Tax on Go


Labour Reforms w.e.f. 1 st April 2021 * & Impact thereon
By CMA Ashok Nawal
Apr 05, 2021

HON Prime Minister of India needs highest applaud for eliminating number of Acts & Rules and introduction of following laws and rescinding 29 other labour laws for ease of doing business and considering health, safety and security of labours/employees :

1) The Code on Wages, 2019
2)  The Code on Social Security, 2020
3) The Industrial Relations Code, 2020
4)  The Occupational Safety, Health and Working Conditions Code, 2020

Attempt has been made in this article to analyze and find out the impact on all the stake holders


New Code on Wages 2019 will substitute following earlier laws :

1. Payment of Wage Act 1936
2. Minimum Wages Act 1948
3. Payment of Bonus Act 1965
4.  Equal Remuneration Act 1976

New definition of wages will apply to all labour laws in India

Definition of Employee:

"(k) ""employee"" means, any person (other than an apprentice engaged under the Apprentices Act, 1961), employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union;"

Definition of WAGES :

"(y)  ""wages""  means  all remuneration  whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and  includes, —"

(i) basic pay; (ii) dearness allowance; and (iii) retaining allowance, if any

but does not include––

"(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;"

(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;

(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;

(d) any conveyance allowance or the value of any travelling concession;

(e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;

(f) house rent allowance;

(g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;

(h) any overtime allowance;

(i) any commission payable to the employee;

(j) any gratuity payable on the termination of employment;

(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:


Provided that,  for calculating the wages  under this clause, if  payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government,  of the all remuneration calculated under this clause, the  amount which exceeds such one-half , or the per cent. so notified,  shall be deemed as remuneration  and  shall  be accordingly  added in wages under this clause:


Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage


Where an employee is given in lieu of the whole or part of the wages payable to him, any  remuneration in kind  by his employer, the  value of such remuneration in kind which does not exceed fifteen per cent.  of the total wages payable to him,  shall be deemed to form part of the wages of such employee;

Benefits :

-  Minimum wages and payment of wages to all organized and unorganized sectors

-  Empower central government to set different national minimum wages for different parts of the country

-  Timely payment to employees without any wage ceiling

-  Payment of salaries or wages on or before the 7 th of the following month

-  Removal of gender discrimination not just in wages but also in recruitments and transfers

-  Imprisonment only in case of offences committed repeatedly within five years of commission of the first or subsequent offence

-  Contract Labour to be treated on par with regular employees

-  Minimum wages fix by the state government cannot be lower than the National minimum wages for that region

-  Inspection via randomised selection process. No geographical limits.

-  Jurisdiction of Inspectors widened, web based electronic labour inspections

-  Deposit of undisbursed dues with the government in case of death of an employee, where there is no nomination.

-  Inclusion of digital mode/cheque modes for payment of wages

-  Overtime rate set at twice the standard wage rate, to ensure no ambiguity on computation

What has been changed?





Minimum wages are fixed for scheduled employments with more than 1000 employees

Minimum wages paid to all employees

Wages Act - Applies to employees whose wages do not exceed Rs. 24000/- PM

Provision regarding payment of wages will apply to all employees

Bonus Act- Applies to establishments with 20 or more persons and for employees and for employees whose wages do not exceed Rs. 21000/- PM

Bonus will apply to employees whose wages do not exceed a monthly amount notified by central or state governments




Minimum Wages No Provision Minimum wages fixed by the state Government cannot be lower than the national minimum wages for that region

Overtime Wages

Allow the relevant central or state governments to set overtime wages

Overtime wages set at two times the normal wages




Gender Discrimination

Prohibits gender discrimination in wage payment, recruitment , transfers and promotions

Removal of Gender discrimination not just in wages but also in recruitments and transfers





Inspections are appointed to carry out

1) Surprise checks and

2)Examine persons and require them to give information among other powers

Appointments of a Facilitator to carry out inspection and provide information to employees and employers for better compliance .

