Labour Codes: The 29 to 4 Consolidation Explained for UPSC

Context

The Government of India has consolidated 29 central labour laws into four comprehensive Labour Codes. This historic reform aims to modernize outdated pre-Independence era laws, simplify compliance, and ensure social and wage security for all categories of workers, including those in the unorganized sector and the gig economy.

The Four Labour Codes

The reforms are organized around four functional areas:

1. The Code on Wages, 2019

Consolidates four laws (Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act).

• Universal Minimum Wage: Extends the right to minimum wages to all employees (organized and unorganized). Previously, it covered only ~30% of workers.
• Floor Wage: The Central Government will set a statutory floor wage based on minimum living standards; States cannot fix minimum wages below this level.
• Gender Neutrality: Prohibits discrimination on the basis of gender, including transgender identity, in recruitment and wages.
• Overtime: Employers must pay overtime at least twice the normal rate.

2. The Industrial Relations Code, 2020

Amalgamates the Trade Unions Act, Industrial Employment (Standing Orders) Act, and Industrial Disputes Act.

• Fixed Term Employment (FTE): Allows direct time-bound contracts with parity in wages and benefits.
• Retrenchment Threshold: The approval limit for lay-offs, retrenchment, or closure has been raised from 100 to 300 workers.
• Re-skilling Fund: Established for retrenched employees, with employers contributing an amount equal to 15 days' wages.
• Strikes & Lockouts: Mandatory 14-day notice for all establishments to promote dialogue.

3. The Code on Social Security, 2020

Integrates nine social security laws (including EPFO, ESIC, and Maternity Benefit Acts).

• Inclusion of Gig Workers: Introduces definitions for "gig workers," "platform workers," and "aggregators."
• Aggregator Contribution: Companies (aggregators) to contribute 1–2% of their annual turnover towards social security, capped at 5% of payments to workers.
• Gratuity for FTE: Fixed-term employees are now eligible for gratuity after one year of service (previously five years).
• ESIC Coverage: Now applies pan-India, eliminating the "notified areas" criteria.

4. The Occupational Safety, Health and Working Conditions Code, 2020

Amalgamates 13 central labour acts (including Factories Act and Mines Act).

• Women’s Employment: Women can work in all establishments during night hours (beyond 7 PM and before 6 AM) with their consent and safety measures.
• Migrant Workers: Broadens the definition of inter-state migrant workers to include those migrating on their own. Benefits include a lump-sum annual travel allowance.
• Unified Registration: Replaces 6 separate registrations with one electronic registration for establishments with 10+ employees.

Key Institutional Reforms

• Inspector-cum-Facilitator: The traditional "Inspector" is replaced by a "Facilitator" role, focusing on guidance and advisory alongside enforcement.
• Decriminalization: Replaces imprisonment for certain first-time offences with monetary fines (up to 50% of the maximum).
• Randomized Inspections: Introduces web-based, algorithm-driven randomized inspections to improve transparency and reduce harassment.

Significance for India

• Ease of Doing Business: Simplifies registration, licensing, and returns (One Registration, One License, One Return).
• Formalization: Appointment letters and digital record-keeping help bring workers into the formal economy.
• Universal Protection: Extends health and wage security to the unorganized sector, which makes up a vast majority of India's workforce.