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Looking at the Labour Codes through an Implementation Lens

Since the Government of India opened doors to globalization in 1991, Indian Industry has constantly adapted and reoriented itself to a changing business environment. However, the Labour Laws have remained archaic and inflexible and labour reforms have eluded us, thus far. Therefore, when 29 labour legislations were amalgamated into four broad Labour Codes and the Indian Parliament passed these Codes late last year, there was certainly reason to cheer.

The four codes – The Code on Wages, The Occupational Safety & Health Code, The Social Security Code & the Industrial Relations Code - have the potential to impact almost 500 million workers. With the addition of 12 million people to the working population every year - a majority of whom are the youth, this is an opportunity to leverage India’s demographic dividend, and make us a stronger and more formidable global power.

The reactions to this development have been largely positive given that these laws are expected to bring in a new wave of reforms in industrial relations as well as help in attracting more investments to India. There have been concerns, though, around the impact of the new laws on compensation costs for businesses, take home pay of employees, employment generation, among others.

While the wider impact of the Labour Codes at a pan-industry level has been analyzed and interpreted by one and all, what needs greater focus and emphasis are the implementation perspectives of the Codes within organizations. With the implementation of Codes being deferred due to the Pandemic’s severe second wave, HR and business leaders have the opportunity to pre-emptively assess the impact of the Codes in a slow and measured manner to ensure a smooth transition at the right time.

Impact of the Codes:-

The primary impact of the Labour Codes on organizations will be on the financial, operational and functional fronts. This manner of segregation is most natural to organizational constructs and will ease the burden of transition, significantly.

Financial Impact:-

Changes to fundamental concepts like definition of wages, definition of employee, requirements of leave encashment and rapid settlements, may mean an increased spend by organizations, requiring them to increase available working capital. Salary structures impacted by the evolved concept of wages under the Codes will need a strategic rejig within organizations. A focused and thorough analysis of the employee life cycle and related payouts to benefit both the employees and the company, will aid this process. Besides simplifying the procedures and policies governing salary structures of different categories of employees, the drill will help organizations integrate and synchronize the existing mechanisms to minimize the extent of change and attain desirable and risk-averse outcomes.

Operational & Functional Impact:-

Organizations will be required to identify and analyze impacted policies and procedures and update existing practices accordingly. For the first time, organizations will need to closely assess the engagement of contract labor by clearly examining and identifying core and non-core activities. Comprehensive change management exercises will be warranted across the organization to align any upstream strategic changes to downstream detailed functions in the right manner. Harnessing synergies between functional areas and smart management of the workforce at all levels, in view of the new construct for working hours and overtime, can also help in effecting a smooth transition.

With the advent of a framework for regulation of platform workers, gig workers and home-based workers as well as employment of women in all establishments for all types of work during night shift, review of workforce categorization and engagement variables in-line with the Labour Codes will also be necessitated. Fixed Term Employment is a legally recognized engagement model under the Codes and will offer companies further flexibility.

Communicate. Communicate. Communicate:-

As a matter of fact, with the Codes offering the necessary leeway to opt in and out of the Provident Fund and Employee State Insurance schemes, employers who discern their ideologies well in advance and engage in dialogues with their workforce as to their collective preferences, are likely to benefit much more vis-à-vis others, in terms of implementing the social security provisions in the right way.

With changes in wage structure and allowances, there will be a need to have continued employee interactions and clarifications. Companies will therefore need to ensure that they communicate consistently and articulated the said changes in an effective manner. Publishing FAQs that are clear and concise will also be instrumental to the success of the overall exercise.

While sweeping measures are warranted to align with the upcoming change in the labor law landscape, timely implementation and compliance can be achieved through defined, incremental, manageable, and weighty steps. Transparency, fairness, clear communication and pre-emption will be the cornerstones for an effective transformation. With India on the doorstep of a mighty change in regulatory regime, adequate and timely engagement of all stakeholders within the company, be it national or global, is crucial. With the right intent and a meticulous top-down approach, companies can pre-emptively adapt to the changes and ensure that the necessary transformation is structured within the organization in an essentially benign way.

Pooja Prabhakar

Managing Partner & CEO, BCP Associates LLP


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