Last updated on: February 28th, 2022
The Labour Law in India is regulated mainly by the Factories Act of 1948 and the Shops and Establishments Act, which is enacted in the respective States. The Acts govern the terms and conditions of employment such as working hours, holidays and rest periods, wages, overtime, and employment conditions at a federal as well as State level respectively. The other acts among various legislations that govern employment relationships are the Maternity Benefit Act of 1961, last amended in 2017, Industrial Disputes Act of 1947.
Application of Factories Act, 1948 – This Act provides for working conditions such as hours of work, overtime, and other matters of employment for workers working exclusively in factories. This is a federal law applicable to all factories across the country.
Application of Shops and Establishments Act – This Act applies to employees working in shops, commercial, industrial, and other establishments and regulates the law relating to working hours, and other employment-related matters of employees working in such establishments. Each State government has enacted their respective Shops and Establishment Acts and Rules which governs the working conditions of the employees working in such sectors. Establishment means a shop or a commercial establishment.
The amalgamation of Indian Labor Laws
In India, there are a large number of labor and employment laws including but not limited to approximately 50 Central (Federal) Laws. Some of the main statutes and regulations relating to labor and employment are the Factories Act of 1948, Minimum Wages Act of 1948, Industrial Disputes Act of 1947, The minimum wages Act of 1948, The Equal Remuneration Act 1976, The Employees’ Compensation Act 1923, etc.
In the year 2019, the government of India took a gigantic step towards consolidating the numerous labor legislations in order to ease the manner of doing business in the country as well as to harmonize various aspects of working conditions for the working force in the country.
Below are the 4 consolidated Labor codes:
- The Code on Social Security, 2020 (“Social Security Code”);
- The Code on Wages, 2019 (“Wage Code”);
- The Industrial Relations Code, 2020 (“IR Code”); and
- The Occupational, Safety, Health, and Working Conditions Code, 2020 (“OSHW Code”).
The above 4 labor codes along with the State rules will integrate several key laws and bring out a commendable amount of changes within the labor and employment law landscape.
The draft rules framed by the Central government have been passed in both the Lok Sabha and the Rajya Sabha. Under the Constitution of India, Labour is a subject in the Concurrent List where both the Central & State Governments are competent to enact legislation subject to certain matters being reserved for the Centre. The Central government is awaiting draft rules from various State governments, after which most likely, the enforcement of the labor reforms might take place either from October 1, 2021, or early next year. Previously, the effective date was April 1, 2021, which was postponed due to covid related reasons.
Some of the important changes in the working conditions via the reform in the labor laws have been discussed under separate headings as mentioned below.
Hours & Pay Regulations
Under Factories Act, a worker who has worked for a period of 240 days or more in a factory during a calendar year shall be allowed during the subsequent calendar year, annual leave at the rate of one day for every 20 days of work performed by the worker during the previous calendar year.
For the purpose of computation of 240 days or more, the following periods of leave are considered as work performed by the employee –
- Any days which are laid off as per an agreement or contract (a day on which the employee is not required to work agreed through an agreement);
- In the case of a female worker, maternity leave for any number of days not exceeding 12 weeks; and
- The leave earned in the year prior to that in which the leave is enjoyed.
In calculating the annual leave, a fraction of leave of half a day or more shall be considered as one full day’s leave, and a fraction of less than half a day shall be ignored.
Note – The annual leave shall be exclusive of holidays whether occurring during or at either end of the period of annual leave.
An employee whose employment begins on a date other than on the 1st day of January shall be entitled annual leave at the rate of 1 day for every 20 days worked if the employee has worked for two-thirds of the total number of days in the remainder of the calendar year.
Annual Holiday Pay – Employees are paid their usual daily wage rates for the days of earned leave. Daily wages are the average of a worker’s total full-time earnings for the day on which the employee actually worked during the months immediately preceding the annual leave.
The daily wages are exclusive of any overtime and bonus but inclusive of dearness allowance and the cash equivalent of the advantage accruing through the concessional sale to the employee of food grains and other articles.
Payment in advance in certain cases – A worker who has been allowed leave for not less than 4 days, shall be paid the wages due for the period of the leave allowed before the annual leave begins.
