Labour Code implementation: Will the Union Budget 2025 finally set the date?

The Union Budget is one of the most eagerly awaited announcements every year and 2025 will be no different. While tax savings and incentive schemes generally top the list of expectations, labour codes now find an important place more so with the recent spate of developments in this space. Select provisions from the Codes have already been notified, paving way for easier implementation.

In continuation of this exercise, the Ministry of Labour and Employment has embarked on a mission to bring gig and platform workers – a new but prominent and growing category of workforce into the social security ambit. Towards this, the ministry had released an advisory to aggregators to register themselves as well as onboard the gig workers under their fold in the e-Shram portal, to ensure creation of a national database for this category, a starting point for providing social security benefits to them.

There are also reports that the Ministry is working on a scheme for this purpose and that more on the same is expected in the Budget speech.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

Some key expectations from the Budget in terms of Labour Codes, include:

• Implementation date and transition time

Labour Codes, approved in 2019 / 2020, have been creating waves for the sheer simplification and unification of existing labour legislations, widening the social security net to include a variety of newer workforce. However, for these benefits to reach intended beneficiaries, making the codes effective is a pre-requisite. The government has to notify the effective date when the codes will get implemented and both industry and the working population have been waiting for this for over four years. Nevertheless, with most states coming on board with their draft rules, there is the expectation that the forthcoming Budget session may throw light on the issue.

With the draft Central Rules for all four codes and draft state rules being released (barring a few), stakeholders have been able to compare them with the rules of the current legislations and identify areas which require change.

Despite this, employers would need to be allowed ample time to transition from the existing legislations to the Labour Codes as these changes impact not just payrolls but also other aspects such as HR / compensation policies, benefits to be provided, record keeping, etc. Most employers have complex software systems running their payroll and changes to these systems need to be made after rigorous testing, to ensure compliance.

The codes also place a lot of emphasis on health and safety of workers and employees. It mandates provision of proper working conditions with adequate lighting, ventilation, drinking water, sanitation facilities and safety.

Impact Shorts

More Shorts

Chennai Ranks #1 in Challan Checks: ACKO Insights for Smarter Car and Two Wheeler Insurance Decisions

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

For healthy employer-employee relations, the Industrial Relations Code requires formation of two bi-partite committees, namely, Works Committee and Grievance Redressal Committees, for the pain of financial penalties imposed on the employer. Duties of these Committees have been called out specifically in the Industrial Relations Code. The above would require policy/procedural level changes.

It is pertinent to note that these changes can only be put into effect only from the date of implementation of the labour codes, and not any time prior.

• Clarifications on certain aspects

  • Gratuity – accumulated liability – Unlike other benefits such as Provident Fund or statutory bonus, gratuity is a payment made at the time of retirement / resignation; however, employees accumulate funds based on the salary drawn each year. The payout, on the other hand, takes into account the number of years of service and the last drawn salary. With the base shifting to wages, it is highly unlikely that the accumulated gratuity funds would be sufficient to make payouts computed considering Wages under the Labour Codes. A clarification on gratuity computation or in terms of definition of last drawn wages (such as simple or weighted average wage over the past period) is one of the eagerly awaited clarifications / expectations from the Budget.

  • Treatment of certain components of salary in the definition of wages. The definition has raised certain hitherto unanswered questions such as whether one-time payments or annual components (such as performance bonus, incentives, etc.) are to be treated as “wages” under labour codes. Clarification in this matter would play a crucial role in determination of wages.

  • Valuation of perquisites in wages definition – the definition presently caps value of perquisite to 15%. Providing valuation mechanism of various types of perquisites (share-based rewards, car, school fee of children, etc.) along with suitable examples would help in determination of wages.

Budget 2024 had its focus on employment, among other areas such as skilling, MSMEs, etc. Continuing the focus on employment and related benefits, expectations on Labour Code related matters have increased. It remains to be seen how these expectations are addressed in the upcoming Budget.

Radhika Viswanathan is executive director with Deloitte Haskins & Sells. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.