Inspection will be done on the basis of Inspection scheme , which will include a web-based inspection schedule





Minimum wages : Offences includes

1) Paying employees less than minimum wages and

2) not providing for a day of rest in the week. Penalties include fine up to Rs. 500 and imprisonment up to six months

Wages Act: Offence includes

1) Non-payment of wages at specified time period

2) Unauthorized deductions from wages. Penalties include fine up to Rs. 7500

Bonus Act: In case a person or company does not comply with the act, they can be punished with imprisonment up to six months or fine up to Rs. 1000

Equal Remuneration Act

Offences include

1) Non maintenance of documents in relation to employees and

2) Discrimination against women in recruitment , penalties include fine up to Ts. 20000 or imprisonment up to 1 year

Employers who pays less than what is due under the code will pay a fine upto Rs. 50000 . If employer is guilty of repeat offence within five years , penalties include imprisonment upto 3 months or a fine of upto 1 lakh or both

Employers who do not comply with any other provision of the code will pay a fine of up to Rs. 20000. If an employer is guilty of the same offences again within five years , penalties include imprisonment up to one month or a fine of up to Rs. 40000 or both

Following points to be noted on the New Labour Code

-  Code applied to all sectors of employment

-  Minimum wage to all , including unorganized sector

-  Definition of employee includes employees in the supervisory , managerial and administrative category

-  Disparity in wages applicable in different state reduced

-  No salary ceiling on the applicability of the provisions of the payment of wages act

-  Demands could be met sourcing workers locally

-  Grievances can be addressed for all categories of employees, within the framework of the labour codes ensuring uniformity in treatment , avoiding disputes and litigation cost

-  Inspection will be done on the basis of inspection scheme, which will include a web-based inspection scheme

-  Employer has to deal with a single Inspector for compliance

Impact :

Trade and Industry will have to restructure the salaries and wages, so as to ensure 50% of CTC excluding employers contribution towards PF & ESIC are considered to be basic wages on which PF will be deducted. Therefore, there will be reduction in net take home salary, but will substantially increase in savings of the employees. Following factors needs to be considered while not only restructuring of salaries but compliance of the labour code :

-  Definition of wages does not include house rent allowances , 50% of allowances paid shall be part of the basic wages for computation

-  Higher amount of penalties for contravention

-  Court can take cognizance of an offences punishable under this code if a complaint is filed by an employee or a registered trade union.


Following laws will be rescinded and new code on Social security 2020 has been introduced:

1.  The Employees' Compensation Act, 1923

2.  The Employees' State Insurance Act, 1948

3.  The Employees Provident Fund and Miscellaneous Provisions Act, 1952

4.  The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959

5.  The Maternity Benefit Act, 1961

6.  The Payment of Gratuity Act, 1972

7.  The Cine Workers Welfare Fund Act, 1981

8.  The Building and Other Construction Workers Welfare Cess Act, 1996

9. The Unorganised Workers' Social Security Act, 2008

Object :

-  To extend social security to all employees and workers either in the organized or unorganized sectors

-  To provide for voluntary coverage under ESIC and PF schemes even if the number of employees are less than the limit.

-  To extend social security benefits to temporary workers

-  The definition of the EMPLOYEE has been comprehensively elaborated to over maximum number of employees and workers

-  To provide electronic registration of employers

-  Constitution of various social security organizations like the national security board for the unorganized workers

-  To empower the government to frame schemes for temporary workers and the members of their families for coverage under the ESI scheme.

-  To frame schemes providing for social security benefits to self employed workers

-  To provide for payment of gratuity to fixed term employees on pro rata basis.

Features :

-  The facility of ESIC would now be provided in all 740 districts. At present, this facility is being given in 566 districts only.

-  Establishments working in hazardous sectors would mandatorily be linked with ESIC, even if there is only one worker working in it.

-  Provision for Gratuity has been made for Fixed Term Employee and there would not be any condition for minimum service period for this. For the first time, a Fixed Term Employee working for a determined period on contract has been given the right of social security like a Regular Employee.

-  There will be national database for unorganised sector workers where registration of all such workers would be done on an online portal on the basis of Self Certification through a simple procedure. It would facilitate the extension of benefits of various social security schemes to beneficiaries in the unorganised sector.

