BPSC Mains Notes BPSC CONCEPT WALLAH
Introduction & Context
The Government of India has consolidated 29 central labor laws into four streamlined codes: the Code on
Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational
Safety, Health and Working Conditions Code (2020).
This reform aims to modernize a century-old legislative framework to align it with current economic realities,
technological advancements, and the goal of Aatmanirbhar India.
Recent data shows a net addition of 16.83 crore jobs between 2017-18 and 2023-24, with unemployment
declining from 6.0% to 3.2%.
Historical Evolution of Labour Laws in India
1. Colonial Legacy
• Labour laws in India originated during British rule primarily to serve colonial economic interests. The
objective was not labour welfare but regulation of Indian industries to protect British manufacturers
from competition.
• Legislations like the Factories Act, 1884 were introduced when Indian textile products began competing
with British goods. Thus, early labour regulation was shaped by imperial trade strategy rather than
social justice.
• However, these laws laid the initial institutional framework for factory inspection, working hours
regulation and minimal safety standards, which later evolved into comprehensive labour protections.
2. Constitutional and Ideological Foundation (Post-1947)
• After Independence, labour policy was deeply influenced by constitutional values such as justice,
equality and dignity. The Constituent Assembly debates emphasized building a welfare state committed
to protecting workers.
• The Directive Principles of State Policy provided moral and policy direction for labour welfare, social
security and equitable distribution of income. Labour rights were seen as essential for social
transformation.
• International Labour Organization (ILO) conventions also shaped Indian labour standards, aligning
domestic laws with global norms on workers’ rights and protections.
3. Nation-Building and State-Led Industrialisation (1947–1991)
• In the planned economic era, labour laws were designed to ensure industrial peace and stability. The
State played a dominant regulatory role to balance capital and labour interests.
• Trade unions were encouraged as instruments of collective bargaining and social dialogue. Labour
cooperation was considered essential for achieving rapid industrialisation.
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• Numerous laws were enacted covering minimum wages, bonus, gratuity, industrial disputes,
occupational safety and social security. The focus was on job security and worker protection in the
organized sector.
4. Liberalisation and Reform Dimension (Post-1991)
• Economic reforms of 1991 introduced a shift from protectionism to market-oriented policies. Labour
laws were criticised for being rigid and discouraging investment and competitiveness.
• There was growing demand for flexibility in hiring, retrenchment and use of contract labour. The
emphasis shifted towards improving ease of doing business and attracting private investment.
• This culminated in consolidation of 29 central labour laws into four Labour Codes, aiming at
simplification, rationalisation and balancing flexibility with worker protection.
Constitutional & Institutional Framework
1. Labour in Concurrent List
• Under the Constitution, labour is placed in the Concurrent List. This means both the Central and State
Governments can enact labour laws.
• This ensures uniform national standards while allowing states to adapt laws according to local
conditions and industrial needs.
2. Key Constitutional Provisions
• Article 19(1)(c) guarantees the right to form associations or trade unions. This strengthens collective
bargaining and protects workers’ organisational rights.
• Article 23 prohibits forced labour, including bonded labour. It reflects the constitutional commitment to
human dignity and freedom.
• Article 24 prohibits employment of children below 14 years in hazardous occupations. It aims to
protect children from exploitation and unsafe work conditions.
• Article 38 directs the State to promote welfare and reduce inequalities in income and status. It provides
the broader social justice foundation for labour legislation.
• Article 43A provides for workers’ participation in management of industries. It promotes industrial
democracy and cooperative labour relations.
Why Was There a Need to Reform and Codify India’s Labour Laws?
1. Complexity and Multiplicity of Laws
• India had more than 40 central and over 100 state labour laws, enacted at different times in a
piecemeal manner. This created confusion, overlap, contradictions and outdated provisions.
• There were separate laws for wages, safety, industrial relations and social security, each with different
definitions of terms like “worker”, “wages” and “establishment”, leading to legal disputes and varied
interpretations. For example, the minimum wage system had around 1,900+ different wage rates across
states and job categories, making compliance extremely complicated.
2. High Compliance Burden and Poor Ease of Doing Business
• Entrepreneurs had to obtain multiple registrations and licences and file numerous labour returns,
increasing administrative burden and transaction costs.
• Low threshold limits (e.g., laws applying to establishments with 10 or more workers) discouraged firms
from expanding, as they tried to remain small to avoid regulation.
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• This “dwarfism” hindered formal sector growth and negatively impacted India’s Ease of Doing Business
rankings.
3. Weak Enforcement Mechanism
• Despite strict laws, enforcement remained poor due to delays in dispute resolution, delayed publication
of awards and weak implementation.
• CAG audits highlighted routine delays in referring disputes and disposal of cases, reducing the
credibility of the system.
• Around one-third of wage workers were reportedly not protected by minimum wage laws due to faulty
enforcement.
4. Constrained Growth and Lack of Exit Flexibility
• The Industrial Disputes Act required firms employing 100+ workers to seek prior government
permission for layoffs or closure. This created exit barriers and reduced business flexibility.
