes may be dragged beyond this fiscal year,” the source said. Once the wages code comes into force, there will be significant changes in the way basic pay and provident fund of employees are calculated.
These states involved are Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand. Under the new wages code, allowances are capped at 50 per cent. This means half of the gross pay of an employee would be basic wages.
Provident fund contribution is calculated as a percentage of the basic wage, which includes basic pay and dearness allowance. Employers have been splitting wages into numerous allowances to keep basic pay low to reduce provident funds and income tax outgo. The new wages code provides for provident fund contribution as a prescribed proportion of 50 per cent of gross pay.
After the implementation of the new code, the take-home pay of employees would reduce while provident fund liability of employers would increase in many cases. Once implemented, employers would have to restructure the salaries of their employees as per the new code on wages. Besides, the new industrial relations code would also improve ease of doing business by allowing firms with up to 300 workers to go ahead with lay-offs, retrenchment and closure without government permission. At present all firms with up to 100 employees are exempted from government permission for lay-off, retrenchment and closure.