Mr R. Jayaprakash, an experienced advocate specializing in labour law, delivers an in-depth analysis of India’s newly implemented Occupational Safety and Health Code, explaining its transformative impact on workplace regulations. This was part of a special session on the New Labour Codes.
I want to begin by clarifying something important. While I appreciate the introduction, I’m not a senior advocate—that’s a designation given by the high court to advocates who no longer meet clients directly. Ravindran was a senior advocate. You can perhaps call me an experienced advocate, but certainly not a senior advocate. Thank you for the title nonetheless.
We all know why these codes have come into place. There was a recommendation by the second labour commission, and it took approximately 20 years to come into operation. Every code subsumed multiple existing laws. The Industrial Relations code subsumed the Industrial Disputes Act, Trade Union Act, and Standing Orders Act. This Occupational Safety and Health code subsumes about 13 major labour laws.
Previously, every act had its own definition. Even the definition of wages differed from one act to another. Very rarely would one act adopt the definition of wages from another. Now this eliminates the redundancy in definitions, maintenance of forms, and submission of returns. Standardized definitions have come in, which means when you move from one sector to another, you need not worry about the laws applicable to that sector. If you know this code, you can easily port yourself to another sector and advise your employer well.
Key Legislative Changes and Coverage
These are the 13 laws being consolidated—600 sections and 143 clauses have been streamlined. For your reference, the Factories Act, Plantation Act, and Contract Labour Act may have particular relevance. The coverage under the Factories Act has expanded: previously it was 10 workers with power or 20 without power; now it has become 20 with power and 40 without power. It covers other sectors including mines and plantations.
The definition of worker now includes migrant workers and applies not only to the private sector but also to government departments where we see many people engaged on a contract basis. Since labour law is in the concurrent list, you’ll have both central and state legislation. Even in central legislation, you’ll have central rules and state rules. Factory sectors will have state rules—that’s what we’ve been having so far and we’ll continue to have.
Understanding Worker and Employee Definitions
Previously under the Factories Act, everybody was a worker except directors, because the definition stated “person employed including contractors in any manufacturing process or in the process incidental thereto or connected with.” Almost everybody became a worker, and provisions had to be applied accordingly.
Now there’s a different definition, almost akin to the Industrial Disputes Act definition. But there’s one more definition called employee. The definition of worker assumes importance in the OSH code, but for uniformity, we also have the definition of employee which includes managerial, administrative, and supervisory staff. However, the more relevant section is worker, not employee, for the purpose of the OSH code.
The Contract Labour Revolution
The contractor is defined, and contract labour is also defined. One interesting development is the inclusion of migrant workers and employees employed by contractors. Some contractors now have 60,000 employees compared to 600 employees in a particular company. If contractors have employees to manage their own affairs within their establishment, they don’t become contract labour, provided they have appointment orders and periodical increases.
Now contract labour law applies if you engage more than 50 contract laborers. Previously it was 20, now it’s 50. Here’s the critical change: engagement of contract labour in core activities is prohibited. So far you’ve enjoyed immunity even though there was a provision under the contract labour act to prohibit employment of contract labour. Strictly speaking, there was no prohibition until now. You could engage contract labour in any area and any activity if you wanted.
Defining Core and Non-Core Activities
The code defines core activity as any activity for which the establishment is set up, including any activity which is essential and necessary thereto. Every rule has an exception, and this also has some exceptions:
If the normal functioning of the establishment is ordinarily done through a contract—for example, if you have one department completely operating with contract labour, then perhaps you may take a stand that this has been normally handled by the contractor.
Activities that do not require full-time workers for the major portion of working hours in a day can use contract labour. For example, forklift operators within the shop floor who take raw material and bring finished products to the warehouse may not be working full time.
Sudden increases in work orders—like we had during the pandemic when everyone wanted vaccines—allow for temporary contract labour engagement.
Non-core activities include sanitation, watch and ward, canteen, loading and unloading, running hospitals and training institutes, career services, civil and other construction, gardening, transport, and any activity of intermittent nature.