• Firms were unable to adjust workforce according to market conditions, discouraging large-scale
manufacturing growth.
5. Promotion of Capital-Intensive Production
• Rigid labour regulations made labour-intensive production less attractive, even though India has
abundant labour.
• Firms shifted towards capital-intensive methods to avoid labour-related compliance risks, reducing job
creation in sectors where India had comparative advantage.
6. Rise of Contractualisation and Informality
• To avoid strict labour laws, firms increasingly relied on contract labour. The share of contract workers in
factories significantly increased over time.
• Contract workers often faced lower wages, poor social security coverage and precarious working
conditions compared to permanent workers.
7. Fragmented Trade Union Structure
• A large number of trade unions within single establishments made collective bargaining difficult.
• Lack of formal recognition and multiplicity of unions weakened effective negotiation and industrial
harmony.
8. Limited Coverage and Social Vulnerability
• Labour laws largely covered only the organised sector, which accounts for about 7% of the workforce.
• The remaining 93% in informal sector — including migrant workers, gig workers and domestic workers
— remained largely unprotected and vulnerable to poverty shocks.
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Overview of the 4 Labour Codes
The four Labour Codes aim to simplify and rationalise labour laws, reduce compliance burden, promote
formalisation and balance worker protection with industrial growth and ease of doing business.
1. Code on Wages, 2019
• The Code on Wages amalgamates four wage-related
laws and provides a uniform definition of “wage”,
“employee” and “minimum wage”. Unlike earlier laws
limited to scheduled employments, it extends minimum
wage protection to all employees across sectors.
• It introduces a National Floor Wage, below which states
cannot fix minimum wages. Wage now includes basic
pay, dearness allowance and retaining allowance,
forming the base for social security contributions.
• Deductions cannot exceed 50% of total wages, and
overtime must be paid at twice the normal rate.
Working hours are capped at 48 hours per week, with
daily limits subject to prescribed flexibility.
• Strict timelines are prescribed for wage payments
based on payment cycle, and mandatory issuance of wage slips (electronic or physical) ensures
transparency and documentary proof of employment.
2. Code on Social Security, 2020
• This Code merges nine social security laws and extends coverage to both organised and unorganised
sectors. It legally recognises gig and platform workers for the first time.
• It provides for national registration and creation of a social security fund for unorganised and gig
workers, funded by governments and aggregator contributions (1–2% of turnover, subject to cap).
• Fixed-Term Employees (FTEs) are placed at par with permanent workers in terms of wages and
benefits. Gratuity eligibility is reduced to one year, promoting formalisation.
• EPFO coverage applies to establishments with 20 or more workers, and ESIC coverage is expanded pan-
India, including mandatory cover for hazardous occupations even if only one worker is employed.
• Introduction of “inspector-cum-facilitator” and web-based inspection mechanisms aims at
transparency and ease of compliance.
3. Industrial Relations Code, 2020
• This Code consolidates three industrial laws and provides a comprehensive definition of “worker”,
including supervisory employees earning below ₹18,000 per month.
• It formalises Fixed-Term Employment, allowing seasonal hiring with equal benefits to permanent
workers. However, trade unions have raised concerns over job security.
• The threshold for prior government approval for layoff, retrenchment and closure is increased from
100 to 300 workers, giving greater flexibility to industries.
• The Code mandates 60-day notice before strikes in all industrial establishments and expands the
definition of strike to include mass casual leave, aiming to prevent sudden disruptions.
• It introduces the concept of a “negotiating union” (51% membership) or negotiating council,
streamlining collective bargaining but potentially limiting smaller unions.
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4. Occupational Safety, Health and Working Conditions (OSH) Code, 2020
• This Code merges 13 central labour laws and simplifies compliance through single registration,
common licences and electronic filings.
• The threshold for factory licence is increased (20 workers with power, 40 without power), reducing
regulatory burden on small establishments.
• Contract labour norms now apply to contractors employing 50 or more workers, and employers are
allowed flexibility in core activities subject to conditions.
• Women are permitted to work night shifts with consent and safety provisions, promoting gender
inclusion in workforce participation.
• Inter-state migrant worker definition is expanded to include those directly employed by employers,
ensuring broader protection.
• Mandatory appointment letters, annual free health check-ups and safety committees in large
establishments strengthen worker welfare and accountability.
Impact on Different Worker Categories
1. Gig & Platform Workers
• Legally recognised for the first time, bringing them within formal labour
framework. Aggregators must contribute 1–2% of turnover to a welfare fund
for their social security.
• Commuting accidents treated as employment-related, and Aadhaar-linked
UAN ensures portability of benefits across states.
2. Contractual Workers
• Principal employer made responsible for ensuring health and social security
benefits. This reduces evasion through outsourcing arrangements.
• Entitled to annual free health check-ups and regulated working conditions.
3. Women Workers
• Equal pay and prohibition of gender discrimination reaffirmed under the
Codes.