Duties of employer have been specifically mentioned as follows:-

a) ensure that workplace is free from hazards which cause or are likely to cause injury or occupational disease to the employees;

b) comply with the occupational safety and health standards declared, regulations, bye-laws or orders made under this Code;

c) provide such annual health examination or test free of costs to such employees of such age or such class of employees of establishments or such class of establishments, as may be prescribed by the appropriate Government;

d) ensure the disposal of hazardous and toxic waste including disposal of e-waste;

e) issue a letter of appointment to every employee on his appointment in the establishment, with such information and in such form as may be prescribed by the appropriate Government and where an employee has not been issued such appointment letter on or before the commencement of this Code, he shall, within three months of such commencement, be issued such appointment letter;

f) ensure that no charge is levied on any employee, in respect of anything done or provided for maintenance of safety and health at workplace including conduct of medical examination and investigation for the purpose of detecting occupational diseases;

Advantages to Employers

-  No fresh registrations required under the code for employees already registered under the subsumed laws

-  Uniformity in definition of wages as adopted in the code of wages

-  Returns to be filed electronically

-  Fixed term method of engagement with no maximum period legally permitted subject to payment of benefits on par with permanent employees

-  Introduction of 5 years limitation period for initiation of an enquiry under the EPF Act

-  Responsibility fixed on employees clearly to provide AADHAR for availing benefits under the social security code

-  EPFO and ESIC corporations to be made body corporates to increase the accountability

-  Generation of web based inspection scheme . Randomized selection of employers for the purpose of inspection

-  Inspector bound to perform advisory role- shall provide advice to employers and employees on compliance of the provision of code

-  Inspection report to be uploaded online within a time frame after inspection to ensure transparency and for the employer to respond only on the specific queries.

-  Proposal to enhance salary limit for women employees under the ESIC scheme to INR 50000/- to facilitate payment of Maternity and other cash benefits.

Following Points to be considered by Employers while considering the CTC or Cost to the Company on engaging employee, compliances thereof and consequences:

-  Labour welfare fund law have not been merged with the code , leading to additional obligation/compliance for employers.

-  Insurance cover for payment of gratuity may be made mandatory , leading to blockage of working capital for employers

-  Dues towards EPF and ESIC contributions shall have first charge on asset of the establishment

-  The provision that government will contribute 50% of the Maternity expenses to women earning upto INR 15000/- has not been included

-  Minimum fine for first time offence INR 50000/- with one-year imprisonment

-  Enhanced punishment after previous conviction , fine up to INR 200000/- with imprisonment for a term of 2 years

-  2 nd and subsequent offence involving non-payment of contributions due, maternity benefit, gratuity benefit, employee compensation shall attract imprisonment not less than 2 years to 5 years and fine of INR 300000/-


Following laws will be rescinded and new code on "The Industrial Relations Code, 2020 has been introduced:

1. Trade Union Act

2. Industrial Dispute Act

3. Industrial Employment Act

What are the changes?

-  This will apply to establishments with at least 300 employees which was earlier 100 employees

-  Permission for closure , lay-off will be required for establishments with at least 300 workers which was earlier 100 employees

-  Dispute relating to termination of individual worker : Classifies any dispute in relation to discharge , dismissal, retrenchment, or otherwise termination of the services of an individual worker to be an industrial dispute . The worker may apply to the industrial tribunal for adjudication


Following laws will be rescinded and new code on The Occupational Safety, Health And Working Conditions Code, 2020has been introduced:

1. Factories Act

2. Plantation Labour Act

3. Mine Act

4. Working Journalists and other Newspaper employees Act

5.  Working journalist Act

6. Motor Transport Workers Act

7. Beedi and Cigar Workers Act

8. Contract Labour Act

9. Sales Promotion Employees Act

10. Inter State Migrant Workmen Act

11. Cine Workers and Cinema Theatre workers Act

12. Dock Workers Act

13. Building and Other construction Workers Act


To provide flexibility and to include necessary provisions in the code for enforcing rules and regulations in tune with the emerging technologies.

Advantages to Employers

-  Consolidation of laws helps for monitoring, easy compliances and benefits of both companies and employees

-  Once Registration, One License, One Return, One Common authority

-  Single all India License valid for five years for engaging the contract labours.

-  Legal provisions strengthened to make employees abide by the safety norms

-  The code does not apply to apprentices

-  Web based inspection for easy and smooth process

-  Inspectors cum facilitators to perform the role of guiding the employers to comply with the code.

