Labour Code 2020

By: Jhalak Dhandhania

Labour laws in India are a complex and concurrent subject. Both the central and state governments can design and pass laws on it, due to which more than 40 labour laws have existed in the country. This involvement of multiple authoritative organisations results in the creation of confusing and overlapping laws. Recently, the Second National Commission on Labour (2002) had identified this limitation in our lawmaking. Therefore, on their recommendations, the Central Government proposed to switch 29 existing Labour Laws with four Codes to simplify and modernize labour regulations. The Labour Codes, which were passed in both the Houses of the Parliament and received Presidential Assent on 23 September 2020 are as follows:  

  1. Code on Wages, 2019

  2. Industrial Relations Code, 2020

  3. Code on Social Security, 2020

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


These laws would bring ease of compliance, accountability and transparency as well as reduce complexity, which would benefit both the employers and the workers.





Code on Wages, 2019

Code on wages was the first milestone in the labour market reforms, which consolidates four existing laws:–

  1. Minimum Wages Act, 1948

  2. Payment of Wages Act, 1936

  3. Payment of Bonus Act, 1965

  4. Equal Remuneration Act, 1976.


The code aims to regulate wages and bonus payments. It intends to have a ‘uniform’ definition of wages across all legislations to minimise litigation. This code applies to all the employees in both organised and unorganised sectors. Under this code, the central Government will set the national floor rate for wages after considering the minimum living standards of workers varying across geographical areas. It also mentions that there would be a review of minimum wages at intervals of five years.      


                  Further, the number of working hours shall be fixed as well. The wage rate for overtime work will not be less than twice the rate for regular wages. The code has also widened the earlier provision of no discrimination on the basis of  “Men” and “women”. The earlier Act did not provide any specific timelines for resignation cases. But under the new reform, if an employee is removed, dismissed, retrenched, resigns, or becomes unemployed due to the closure of an establishment, the wages are required to be paid within two working days. As per the code, an employee can receive a minimum bonus of 8.33 per cent and a maximum bonus of 20 per cent. In order to remove the arbitrariness and malpractices, the code provides the appropriate Government the authority to appoint Inspectors-cum-Facilitators, to carry out inspections. The Code also specifies penalties for offences committed by an employer.


Industrial Relations Code, 2020

This code is the most important and reformist of all the regulations. It is touted as one that would energise the industry and spur economic activity.

This code combines three major laws:-

  1. The Trade Unions Act, 1926

  2. The Industrial Employment (Standing Orders) Act, 1946

  3. The Industrial Disputes Act, 1947.


This code aims to consolidate and amend the laws relating to Trade Unions, employment conditions in the industrial establishment or undertaking investigation, and settlement of industrial disputes. It takes away the tendency of multiple educatory forums, particularly in labour law disputes. Earlier, a worker had to go through a very long process to apply for dispute but now, with the recent changes, a worker can easily apply to the Industrial Tribunal for adjudication of the dispute. Another significant change is that now women can work at any hour, provided they give their consents and are given the necessary protection. Also, no job is now considered hazardous for women. Labour laws now have been extended to include casual workers, migrant workers, gig workers etc. The Code says any establishment that employs 300 or more workers must prepare standing orders relating to workers' classification, inform workers about work hours, holidays, paydays employment termination, and grievance redressal mechanisms for workers. The Code also prohibits strikes and lock-outs in all industrial establishments without notice. Factory workers will have to provide a notice at least 14 days prior to the to employers if they want to go on strike. This notice shall be valid for 60 days.

The code also states that if an establishment has more than one trade union, it will be given the status of Sole Negotiating Unit only when 51 per cent of its employees are its members. Another significant change is that the provisions require the Government's prior permission for lay-off, retrenchment by establishments that have 300 or more workers on an average per working day in the preceding 12 months. Earlier, this was applied to units with 100 employees or more in the 2019 Bill. Thus, this code seems to be adding ease of doing business because it no longer discourages people from imagining a larger scale of business.


Code on Social Security, 2020

The Code on Social Security, 2020 merges and rationalizes the provisions of the following nine Central labour laws:-

  1. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

  2. Payment of Gratuity Act, 1972

  3. Employees’ Compensation Act, 1923

  4. Maternity Benefit Act, 1961

  5. Employees’ State Insurance Act, 1948

  6. Workers Cess Act, 1996

  7. Cine Workers Welfare Fund Act, 1981

  8. Building and Other Construction and Unorganised Workers’ Social Security Act, 2008

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


The code aims to increase social insurance to all employees and workers either within the organised or unorganised or any other sectors. It states that the Government would formulate and notify suitable welfare schemes related to provident funds, employment injury benefits, housing, educational schemes for youngsters from time to time. The code also expands the definition of “employees” to include and administer plans for the welfare of inter-state migrant workers, gig workers, platform workers, film industry workers, etc. It has also reduced the working journalist’s gratuity period from five to three years. The central Government may defer or reduce the employer’s or employee’s contributions (under Provident Fund and Employees State Insurance) for a period of up to three months in the case of a pandemic, endemic, or national disaster. Thus, this code facilitates the proper implementation of labour laws and reduction in the diversity of definitions. It also streamlines the number of authorities under various laws and ensures that worker’s basic concepts of welfare and benefits are preserved. 


Occupational Safety, Health and Working Conditions Code, 2020

This code replaces thirteen existing laws which were related to safety, health, and working conditions of labour such as:-

  1. The Factories Act, 1948

  2. The Mines Act, 1952

  3. The Dock Workers (Safety, Health, and Welfare) Act, 1986

  4. The Contract Labour (Regulation and Abolition) Act, 1970, etc.


The code aims to consolidate and amend the laws regulating the occupational safety, health, and working conditions of the persons employed in an establishment. It has expanded the definition of  “factory”. Now a premises where 20 employees work for a process with power and 40 employees work for a process without power will come under the definition of a factory. The Code will apply to all the establishments where any hazardous activity is carried out regardless of the number of workers. No worker in any establishment will work for more than 8 hours a day and 6 days a week. In the case of overtime, the employee is entitled to overtime compensation, which is at least twice the regular wages. Women can now work in any establishment, and it is the employer’s responsibility to provide an adequate safeguard. All the establishments must provide washrooms, bathing places, and locker rooms for male, female, and transgender employees. Under this code, the inter-state migrant workers are entitled to certain benefits. The Central and State Governments will have to maintain the inter-state migrant workers’ details in a portal. Thus, the measures brought in by the Government in the OSHWC Code are a big step towards simplifying India’s complex regulatory framework.


Any law or regulation enacted within the past must be revisited and updated in accordance with society’s requirements and changing times. The new labour laws strike a good balance. It has simplified things to a large extent by combining a large number of contradicting laws into four codes. Now, it would be interesting to see how the Government will implement these four codes. If the employers change their policies according to these codes,  it will benefit many workers in unorganized sectors and, most importantly, help in employment generation.

Thus, the Government has to ensure that these laws are implemented with honesty and integrity. This can be a step towards our country achieving the desired goal of speeding up economic growth and unleashing the untapped potential of thousands of our industries, businesses and entrepreneurs, to take the nation to new heights.