Winning Bizness Desk

Mumbai.The central government has implemented new labour codes, merging 29 existing laws into four simplified regulations. These changes, effective from Friday, aim to benefit employees by allowing gratuity after just one year of service instead of the previous five years. The tax-free limit for gratuity has been raised to 20 lakh rupees, offering greater financial security. Workers will also receive double pay for overtime and earn one day of paid leave for every 20 days worked. The reforms are expected to positively impact millions of employees across the country.

Labour Laws Simplified into Four Codes

The government had long sought to simplify complex labour regulations. Previously, 29 separate central laws governed wages, industrial relations, social security, and workplace safety. These have now been consolidated into four codes: Code on Wages, Industrial Relations, Social Security, and Occupational Safety. Though passed in 2020, rules for implementation were delayed. States will need to update their regulations to align with the new codes. According to the Labour Ministry, this simplification will make compliance easier for businesses while strengthening workers’ rights. By April 2025, over 50 crore workers nationwide will benefit from these changes.

Gratuity Benefits Enhanced and Tax-Free Limit Raised

• Employees can now claim gratuity after just one year of service.
• Tax-free gratuity limit increased from 10 lakh to 20 lakh rupees.
• Employers must pay gratuity within 30 days of termination.
• Late payment will attract 10 percent annual interest, with potential doubling of compensation.
• Applies to both private and public sector employees.

For example, an employee earning a monthly basic salary of 50,000 rupees with one year of service will receive approximately 28,800 rupees as gratuity. This change enhances financial security at retirement and makes the benefit accessible even to short-term employees.

Overtime and Leave Reforms

Overtime rules have become stricter:

• Work beyond nine hours a day or 48 hours a week will earn double pay.
• Overtime will generally be limited to emergencies like factory breakdowns.
• Employees may opt for compensatory off instead of cash payment.
• Every week must include at least one holiday.

Leave entitlements have improved:

• One day paid leave for every 20 days worked.
• Annual earned leave increased from 15 to 30 days, effective after one year.
• Maternity leave extended from 12 to 26 weeks.
• Paternity leave introduced for 15 days along with adoption leave.
• Fixed-term employees will receive benefits similar to permanent staff after three months.

Social Security Expanded for All Workers

The new codes strengthen social security for organized and unorganized workers.

• Employers contribute 0.65 percent of wages to EDLI schemes, providing life and disability cover.
• Gig and platform workers, such as delivery or ride-sharing personnel, now receive health insurance, accident coverage, and social security.
• Fixed-term employees gain rights comparable to permanent workers.
• Shops and establishments must register online, with fines up to 5 lakh rupees for non-compliance.

Impact on Workers’ Earnings and Safety

The implementation of these codes is expected to boost income and workplace safety. Overtime and gratuity offer additional earnings, while leave reforms improve work-life balance. Employers will bear increased contributions and penalties, but the Labour Ministry believes this will create jobs. States have been given four months to establish rules, moving India closer to global labour standards. Overall, the codes aim to modernize the labour market and provide greater protection and benefits to workers nationwide.

Understanding Gratuity

Gratuity is a financial reward given by companies to employees as a token of appreciation for their service. The calculation formula remains the same:

Gratuity = Last basic salary × (15/26) × Total years of service

This ensures employees receive a fair reward based on their tenure and salary, with even short-term employees now eligible for a meaningful benefit.