Following Points to be considered by Employers w.r.t. compliances & consequences:

A. Contract Employees

-  Provision apply to Establishments employing 50 or more contract workers and to every manpower supply contractor employing more than 50 workmen

-  Welfare facilities for the contract labour to be provided by the principal Employer

-  Engagement of Contract labour by a principal employer through a contractor without license shall be deemed to be in contravention of the code

-  Principle Employers can also engage contract labour when there is a sudden increase in the volume of work to be completed within a specified period of time

-  Contractor to initiate the authority as and when he receives a fresh work order . Failure to intimate authority may lead to cancellation of license

-  Contractor shall be responsible for payment of wages through bank transfer electronically and inform the principle employer after disbursement

-  In case the contractor fails to make payment, the Principal employer will be responsible for the payment of wages

-  Contractor shall issue an experience certificate to the contract labour engaged by him

-  Contractors engaging contract workers in more than one state can obtain a common license from the designated authority

-  The code provides for a common license as well as work specific license for contractors

-  No contractor shall engage workmen without a license

-  Licence can be applied shall be issued and renewed electronically

-  A License issued under this code shall be valid for a period of five years

B. Penalties & Offences

-  Higher rate of penalty for violations. An offence leading to the death of an employee will be punishable with imprisonment of upto 2 years, or a fine upto 5 lakh rupees, or both. For any other violation, where the penalty is not specified, the employer will be penalized with a fine between 2 to 2 lakh rupees.

-  Civil courts barred from hearing matters under the code

Generally, salary and wages are revised from the financial year and hence every industry have to undertake restructuring, so as to be 100% compliant. However, there is going to be either negative impact on morale of the employee, since their take home salary may get reduced even though saving will increase. Otherwise, cost to the company will have to be higher, so as to meet existing take home salary.

Comparative CTC of Existing Salary and New Salary Structure without any increase in salary will be as follows:

For the Employee not covered under ESIC

Existing CTC
Maximum Onsite Productivity Incentive
PF- Employer Contribution
Employees Contribution
Profession Tax
Take Home Salary
New CTC Structure
Maximum Onsite Productivity Incentive
PF- Employer Contribution
Employees Contribution
Profession Tax
Take Home Salary

For the Employee covered under ESIC

 Existing CTC Structure
Maximum Onsite Productivity Incentive
PF- Employer Contribution
ESIC- Employer Contribution
Total CTC
PF- Employee Contribution
ESIC- Employee Contribution
Take Home
 New CTC Structure
Maximum Onsite Productivity Incentive
PF- Employer Contribution
ESIC- Employer Contribution
Total CTC
PF- Employee Contribution
ESIC- Employee Contribution
Take Home
To conclude, every establishment had to re-work and restructure the existing salary, since this is effective from 1 st April 2021 and there will be a major impact. Similarly, the compliance what needs to be changed, needs to be studied and also proper training programs to be conducted so as to ensure 100% statutory compliances.

* Wage code deferred, your salary structure isn't changing just yet as per the news of Economic Times.


The government has deferred implementation of labour codes beyond April 1, 2021 citing delay on the part of States to finalise Rules. The move is expected to give more time and bandwidth to companies to retweak their salary structures and other human resource (HR) policies as certain provisions of the Code would have led to increase in employee cost for the companies.

A senior labour ministry official confirmed to ET that implementation of labour codes has been deferred for some time. "Implementation of labour codes looks unlikely from April 1, 2021. The government wants at least some industrial states to notify rules across four labour codes along with the Centre to avoid any legal void," the official said.

The labour ministry is ready with the rules on four codes and will notify them once some states are ready with rules in their domain. So far, only Jammu and Kashmir has notified Rules for the codes while states of Uttar Pradesh, Bihar, Uttarakhand and Madhya Pradesh have put up draft Rules for two Codes while Karnataka has put it up for one Code._

The delay in implementation of labour codes is a breather for India Inc as resurgence of Covid-19 cases in major industrial states have raised apprehensions that economic recovery seen so far could be stalled or even reversed if the cases continue to go up. Suchita Dutta, executive director of the Indian Staffing Federation said people are living in some bit of ambiguity till there is clarity though preparation is on. "Companies had started preparing for changes based on the provisions of the Codes and the draft rules, including the budgeting of wages and gratuity" Dutta said._

Experts feel the Centre should have handheld states in firming up their Rules. "Preparatory work for implementation of all labour codes has been as shoddy as the Codes themselves. The central government should have taken abundant measures of guidance to the state governments and also send signals to employers and trade unions that they are serious about implementation of the four codes," KR Shyam Sundar, labour expert and professor at XLRI said._


However, it is advisable to get prepared so that after introduction of labourcode, no further restructuring will be needed.

[The author is Founder Bizsolindia Services Pvt. Ltd. (Pune) and the views expressed are strictly personal.]