Carry Forward of leave – Annual leave may be carried over to the succeeding calendar year, however, the total amount of leave that can be carried forward shall not exceed 30 days. However, a worker who was refused annual leave shall be allowed to carry forward the leave refused without any limit.
Annual leave in parts – A worker may apply for annual leave to be taken in whole or portions, provided that the worker gives at least prior 15 days’ notice from the date of availing the annual leave. The number of times in which the annual leave may be taken during any year shall not exceed 3 times.
Termination of employment – A worker whose employment is terminated shall be entitled to wages for the amount of leave not taken by the worker immediately before the termination of employment.
Under the Shops and Establishments Act of respective states, an employee is generally entitled to annual leave ranging between 12 to 15 working days in a year. Employees can carry forward 30 to 45 days of annual leave to the next year in various states. Employees are generally entitled to their daily regular wages for the period of annual leave.
Proposed Amendment – Under the draft rules for the Occupational Safety, Health and Working Conditions Code 2020, an employee in an establishment shall be entitled to leave in a calendar year with wages if the employee has worked for 180 days in such a calendar year at the rate of 1 day of leave for every 20 days worked.
For the purpose of computing 180 days of employment, any period of layoff, maternity leave, or annual leave availed by the employee in such a calendar year shall be counted but the employee shall not earn leave for the period so counted.
An employee whose employment begins on a date other than on the 1st day of January shall be entitled annual leave at the rate of 1 day for every 20 days worked if the employee has worked for one-fourth of the total number of days in the remainder of the calendar year.
Encashment of Leave – An employee who could not take annual leave in a particular year can also encash the leaves at the end of the calendar year. Employees can also encash the leaves which exceed 30 days.
Please note: All other provisions as provided under the Factories Act section of annual leave will remain applicable along with newly added provisions.
The minimum wages in India are segregated into various categories depending upon the type of work and can differ state-wise.
The minimum wage stated above is subject to change and may not be updated. Kindly access the link to get current rates.
Sick and Casual leave is generally governed by the State’s specific Shops and Establishments Act. Not all separately define casual and sick leave, and the number of days of such leave to which employees are entitled varies from 7 to 12 depending on the state in which the workplace is located.
Most states provide up to 10 days of sick leave while some states provide casual leave entitlement of up to 10 days.
In the manufacturing sector, sick or casual leave is governed by the Industrial Employment (Standing Orders) Act, 1946, under which employees are entitled to up to 10 days of leave. 15 days of sick leave is entitled under Apprentices Act, 1961, 30 days of sick leave for 18 months of service under Working Journalist and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955. Casual/sick leave cannot be accumulated and carried forward or cashed out.
Pay – The amount of sick/casual leave pay differs depending upon the State and the establishment. Generally, the pay is around 70% of the average daily wage.
A female employee who adopts a child under the age of 3 months is also entitled to 12 weeks of leave applicable from the date the child is handed over to the employee.
A female employee is entitled to 26 weeks of maternity leave. The amount of leave which can be taken before the date of delivery is 8 weeks. An employee who already has two or more children is entitled to 12 weeks of maternity leave. The prenatal leave in such a case is 6 weeks. Employees who use surrogacy are entitled to 12 weeks of maternity leave.
A female employee shall be entitled to paid leave for a period of 6 weeks immediately following the date of miscarriage or medical termination of pregnancy.
In the case of tubectomy, a female employee is entitled to paid leave for a period of 2 weeks following the day of the operation. A female employee is also entitled to paid leave for a maximum period of 1 month in case of illness arising out of pregnancy, delivery, premature birth, stillbirth, medical termination of pregnancy, or tubectomy.
Pay – The maternity leave is provided with full wages on completion of at least 80 days of employment in an establishment in the 12 months prior to the expected date of delivery. The maternity benefit is given at the rate of the average daily wage for the period of an employee’s actual absence from work.
Employers are required to provide nursing breaks of prescribed duration for new mothers in order to express breast milk for nursing children. These breaks are paid and are available until a child reaches the age of 15 months. The duration of these prescribed breaks is not provided under the law.