This article has been written by Bhaskar Tryambakrao Beher, pursuing a Certificate Course in Labour, Employment and Industrial Laws for HR Managers from LawSikho.


To generate employment, facilitate ease of doing business and expand the social security net, the central government has taken various initiatives. In order to revamp existing labour laws, many of those are since the pre-independence era, Parliament of India has passed four new labour codes, Code on Wages,2019; Code on Social Security,  2020; Code on Industrial Relations, 2020; and Code on Occupational Health and Safety of Workers, 2020. The existing 29 labour laws are consolidated in four new codes. From April 1, 2021, these codes were likely to be implemented. The Labour Ministry has deferred the implementation of codes beyond April 1, 2021. By implementing new labour codes, the social security net will be widened to a large extent. 

Labour law reforms

According to the Labour Ministry, the implementation of new labour codes will universalize minimum wages, social security and safe working conditions to all our 50 crore workforce. The Labour ministry has compiled various labour laws into four labour codes. These codes subsume and repeal 29 labour laws.

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  1. Code on wages, 2019: To ensure minimum wages and timely payments for workers in India, the Parliament of India has enacted the Code on Wages, 2019. Wage Code repeals and replaces four labour laws: Payment of Wages Act, 1936; Minimum Wages Act, 1948; Payment of Bonus Act, 1965; Equal Remuneration Act, 1976.
  2. The Industrial Relations Code, 2020: Code consolidates laws relating to trade unions, Industrial Relations and industrial disputes and settlements. It combines and repeals three labour laws – Trade Unions Act, 1926; Industrial Disputes Act, 1947; Industrial Employment (Standing Orders) Act, 1946.
  3. The Code on Social Security, 2020: This code consolidates laws relating to the social security of workers. Its goal is to extend Social Security with workers and employees whether working in the organized sector or unorganized sector or gig workers. Code repeals The Employees’ Compensation Act, 1923; The Employees’ State Insurance Act, 1948; The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959; The Maternity Benefit Act, 1961; The Payment of Gratuity Act, 1972; The Cine Workers Welfare Fund Act, 1981; The Building and Other Construction Workers Welfare Cess Act, 1996; Unorganised Workers’ Social Security Act 2008.
  4. The Occupational Safety, Health and Working Conditions Code, 2020: this code consolidates and amends laws relating to the health, safety and working conditions of workers. The Code repeals The Factories Act, 1948; The Plantations Labour Act, 1951; The Mines Act, 1952; The Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955; The Working Journalists (Fixation of Rates of Wages) Act, 1958; The Motor Transport Workers Act, 1961; The Beedi and Cigar Workers (Conditions of Employment) Act, 1966; The Contract Labour (Regulation and Abolition) Act, 1970; The Sales Promotion Employees (Conditions of Service) Act, 1976; The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979; The Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981; The Dock Workers (Safety, Health and Welfare) Act, 1986; The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996.

Key changes & impact

  1. Definition of wages: 

In current laws the definition of wages is different. So, interpretation of wages creates confusion for the applicability of any specific law. To remove conflict and confusion, the labour ministry has introduced a uniform definition in all four new labour codes. Wages include basic pay, dearness allowances and retaining allowances (if any). 

But it does not include bonus, the value paid for house accommodation or supply of light or supply of water or any other amenity, HRA, conveyance allowance, travelling allowance, value paid for special expenses, payable under settlement order or award, over time, commission, gratuity, and any retrenchment compensation. 

Under Section 2(y), if payments made to the employees under clauses (a) to (i) exceed fifty percent, the same shall be added in wages. It means the total exclusion should not be higher than fifty percent of CTC. Wages will be fifty percent of CTC and the remaining fifty percent can be shown under the heads which are not covered under the definition of wages.



