Labour Law Reforms in India 2020

Labour Law Reforms in India 2020

India’s aim of becoming a “5 trillion economy” is possible through its workforce. We have a large number of citizens working in the formal as well as the informal sector. These labourers have been an integral part of our country. When it comes to this workforce, their rights and protection have been a major concern for the government. To protect the rights and ensure the wellbeing of the labours working in the formal sector, we have a series of labour laws enacted. 

To achieve the above-mentioned aim, the labour force must be optimally utilised. Therefore, the Lok Sabha amended labour laws to ensure various protections to the workers who were long overdue.

What are Labour Laws?

Labour laws (also known as employment laws) conciliate a relationship between workers, the employer, the trade union, and the government. Two types of laws fall under this category. Collective law is in the context of the trilateral relationship between the employee, the employer, and the trade union. Individual laws protect the rights of the employee at his workplace through a signed contract.

Now that you know what labour law is, let us move forward and understand the recent amendments that took place in our country for the same. 

Labour Law Reforms in India 2019

In 2019, the Lok Sabha passed the code on wages act, which subsumed the minimum wages act, payment of wages act, equal remuneration act, and payment of bonus act. The code also changed the definitions of terms such as employer to include manager, supervisors, and administrative persons.

Minimum Wages

The central government has decided to come up with the national floor rates taking into notice the minimum living standards of the workers varying across the geographical area. Where the existing minimum wages are higher than the floor rate/base rate, it will continue the same way. All the state governments will be asked to fix minimum wages for their respective states, which shall not be less than the national floor rate. The code on wages also provides for the review/revision of the wages every 5 years. Further, the rate of wages for overtime workers(more than 8 hours) shall not be less than twice the rate of normal wages.

Labour Law Reforms in India 2020

The new labour code, which combined 28% of labour laws, is a welcome change that has been introduced after many years of independence. The amended laws are the industrial code, Social security code, and Occupational safety health & working conditions code.

Industrial Relations Code 2020

The bill was introduced in September 2019 and passed as a law on 28th September 2020.

It is an act to conciliate various stakeholders involved in an industry, such as the employer, the employee, and the trade union.

Provisions before the amendment Provisions after the amendment
The minimum number of employees needed to term a manufacturing unit as the factory was 10(with electricity) and 20(without electricity)
This threshold has been increased to 20 and 40 respectively under IR code 2020
Any organisation had to get approval by the respective government before the retrenchment if it had employed 100 workers.
This number has been increased to 300.
In the subject of industrial disputes act, workers of the only industry in the category of public utility services were asked to notify before a strike.
The IR code 2020 mandates that the workers under any industrial establishment are required to give notice of a minimum of 14 days and a maximum of 60 days before going to strike.

Social Security Bill 2020

The basic goal of the social security bill is to provide social security to the workers working in organised as well as the unorganised sector.

What was? What is?
ESIC (employees state insurance corporation) was given in 566 districts only
ESIC has been extended to 740districts.
EPFO’S inclusive benefits were given to organisations mentioned in the schedule
This has been extended to all establishments having 20 workers


Under the code on wages act, while the definition of “wages” is widely similar to the EPF act, a new concept of deemed wages has been introduced. It means that if an employee receives more than 50% of the total remuneration in the form of allowances (such as bonuses, conveyance allowance, house rent allowances, etc.) and other amounts that are not included in the definition of wages, then the access amount is deemed fit to be wages for the contribution to the EPF. 

This is so that neither the employer nor the employee can make a relatively smaller contribution to the EPF. However, if an establishment has less than 20 workers and opts for EPF voluntarily, this rate is reduced to 10%. Out of 12% or 10% of employer’s contribution, 8.33% is deposited in Employee’s Pension scheme subject to a maximum of 8.33% of INR 15,000 (i.e., INR 1,250 per month.)

Therefore, if the basic pay of any employee is less than 15000, then 8.33% of his salary shall be contributed to the Pension scheme. However, for employees with a salary of INR 15,000 or more, INR 1,250 per month shall be contributed to a pension account. The Balance amount is retained in the EPF account of the employee. 

Who Can Opt-out?

An employee who has a basic salary of over Rs 15,000 and who has never been a member of EPF can opt-out of another scheme. But once they become a member, they cannot opt-out of the scheme.

Frequency of Filing for PF

Further, let’s talk about the frequencies of filing the PF; the due date of the PF return is as it is of the payment date. It is always the 15th of the following month. When it comes to the PF annual return due date, it is 25th April of the following year.


Employees state insurance corporations maintain the social security scheme. The ESI fund is applicable to the employees who earn Rs. 21,000 or less than that in a month. 

An accumulative monthly contribution of 1.75% of the employee’s salary and 4.75% from the employer’s side gets deducted from CTC (Cost to Company) and is added to the ESI fund. 

Who Can Opt-out?

An employee can opt-out of the ESI when he joins a company where ESIC is not applicable or when he crosses the ceiling of coverage limit of esic that is 21,000 per month. An employer, once covered, is always covered unless the factory or establishment is closed.

ESIC Due Dates

  1. The due date for ESI is again the 15th of the following month. However, it can be exceeded/changed according to the rules of various departments. (In this context, ESI is similar to the Provident Funds.)
  1. The employer needs to pay ESI return on a half-yearly basis, and the due dates are also fixed as follows:
Period of return Due date of filing of return
April- september
11th november
11th may


Gratuity is an aid given to a worker for his or her services contributed to an organisation. The cap on Gratuity amount under the Payment of Gratuity Act, 1972 has been raised from time to time, keeping in view the conditions of the economy and the remuneration of the employees. The government has increased the cap on payment of gratuity to the employees of NVS from Rs 10 lakh to Rs 20 lakh. 

Further, the gratuity received by Government Employees (Other than employees of statutory corporations) is entirely excused. However, death and retirement gratuity given to the employees covered under the Gratuity Act, 1972, is Rs 20 lakh, susceptible to some conditions. 

Under the SSC, gratuity at the rate of 15 days wages or as many days decided by the central government shall be given based on the number of employee wages for every completed one year or more than six months. Also, for the first time, the workers of the unorganised sector, gig workers, and platform workers will also benefit from creating a social security fund.

Occupational Health and Safety Bill

The code aims to give healthy, safe, hygienic workplace conditions to the employees. It also includes clean drinking water and toilets on site.

  • It replaced 13 labour laws and gave one consolidated bill.
  • All the workers of an organisation are to be an employment letter to provide them with job security.
  • The employing entity is supposed to give hygienic workplace conditions to its workers.
  • The code has also safeguarded the migrant workers’ rights by ensuring that all the bill benefits are extended to them as well.
  • Women( with their consent ) have been permitted to work night shifts, and the employer is supposed to provide safe working conditions.

The new labour law reforms, although they have taken away from the power of trade unions. On the other hand, It has increased the power of an employer, and it has made it easier to employ a person who is expected to increase the employment generation in the country. The new labour code promotes amicable relations between industries to achieve greater productivity.

It also provides a systematic way for the concerned state governments to follow the norms sincerely. Together, these 3 labour codes will give a new spin to labour rights and welfare at the most basic levels in India. The way forward from here is to include the unorganised sector in the mainstream sector and provide much better regulation of their rights.