Labour Codes II: Wages, Social Security, Working Conditions and POSH

The problem the Codes address. Before the Codes, India had over 40 central labour laws and many more state laws, enacted at different times since the 1920s. They used different definitions of “wages”, “employee” and “establishment”, different thresholds and separate registrations, returns and inspections. Coverage was patchy: minimum wages applied only to scheduled employments, and most social security applied only to the organised sector. Employers faced complex compliance, and many workers had little protection.

The reform. The Second National Commission on Labour (2002) recommended grouping labour laws into a few functional codes. After consultations, Parliament passed the Code on Wages in 2019 and the Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions Codes in September 2020.

Timeline

Central rules and state rules. Labour is a concurrent subject. The central rules apply where the Central Government is the “appropriate government”, for example for central public-sector undertakings, banks, insurance companies, railways, ports and mines. Most private factories, offices and shops are governed by state rules of the state where they operate.

Laws merged: Payment of Wages Act, 1936; Minimum Wages Act, 1948; Payment of Bonus Act, 1965; Equal Remuneration Act, 1976.

Coverage

The Code applies to all employees in all establishments. Earlier, minimum wages applied only to “scheduled employments” listed by governments, leaving a large share of workers outside statutory protection, and the Payment of Wages Act applied only to employees below a wage ceiling (₹24,000 a month in its final form). Removing these limits is the Code’s main change.

Definition of wages

Wages include basic pay, dearness allowance and retaining allowance, and exclude items such as HRA, conveyance, statutory bonus, overtime, commission, employer PF and gratuity. If the excluded items exceed 50% of total remuneration, the excess is treated as wages. The worked example and its effects on salary structures are in Chapter 2, Section 2.12.

Minimum wages and the floor wage

Payment of wages

Bonus

The statutory bonus provisions, previously in the Payment of Bonus Act, apply to establishments with 20 or more employees and to employees earning up to ₹21,000 a month: minimum 8.33% and maximum 20% of wages, calculated on ₹7,000 or the minimum wage, whichever is higher, payable within eight months of year-end. Under the central rules, if a contractor fails to pay the minimum bonus, the principal employer must pay it on written notice from the employees or their union (Chapter 2, Section 2.16).

Equal remuneration

The Code prohibits discrimination on the ground of gender, including transgender identity, in wages and in recruitment and conditions of employment for the same or similar work. The Equal Remuneration Act covered only men and women and focused mainly on wages.

Enforcement and penalties

Laws merged: Employees’ Compensation Act, 1923; Employees’ State Insurance Act, 1948; Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959; Maternity Benefit Act, 1961; Payment of Gratuity Act, 1972; Cine-Workers Welfare Fund Act, 1981; Building and Other Construction Workers Welfare Cess Act, 1996; Unorganised Workers’ Social Security Act, 2008.

Structure of social security under the Code

Provident fund and ESI

Contribution examples are in Chapter 2, Sections 2.13–2.14.

Gratuity

Payable on leaving after five years of continuous service (not required on death or disablement), at 15 days’ wages per completed year (formula: 15 × last wages × years ÷ 26), up to ₹20 lakh, within 30 days. Fixed-term employees become eligible after one year, on a pro-rata basis. Because “wages” now follows the uniform definition, gratuity rises where basic pay was low. See Chapter 2, Section 2.15.

Maternity benefit

Cost and hiring bias. Outside ESI, the full cost of maternity benefit falls on the employer, which raises concerns that some employers may avoid hiring women. This is a frequent discussion point, and the main argument for social-insurance funding of maternity benefit.

Employee compensation for injury

Where ESI does not apply, the employer must pay compensation for personal injury caused by accident arising out of and in the course of employment, and for listed occupational diseases. Compensation depends on the nature of the injury, the worker’s monthly wages and age. Under the employee compensation provisions, compensation for death is 50% of monthly wages multiplied by an age-based “relevant factor”, subject to a minimum of ₹1.2 lakh; for permanent total disablement it is 60% of monthly wages multiplied by the relevant factor, subject to a minimum of ₹1.4 lakh. Employers usually insure this liability through workmen’s compensation insurance.

Unorganised, gig and platform workers

Other provisions

• Employment information: employers must report vacancies, other than those excluded, to designated career centres before filling them, carrying forward the Employment Exchanges Act.
• Aadhaar-based registration is used to identify beneficiaries and make benefits portable across states and employers.

Laws merged include the Factories Act, 1948; Mines Act, 1952; Plantations Labour Act, 1951; Contract Labour (Regulation and Abolition) Act, 1970; Inter-State Migrant Workmen Act, 1979; Building and Other Construction Workers Act, 1996; Dock Workers Act, 1986; Working Journalists Act, 1955; Motor Transport Workers Act, 1961; Sales Promotion Employees Act, 1976; and Beedi and Cigar Workers Act, 1966, among others (13 in all).

