Corporate India flags concerns over high employee costs under Labour Codes

Indian industry representatives have flagged concerns about the new Labour Codes notified by the Centre, stressing particularly on a definitional confusion over wages and gratuity which they warned could significantly raise employee costs for companies. 

These issues were brought to the notice of the Union Ministry of Labour and Employment on Wednesday at a meeting chaired by Labour Secretary Vandana Gurnani with representatives of industry bodies. 

“There is confusion regarding the definition of wages and how the 50 per cent wage out of total remuneration will be calculated. Companies need clarity on this,” said a person aware of the developments said. “Moreover, gratuity has been reduced to one year for fixed term employees. Both issues will impose additional financial burden on companies,” the person added. 

“The industry bodies have been asked to quantify the anticipated financial burden. There is likely to be more rounds of discussions on the matter,” the person said. The meeting was part of the labour ministry’s efforts to get feedback from stakeholders before releasing the draft rules for the new labour codes for public consultation. 

Under the Code on Wages, fixed term employees are now eligible for payment of gratuity if they serve for a minimum period of one year. 

Earlier, there was no fixed ratio of wages and allowances and companies used to depress wages opting for higher allowances to reduce social security deposits for employees. 

Under the new Codes, wages now include basic pay, dearness allowance, and retaining allowance. 

If the share of allowances including house rent allowance, conveyance allowance among others exceed 50 per cent of total remuneration, the labour code now mandates that the excess amount of 50 per cent will be added to the wage. This is done to ensure that at least 50 per cent of the remuneration is counted as 'wages', and helps increase social security contributions for workers. 

In an interview with Business Standard last month, labour secretary Gurnani had said that the intention is to discourage the tendency to depress the wage and increase allowances. “It (the labour code provision) will increase the contribution to gratuity, which is something the employer has to give. It will increase the maternity benefit, which is linked to the wage and is, again, the employer’s responsibility,” she added. 

The meeting on Wednesday was attended by industry representatives from the Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce & Industry (FICCI), Associated Chambers of Commerce and Industry of India (Assocham) and Federation of Indian Micro and Small & Medium Enterprises (FISME), among others.