practice area articles


January 25, 2021

By Suhas Srinivasiah, Vijay B. Ravi, Shalini Agarwal and Debjani Aich

Back to International Employment Law




Changes anticipated by the Code on Wages

The Code on Wages was implemented in 2019, but the effective date of commencement is still pending. The Code merges four central Indian laws relating to wages, minimum wage rates, bonus payments and pay parity for employees into one single piece of legislation. It is expected that such consolidation will result in fewer compliance requirements for employers and make it easier for businesses to operate in India.


Reduction in contributions under the Employees' State Insurance Act

India has reduced the employee contribution rate as required by the Employees' State Insurance Corporation to 0.75% (from 1.75%) and the employer contribution to 3.25% (from 4.75%).


Supreme Court judgment regarding treatment of "special allowances" payment

In the case of Regional Provident Fund Commissioner (II) and Ors v Vivekananda Vidyamandir and Ors, the Supreme Court of India (India's Apex Court) held that "special allowances" paid by an employer to its employees will fall under the definition of 'basic wages' and would be subject to provident fund contributions. Before this decision, employers would typically use the "special allowance" component of an employee's salary to reduce the amount of an employee's compensation that would be held as basic wages and subject to statutory contributions. This recent decision by the Supreme Court is binding on all employers in India, and accordingly, any special allowances paid to employees will be subject to provident fund contributions.




Fixed term employment open to all sectors

India has recently introduced an amendment to the Industrial Employment (Standing Orders) Central Rules, 1946 to allow fixed term employment across all sectors. Previously, fixed term employees were only permitted in the apparel manufacturing sector.


Increase in statutory limit under the Payment of Gratuity Act, 1972

India has increased the statutory maximum amount of gratuity payable to eligible employees to INR 2,000,000 from the previous limit of INR 1,000,000.


Provident fund contribution by the Government of India

To boost employment, the Government of India will (subject to certain conditions) pay the employer's share of the contribution to the provident fund (i.e. 12% of the monthly salary) in respect of any new employees for a period of 3 years starting from 1 April 2018. The scheme shall apply once the beneficiary has been registered on or before 31 March 2019.

With thanks to Vijay B. Ravi, Suhas Srinivasiah and Debjani Aich of Kochhar & Co. for their invaluable contribution on this update.




Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017

The Maharashtra Shops & Establishments Act 1948 is being replaced with the Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 (“Act”). The Act will not apply to establishments employing less than ten workers, in contrast with the preceding legislation which applied to all establishments irrespective of the number of workers employed.


Launch of “SHe-Box” by the Ministry of Women and Child Development

An online portal has been launched to register complaints of sexual harassment in the workplace, named the “SHe-box” (sexual harassment electronic box).


Cabinet approves introduction of the Payment of Gratuity (Amendment) Bill, 2017

As a result of inflation and wage increases, new legislation anticipates an increase in the maximum limit of tax free gratuities for employees who are not covered under the CCS (Pension) Rules.


Code on Wages, 2017

The Code on Wages Bill, 2017 (which is yet to come into force) proposes to replace four federal labor laws, and is intended to ensure minimum and timely payment of wages to all employees. The Central Government is pushing to regularise and unify working hours and ensure payment for overtime to employees as well.


Contract Labour (Regulation and Abolition) Amendment Act, 2017

This amendment will revise the definition of ‘contract labour’ to ensure workers who are in reality regular employees are excluded from the definition of ‘contract labour’, and will impose higher registration, notification obligations and sanctions on the employer.


The Factories (Amendment) Bill, 2016 / The Employment Exchanges (Compulsory Notification of Vacancies) Amendment Bill, 2013/ Employees' Provident Fund & Miscellaneous Provisions Act, 1952

These pieces of legislation, together with many others, are all in the pipeline for action by the Indian Government. Many changes are underfoot and it remains to be seen how many of these proposed amendments are passed into law in 2018.