The Challenge Ahead
Most companies use contract labour not only for non-core activities but also for core activities. Now the code has come into operation. If you’re engaging them in core activities, you’ll be doing violence to the act. How are you going to deal with it? One answer is fixed-term employees. But how long are you going to keep them as fixed-term employees—one year, two years, five years? There’s no cap, so we’re certainly going to end up exploiting it. New unions are going to challenge it, and courts are going to come down heavily on us.
The Wages Definition Puzzle
Now the most interesting definition: wages. It gives two baskets. Basket A says all remunerations, whether express or implied. They also gave examples including basic, dearness allowance, and other elements. So wages means the gross minus basket B.
Basket B includes: bonus paid once a year, value of house accommodation, PF and pension contributions including interest accrued thereon, conveyance, special expenditure, house rent allowance, and overtime allowance. Effectively, if you see for employees receiving good salary, only HRA and conveyance elements will get excluded from the definition.
Let me give you an example. Let’s assume somebody is drawing basic, DA, conveyance elements, and HRA. If HRA and conveyance become 30% of the gross wages, then the entire 70%—unless otherwise covered by the exclusion found in basket B—becomes wages. So if it’s 70%, it will be taken into consideration for deciding gratuity, leave encashment, and all other cash payments.
What happens if exclusion goes beyond 50%? I don’t think you can put conveyance elements and HRA into 55% or 56%. If it goes beyond 50%, then 50% will be the basket considered for deciding wages.
The 51% Question
The question nowadays is: can we keep basket A at 51%? Why do you want to keep it at 51%? Because we’ve got so many variables—bonus, performance incentive for sales promotion employees, commissions, overtime. If you keep it exactly at 51%, then what will be the overtime allowance? If somebody works 40 hours in a week with 125 hours as overtime, you’ll have a circular error. To decide overtime, you need to decide wages; to decide wages, you need to decide overtime.
The best way is to keep basket A between 60% and 70%. I know I’ll become very unpopular if I say this, because everybody wants to have basket A only at 51%. But certainly you’re going to face a problem if you have a thousand employees. You need to look at each and every employee every month to decide what is basket A. That’s going to hurt you very badly unless you have some algorithm.
To summarize this wages issue: gross minus basket B becomes wages. It’s not 51%. If your basket B is already 70%, then 30% is wages, not 51%.
Registration and Compliance
The act provides for electronic registration. Fortunately, if the authorities don’t grant licenses within a particular period, it’s automatically deemed that the license is granted. We have such provisions in the ID Act for closures and layoffs—if the government doesn’t pass an order within 60 days, deemed closure comes into picture.
Health and Safety Obligations
You need to have annual health examinations free of cost. Unfortunately, this isn’t one or two tests but several tests. It’s going to cost you 15,000 to 20,000 rupees per employee per year. Why do we need so many tests? Once in three years or four years for a general test is all right, but why every year? Perhaps employers will be taking this up with the government.
An appointment order is mandatory now. You need to have an appointment order in the prescribed format. This appointment order is creating some confusion because it’s a statutory requirement. Maybe you’ll have to issue another appointment order, and this will help you fill in certain lacunas. For example, for overtime you need to get consent from the employee. If you issue this appointment order, you can add something to it or issue an addendum to the earlier appointment order.
Enhanced Welfare Provisions
Several thresholds have changed:
- Canteen: previously 250 workers, now 100 or more
- First aid appliances: previously 150 workers, now 10 or more
- Ambulance room: continues to be 500 or more
- Rest shelters: previously 150 workers, now mandatory for all establishments
- Welfare officer: threshold has become 250 workers
- Crèche facilities: previously 30 women workers, now 50 or more workers (not necessarily women)
One additional point about crèches: you need not maintain one if it’s available in the vicinity run by government, NGOs, or employers collectively in that area.
