The New Labour Code in India 2022-2023: What Employers Need to Know

2 of December, 2022

In the 2021 Union Budget we heard the announcement of the introduction of India’s New Wage Code 2022. Every company owner in India has been subject to the four labour codes on wages, social security, industrial relations, and occupational safety and health since their announcement.

The new reforms will directly affect the salaries, provident funds, and gratuities of central government workers. As well as the salary structure and tax liability of the working class in general.

The Central Government wishes that the States adopt the new wage code along with the other labour codes. However, at least 13 have already published drafts on the new salary code.

So with this amount of changes to come, get your document management ready. Let’s dive into what the changes are for employers and employees with the New Wage Code in India.

The Background of the New Labour Code in India 2022-2023

A labour code is the legislation that governs working conditions, trade union activities, and industrial relations in India. Labour laws regulate all stakeholders in the workplace, including employees, employers, and the state.

The British colonial rulers of India originally enacted these laws. After India gained independence in 1947, it followed the laws of the British.

The New labour code in India has been in the making since 2013. Since then, the government formed a committee to draft a new labour code.

The committee submitted its recommendations to the government in August 2018. The government is working towards implementing the new labour code.

What are the Key Provisions of the New Labour Code?

The new code states that allowances should not exceed 50%. Compensations in excess are now part of wages. Also, the key changes for employers are as follows:

• Salary – The new salary code will impose certain restrictions. The salary that an employer pays to an employee should be reasonable, and it should not affect the employee’s standard of living. The employer should also be inclusive of the HRA and other allowances that the employee is entitled to.

• EPF – The EPF code will be amended to increase the total deduction from the employee’s salary. The government has proposed a hike in the percentage of deduction of the employee’s salary under the EPF. The employer will pay 12% of the salary towards the EPF, while the employee will contribute 8.33% of the salary. Earlier, the employer was paying 12% of the salary towards EPF and the employee contributed 8%.

• New Code on Industrial Relations – The draft code on industrial relations proposes that all existing laws related to industrial relations should be amended to incorporate the new code.

What are the 4 New Labour Codes

The New Labour Code will have a direct impact on salaries, provident fund, and gratuity of central government employees. It will affect the salary structure and tax liability of the private working class in the whole of India.

There are 4 new labour codes that will replace the existing Industrial Dispute Act, 1947. The new codes are as follows:

• The Wages Code, 2018
• The Social Security Code, 2018
• The Industrial Relations Code, 2018
• The Occupational Safety, Health and Working Conditions Code, 2018

The Key Provisions of the New Labour Code are as follows:

• An increase of 14.5 times on the existing minimum wage to Rs 15,000 per month.
• Introduction of new pension schemes for employees of unorganized sectors.
• A social security fund for all employees will replace the existing Employees Provident Fund.
• Increase of Rs 3,500 per month on the old age and disability pensions.
• From 10% to 12% of the salary will now be the increase of employer’s contribution to the Employees Provident Fund.

How to Prepare for the Changes?

The New Labour Code in India 2022-2023 will definitely bring changes in the present salary structure and other benefits. Hence, it is necessary that the organizations implement the changes in their payroll system.

The salary structure will also face several changes. Such as increase in wages, PF contribution, pension contribution, etc.

It is necessary to understand the reason behind making these changes. It is to ensure that your organization is able to handle the changes successfully.

What are the Implications of the New Labour Code?

The New Labour Code will increase the salary of employees which will lead to a higher salary outflow for organizations. It is expected that the salary outflow will increase by 10% or more.

Hence, organizations are expected to handle the increase in salary outflow. Companies need to maintain a healthy relationships with their employees.

What are the Opportunities for Employers?

The New Labour Code in India 2022-2023 will bring positive changes in the present salary structure and other benefits. Hence, it is expected that there will be an increase in the salary outflow and a higher contribution to PF and pension.

However, organizations should expect to gain more by increasing the productivity of their employees. The salary increase might attract highly skilled employees. So keep your recruitment team ready.

Employers must plan their budget accordingly to ensure that they can handle the positive changes brought by the New Labour Code.

Conclusion

The expectation is that the New Labour Code in India 2022-2023 will bring positive changes in the present salary structure and other benefits. Hence, employers must plan their budgets accordingly.

It is important for organizations to understand the reasons behind making these changes to ensure that they are able to handle the changes successfully.

It’s true that there are a lot of changes. However, this doesn’t have to mean challenges for employers. If you use powerful HR software such as Sesame HR, all those changes can be addressed in no time. Discover everything our HR software can do for your company on our page.