Salary Structure

Employee A

Employee B


Basic Salary




Special Allowance








Conveyance Allowance




Travelling Allowance




Medical Allowance




Mobile Bill 




PF (Employer Share)












In the above table comparison of CTC for employee A and employee, B is shown. In above table S. No. 1 and 2 comes under the definition of wages. S. No. 3 to 9 are exclusions. In accordance with section 2(y), the CTC of Employee A is required to be revisited. Total of S. No 1 and 2 is less than fifty percent of total CTC.CTC of Employee B is bifurcated in S. No. 1 and 2 fifty percent and S. No. 3 to 9 fifty percent. As per the definition of wages, this is correct CTC bifurcation.

In the event of employee B receiving overtime or incentives in any particular month, the employer will be required to revisit his salary bifurcation and whatever amount is over and above fifty percent of CTC will be required to add in basic wages. To avoid problems, which may occur due to any uncertain addition in a specific month, employers should keep wages part (Basic, DA, Retaining Allowances) more than fifty percent of CTC.

Under Section 9 of the Code on Wages, 2019, the Central Government will fix floor wages based on workers’ standard of living and geographical area. State Government and Central Government shall fix the rate of minimum wages higher than floor wages set by the Central Government. In case the rate of minimum wages is higher than floor wages, the State or the Central Government can not reduce the rate of minimum wages.

2. Fixed Term Employment: 

Under Section 34 of the Code on Social Security, 2020, fixed-term employment means, engagement of employees on the basis of a written agreement for specific periods. In 2018, this term was introduced in the amendment of the Industrial Employment Standing Orders Act for specific industries. In the social security code, the labour ministry has extended this to all types of establishments. Employers can hire employees/workers for a specific period. It is beneficial for seasonal industries or for project-based work or fluctuating demand for products. Codes provide adequate protection and benefits to fixed-term employees. Fixed-term Employees who are doing the same work, are eligible to receive all statutory benefits like permanent employees. Even if service rendered is less than the qualifying period, according to the period of service, proportionately benefits shall be provided to the employee. 

3. Gig/platform Workers: 

A gig worker means a person who performs work and earns from arrangements outside the traditional employer-employee relations. They are also known as platform workers also. The gig economy is so big. There is a huge variation in the functions of platform work. It is extended from services to products, software developments, digital payments. Current labour laws did not provide any social security benefits to unorganised workers. Code on Social Security, 2020 provides protection and benefits to gig workers related to accidental insurance, health and maternity benefits, crèche, old age protection and life and disability cover. In the current scenario, the gig economy has huge potential for fresh employment creation. Coverage of the gig economy under Social Security will be beneficial to millions of gig workers.

4. Wide Social Security Net: 

Unorganised sector’s workers / informal workers are not provided with a social security net under the existing labour laws. By implementing the social security code, 2020, coverage of social security will be widened. Unorganised sector, gig workers, platform workers and interstate migrant workers are covered under this code. PF, ESIC and Gratuity benefits are extended to unorganised sector’s workers also. To remove the ambiguity of definitions, uniform definitions are introduced. According to the wage definition, wages should not be less than fifty percent of CTC. This will increase PF, ESIC contribution. More amounts will be credited to the Employee’s PF account. So, the take-home salary will be reduced. Also, the gratuity amount paid by the employer will be increased due to the higher basic salary. Fixed Term Employees are also eligible for gratuity even if service is less than five years. Widened social security net will boost fresh employment opportunities. Employers should be aware of the impact of new codes and are required to revisit their salary structure. In accordance with Section 17 (2) of the Code on Wages, 2019, in the event of dismissal, resignation, retrenchment, or removal of an employee, the employer shall pay wages within two days. Exit formalities must be completed within the prescribed time.


New labour codes have extended all social security benefits to workers of unorganized sectors those made for employees of organized sectors. Implementation of new labour codes will be beneficial to a large extent including all informal workers. Also, it will improve ease of doing business, boost fresh hiring. There are various changes introduced in the four labour codes. So employers are required to make necessary changes in salary structure, exit formalities, records keeping and reporting to respective departments.



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