Working Hours and Leave
There’s a big rumor that we can engage people for 12 hours. No, nothing has changed—it’s still 8 hours. This spread cannot exceed 12 hours. Intervals should be given at least once in 5 hours. Overtime shall not exceed 125 hours in a quarter.
Annual leave eligibility has come down to 180 days, but the worker needs to earn one day for every 20 days worked. That hasn’t changed. When a worker is discharged or dismissed, you need to pay leave encashment on the second day. In case of superannuation and death, you can do it within two months.
Women in the Workplace
Special provisions regarding employment of women in establishments and factories exist. In Tamil Nadu, we didn’t have any problem because there was a blanket ban in the Factory Act that was struck down as unconstitutional. Since then, we continue to engage women in factories, with the government providing protective measures and guidelines for night shift work.
Inspectors Become Facilitators
The inspectors have become chief inspector-cum-facilitators. They’re supposed to facilitate to the extent possible before taking action. If nothing is justified despite their efforts and advice, perhaps prosecution will follow.
Understanding the Penalties
Earlier penalties were negligible. Now the punishment is much more substantial:
For minor lapses: minimum six months or maximum fine of two lakhs or both. Normally, courts don’t impose maximum penalties but give moderate ones.
For hazardous processes: this is critical because there’s no “fine or imprisonment”—it contains “fine with imprisonment.” That imprisonment could be one day or up to two years, depending on the magistrate’s discretion.
In the event of death: two years imprisonment with fine. Whatever fine is imposed, 50% will go to the victim’s family depending on the judge’s order. This is a welcome provision—there’s no point giving the money to the government. At least the victim’s family is getting it.
A Critical Warning About Compliance
Passing for a moment here, I must emphasize: whenever you get show-cause notices, be it under the Factories Act or any other enactment, be careful. Try to ensure the complaints and defects pointed out are rectified. Try to ensure things don’t escalate. If you leave things to the department, they will take the occupier and manager to court.
Previously, we used to file a special vakalatnama where we were entitled to represent people, and courts allowed it. Nowadays, courts are not allowing it. They want the occupier to be present at least four to five times, even though it can be decided in a summary manner. Courts are not accepting special vakalatnamas anymore. They insist the occupier be present in court, in whichever part of the world he is. If he doesn’t come, non-bailable warrants will be issued.
Cases will not get over in one hearing or two hearings. The occupier and manager will have to come at least four to five times. So ensure that the moment you get a notice, coordinate with the department and ensure compliance. Rectify the defects. Don’t allow the matter to go to court.
Questions and Answers
Q: How does this apply to IT/service industry employees?
A: They will fall within the category of establishment, and leave encashment will be applicable to them also.
Q: What about existing employees—do we need to issue new appointment orders?
A: It’s better to issue an appointment order. Even contractors are issuing appointment orders nowadays. Time has come for you to issue it in terms of the requirement under the Factories Act as well as contractual requirements.
Q: Does the law require restructuring for bonus purposes?
A: Law is not asking you to restructure. Companies want to restructure to save costs or minimize cash outflow. They’re trying to bring wages down to 51%. But the law continues the same—they’re only providing definitions, not asking you to restructure.
Q: What about principal employer responsibilities for contract labour?
A: You’ll have the same responsibilities. Earlier, you needed to ensure PF and ESI were paid. If contractors don’t pay, you need to pay it. Beyond that, it’s better to have proof of payment so you won’t be taken by surprise. Both PF and ESI come not only with contribution—you need to pay interest and damages, which will certainly kill you because cases will be pending for years.
Q: Is there any provision for combining annual returns?
A: Now there’s a combined return you can file. It still has many forms because there are 13 enactments, so there are many forms available under the OSH code.
Q: What happens to variable performance incentives paid annually?
A: This annual performance incentive will come into picture under the Workmen’s Compensation Act. They’ll take 12 months’ earnings and divide by 12 to arrive at the salary for calculation purposes. This is going to hurt you on that aspect. For other aspects, what’s paid monthly should be considered as wages, but ultimately courts will have to clarify this.