Coverage and registration

Employer duties

• Provide a workplace free from hazards that cause or are likely to cause injury or occupational disease.
• Issue an appointment letter to every employee, in the prescribed format, stating details such as designation, category, wages and social-security entitlements. This applies to contract and fixed-term workers as well.
• Provide free annual health check-ups for specified workers; the central rules require them for workers aged 40 and above in docks, mines and construction, and states specify others.
• Report accidents and dangerous occurrences; maintain records.
• Provide welfare facilities: drinking water, toilets and washrooms, first aid, canteens, rest rooms, crèches and welfare officers, each above the thresholds set by the Code and rules.
• Comply with national occupational safety and health standards, including those for hazardous processes, and set up safety committees and appoint safety officers where required.

Working hours and leave

Women’s employment

Women may be employed in all establishments for all types of work, including night shifts (before 6 a.m. and after 7 p.m.) and hazardous operations, subject to:

• prior written consent of the woman;
• safe transportation to and from the workplace;
• adequate facilities, including well-lit washrooms and drinking water;
• CCTV coverage of the workplace, including the routes to these facilities;
• compliance with the POSH Act (Section 11.6);
• no employment in violation of maternity provisions.

Definitions. Contract labour are workers employed in an establishment through a contractor, who has the direct employment relationship with them. The principal employer is the owner or occupier of the establishment where they work.

Changes from the CLRA Act

Principal employer’s obligations

• Wage liability: the contractor pays wages, but if the contractor fails to pay in full or on time, the principal employer must pay and can recover the amount from the contractor (vicarious liability). The same applies to the minimum statutory bonus.
• Amenities: where contract workers work on the principal employer’s premises, the principal employer provides basic facilities such as toilets, washrooms, drinking water, changing rooms, first aid, canteen and crèche; other entitlements are the contractor’s responsibility.
• Grievances: contract workers’ grievances about health, working conditions or wages are addressed through a committee of the principal employer; unresolved issues go to the inspector-cum-facilitator after 30 days (central rules).

Absorption and sham contracts. In Steel Authority of India v. National Union Waterfront Workers (2001), the Supreme Court held that prohibition of contract labour does not automatically make contract workers employees of the principal employer. However, where a contract is found to be a sham or camouflage, with the principal employer actually supervising and controlling the workers, courts can treat them as the principal employer’s employees.

Why contract labour is an IR issue. Large pay and benefit gaps between permanent and contract workers doing similar work, and contractors’ failures to pay wages, were central to the Maruti Manesar (2012) and Wistron Kolar (2020) incidents (Chapter 10). HR in manufacturing therefore audits contractors’ wage payments, PF and ESI deposits monthly.

Inter-state migrant workers

The OSH Code covers inter-state migrant workers earning up to ₹18,000 a month, whether recruited by an employer or contractor or migrating on their own. Provisions include registration and a national database, an annual journey allowance to their home state, equal wages and conditions with local workers, a helpline, and portability of benefits such as public distribution (through One Nation One Ration Card) and building-workers’ welfare benefits. The COVID-19 lockdown in 2020, when large numbers of migrant workers were stranded, highlighted the absence of data and portable protection.

Origin. In Vishaka v. State of Rajasthan (1997), after the gang-rape of Bhanwari Devi, a social worker, while she was trying to stop a child marriage, the Supreme Court laid down guidelines on preventing sexual harassment at work, treating it as a violation of fundamental rights. The POSH Act, 2013 gave these guidelines statutory form.

Scope and definitions

Committees

Complaint and inquiry process

Employer duties and penalties

Employers must: constitute the IC and display its details; adopt and display a POSH policy and the consequences of harassment; run awareness and training programmes, including orientation for IC members; provide facilities for the IC; assist in securing attendance of the respondent and witnesses; act on recommendations; treat sexual harassment as misconduct under service rules; and file an annual report with case details to the District Officer. Companies also disclose POSH case numbers in the board’s report under the Companies Act rules.

Penalties: failure to constitute an IC or comply with the Act attracts a fine of up to ₹50,000; repeat offences attract double penalties and may lead to cancellation of the business licence or registration.

HR’s role in practice. Ensuring the IC is correctly constituted (including a genuinely independent external member and no members who report to likely respondents), training IC members in inquiry procedure, keeping proceedings confidential, protecting complainants and witnesses from retaliation, acting on findings regardless of the respondent’s seniority, and analysing cases for patterns.