• Night work permitted with consent and safety safeguards, improving
participation.
• Up to 26 weeks maternity leave, crèche facilities and medical bonus provided.
4. Migrant Workers
• Equal wages and welfare benefits ensured for inter-state migrant workers.
• PDS portability and right to claim pending dues up to three years strengthen protection.
5. Sector-Specific Benefits
• MSME workers guaranteed minimum wage and double overtime pay with basic facilities.
• Plantation, beedi, and other sector workers brought under regulated working hours, ESIC coverage and
safety standards.
• Mandatory appointment letters and social security coverage extended to emerging sectors like audio-
visual and digital media.
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Impact on Economy & Formalisation
• Ease of Doing Business: Introduces "One Registration, One License, One Return", replacing the previous
requirement for eight registrations and four licenses.
• Modern Inspection: Replaces the traditional "Inspector" with an "Inspector-cum-Facilitator" using
randomized, web-based, algorithm-driven tools to reduce harassment.
• Decriminalization: Replaces imprisonment for many first-time offenses with civil penalties and
introduces compounding of offenses (paying 50–75% of the max fine to avoid litigation).
Criticism & Concerns
1. Concerns over Minimum Wage
• The national floor wage fixed at ₹178 per day has been criticised as too low. It is far below expert
committee recommendations and the “fair wage” benchmarks suggested by other bodies.
• There is fear of a “race to the bottom”, where states may keep wages low to attract investment. This
competitive federalism could suppress wage growth across the country.
2. Wide Jurisdiction of Central Government
• The Codes allow the central government to remain the “appropriate government” for certain PSUs
even if its shareholding falls below majority.
• Critics argue this creates ambiguity and unnecessary central control even where ownership is limited.
3. Over-Delegation of Legislative Powers
• Many crucial aspects are left to government rule-making rather than clearly specified in the law. These
include thresholds for layoffs, social security coverage and safety standards.
• Excessive delegation may weaken parliamentary scrutiny and allow frequent executive changes
without legislative debate.
4. Broad Exemption Powers
• Governments are empowered to exempt new establishments or classes of establishments from
provisions in “public interest”.
• Such wide discretion may dilute protections related to working hours, safety, retrenchment and
collective bargaining.
5. Increased Threshold for Layoffs and Closure
• The threshold for prior approval for layoffs and retrenchment has been raised from 100 to 300
workers.
• Trade unions argue this makes hiring and firing easier and weakens job security for workers in larger
establishments.
6. Overlapping Definitions
• Definitions of gig workers, platform workers and unorganised workers overlap in the Social Security
Code.
• This may create confusion regarding eligibility and applicability of social security schemes for different
categories.
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7. Limited Universal Coverage
• While the Industrial Relations Code applies broadly, Social Security and OSH Codes still apply based on
establishment size.
• Critics argue that basic protections like wages, safety and social security should apply universally,
regardless of size.
8. Emerging Digital Work Challenges
• The Codes attempt to address gig and platform work, but clarity on implementation remains limited.
• It is uncertain how effectively they will regulate rapidly evolving digital and crowd-work models.
Way Forward
1. Separate Law for Small Units (NCL, 2002)
• The National Commission on Labour recommended a distinct law for small-scale units employing less
than 20 workers.
• This would allow simplified compliance with basic worker protections, reducing burden while
preventing exclusion of small establishments.
2. Universal Social Security Framework (Standing Committee, 2020)
• The Standing Committee on Labour suggested that the Social Security Code should aim at universal
coverage.
• Expanding coverage of establishments, categories of workers and types of benefits would ensure
broader social protection, especially for informal and vulnerable workers.
3. Integrated Dispute Resolution Mechanism (NCL, 2002)
• NCL proposed an integrated system of Labour Courts, Lok Adalats and Labour Relations Commissions
(LRCs).
• LRCs could function as appellate bodies, ensuring faster, specialised and uniform resolution of labour
disputes.
4. Regulation of Fixed-Term and Ad-Hoc Contracts (ILO, 2016)
• The ILO recommended restricting the proportion and duration of fixed-term and ad-hoc contract
workers in the total workforce.
• Such limits would prevent over-exploitation and ensure that flexibility does not weaken long-term job
security.
5. Enabling Unionisation in Unorganised Sector (NCL, 2002)
• NCL suggested allowing workers in the unorganised sector to form and register trade unions, even
where formal employer-employee relationships are unclear.
• This would strengthen collective bargaining power and representation of informal workers.
Conclusion
The new Labour Codes mark an important milestone in India’s labour reform journey by attempting to simplify
and modernise a complex legal framework. However, true reform must go beyond consolidation and ensure
wider coverage, stronger institutions and meaningful protection for vulnerable workers. Incorporating expert
recommendations on universal social security, dispute resolution and regulation of precarious employment
could have strengthened the framework further. Ultimately, sustainable economic growth and social justice
can only move together, not in isolation.
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BPSC Mains Notes BPSC CONCEPT WALLAH
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