The Ministry of Labour and Employment has taken a significant step towards implementing the new labour codes by pre-publishing the draft central rules. Released on Wednesday, these draft regulations are now open for public consultation, inviting stakeholders to submit their objections and suggestions within a 45-day window. For the draft Industrial Relations Rules, the consultation period is shorter at 30 days.
Transition Period and Uniform Wage Definition
During this transition phase, the government has clarified that existing rules will continue to apply until the new rules are formally notified, provided they are consistent with the provisions of the new Labour Codes. This is in line with Section 6 of the General Clauses Act, 1897.
A pivotal change introduced is a uniform definition of "wages" that will apply across all four Labour Codes. This definition includes basic pay, dearness allowance, and retaining allowance. Crucially, it introduces a 50 percent cap on allowances. Any allowances paid to an employee, excluding gratuity and retrenchment compensation, that exceed 50 percent of the total remuneration will be added back to the wages for statutory calculations like provident fund and gratuity. Performance-linked incentives, ESOPs, and reimbursements are not part of wages.
Clarity on Gratuity and Working Conditions
Puneet Gupta, Partner, People Advisory Services-Tax at EY India, highlighted that the draft rules provide much-needed operational clarity. "For instance, the Code on Social Security Rules specify that gratuity will be calculated on 'wages' last drawn, excluding components such as annual performance-linked pay, medical reimbursements, stock options, and meal vouchers. This clarification will help organizations estimate their gratuity liability more effectively," he stated.
The Occupational Safety, Health and Working Conditions (OSH&WC) Rules bring in important provisions for employee welfare. Workers will now be entitled to double wages for any work exceeding 48 hours in a week. Furthermore, employers must ensure substituted rest days, ensuring no employee works for more than ten consecutive days. These rules aim to balance productivity with employee well-being.
Other Notable Provisions and FAQs
Gupta also pointed out several other key provisions in the draft rules:
- Annual medical check-ups for employees above 40 years in sectors like factories, docks, mines, and construction.
- A creche allowance of at least Rs 500 per child per month where creche facilities are not provided by the employer.
- Journey allowances for inter-state migrant workers to travel from their native place to the place of employment once a year.
Alongside the draft rules, the Ministry has published a list of Frequently Asked Questions (FAQs) to aid understanding. The FAQs clarify that the new gratuity provisions will be applicable prospectively from November 21, 2025, the date of enforcement of the Code. They also provide an illustrative example of the 50% allowance rule and confirm that the definition of wages applies uniformly across all four codes for statutory calculations.
The government's move to seek public feedback underscores a consultative approach to finalising these comprehensive labour reforms, which are set to significantly impact how wages, social security, and working conditions are governed in India's organised sector.