On-going agenda to update very old employment laws

Mr. Modi’s government has taken steps to enact the Labour Code on Industrial Relations Bill 2015 (“IR Code”). The IR Code aims to consolidate three main enactments: the Trade Unions Act 1926 (“TU Act”) which deals with laws relating to trade unions; the Industrial Employment (Standing Orders) Act 1946 (“IESO Act”) which requires an industrial establishment to formally define conditions of employment; and the Industrial Disputes Act 1947 (“ID Act”), which is often regarded as the bible of Indian employment laws. As and when the IR Code gets parliamentary consent, and is promulgated into law, Indian labour laws may finally be seen to be aligned to the liberal investment climate that the government is promoting.


Strengthening of maternity laws

The Maternity Amendment Bill 2016 was approved by the Upper House, however, it is yet to become law. Currently, the Maternity Benefit Act 1961 entitles eligible female employees to receive 12 weeks of maternity leave and benefit. However, under the new Bill there would be increased maternity leave and benefits from 12 to 26 weeks other than for women who already have two children, a 12 week maternity leave period for adopting and surrogate mothers, greater flexibility to work from home, a mandatory requirement for companies having over 50 employees to have a crèche within a 1km range of the office and no continuity of service requirement for women to receive these benefits


Various additional legislative proposals

Proposed amendments to the current Employees Provident Fund & Miscellaneous Provisions Act, 1952 (“EPF Act”), the Employees Compensation Act 1923, better protections for those working in shops, minimum wage for contract labourers, the Employee State Insurance Act, the Factories Act and strengthen laws in relation to the Sexual Harassment at The Workplace (Prevention, Prohibition and Redressal) Act and Rules, 2013.




Wider coverage and changes to method of payment to the Employee’s Provident Fund scheme

An amendment to the Act has raised the threshold of applicability of the Act to all employees drawing up to 15,000 rupees per month. Previously the cap was set at 6,500 rupees. The central government has made it mandatory for all employers to make monthly provident fund contributions through internet banking of the State Bank of India or any other nationalised bank authorised to collect the contributions. Companies are advised to check if they are compliant with this change in the law.


Limited carve-out to child labour laws

The Child Labour (Prohibition and Regulation) Act, 1986 has been amended. The employment of children under 14 years of age is prohibited in all occupations and processes. However, an exception has been made, namely where the child helps his family or family enterprises, which is other than any hazardous occupation, or works after school hours or during vacations; or where the child works as an artist in an audio-visual entertainment industry. Foreign companies working with sub-contractors should be mindful of this provision to ensure their vendors remain compliant with the law.


More employees eligible to larger statutory bonus

The Bonus Act Amendment Bill has increased the threshold of applicability for statutory bonuses. Employees earning 21,000 rupees or less must now be given a statutory bonus in line with applicable laws. The amendment also increases the amount of bonus that would be received by the eligible employees to 7,000 rupees per month or the minimum wage for the scheduled employment (whichever is higher).


Changes relevant to expats to or from India

The citizens of many countries, including Belgium, Germany, France, Switzerland, Netherlands, Luxembourg, Hungary, Sweden, Norway, Finland, Denmark, Czech Republic, South Korea, Austria, Canada, Australia and Japan will not be expected to make social security contributions in India as provided for in the specific treaty. Reciprocally, Indian citizens working in the signatory country will also not be required to make any social security contributions in the host country. If the home country of the foreign citizen working in India has not entered into an SSA with India, then such foreign citizens will be obliged to make social security contributions in accordance with the EPF Act.

With thanks to Shalini Agarwal of In Se Legal for her invaluable collaboration on this update.


Image: Suzanne Horne
Suzanne Horne
Partner, Employment Law Department

Image: Kirsty Devine
Kirsty Devine
Associate, Employment Law Department

Image: Aashna Parekh
Aashna Parekh
Associate, Employment Law Department