New Labour Law: New Changes in Working Hours, PF, Salary Structure, In-hand Salary & more

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New Labour Law
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The revised Labour Codes of India provide various benefits to the working class. However, the new labour laws are yet to be implemented as ‘laws’ in our country. The laws will implement changes in working hours, PF, salary structure, in-hand salary, social security, and more.


Hence, several State Governments are still trying to decide whether the new reforms will benefit the employee, the employer, or the government. Similarly, various labour unions have also opposed the implementation of the new labour laws stating that it does more harm than good.


Also Read: Statutory Compliances and Payroll in India: All an Employer should know


What are the new labour codes?

  • The Code on Wages, 2019
  • The Industrial Relations Code, 2020
  • The Code on Social Security, 2020
  • The Occupational Safety, Health and Working Conditions Code, 2020


The following changes are likely to happen once the laws are implemented:


Salary Structure

The Code of Wages, 2019 mandates that the additional allowances such as house rent, mobile, education and other allowances that the companies provide their employees should be 50% of their CTC. However, if the companies cannot exceed this threshold, they will try to keep it at 50%, as decreasing the percentage will be unfavourable.


Having the allowances at 50% also ensures that the basic pay of the employees will be set to 50%, as increasing the basic wage above that threshold will require them to increase the other components that depend on the basic pay, such as PF, gratuity, etc. It is why companies usually keep the basic pay below 50%.


It is clear that to avoid any excess financial burden, companies will restructure their employees’ salaries to ensure that their CTC remains the same while the basic pay is increased to 50%. As a result, the employees will receive lesser in-hand wages and contribute more to the PF, gratuity and other salary components that are calculated as a percentage of the basic salary.


Such salary restructuring will increase the amount employees receive on their retirement. However, the take-home salary reduction is also detrimental to their sustenance. It is the reason why multiple agencies are against the implementation of the new labour laws.


Working Hours

Under the new labour codes, the daily working hours limit has been increased to 12 hours per day. However, the weekly working hours have been left intact at 48 hours. Hence, the employers get an option of providing a 4-day work week with 12 hours of work each day and 3-day weekly offs, in addition to the existing system of 5-day and 6-day work weeks.


Such flexibility ensures that the employees have an option to utilize extra working hours in their work week and take an extra day off to get their much-needed rest. The Government has factored in the best practices of other countries to ensure that our workforce and its working hours remain competitive with the global workforce.


The decision to implement a 12-hour work day has not sat well with many parties, though. Many employees and unions are against the concept and fear that the companies might abuse this option and tire their employees by increasing their working hours without their consent.


There are other factors to consider for the employee as most of the working-class travel by public transport and hence, having extended working hours also puts additional stress on them. While they are being rewarded with an extra week off, not everyone would be on-board with the idea of having 12 working hours daily.



The new labour laws also increased the maximum overtime hours in a quarter from 50 hours to 125 hours. It ensures that the employees can take advantage of extra working hours if they require additional money. Additionally, the new regulations will also change the applicable policies for overtime, such as asking the employees to work for 15 or more extra minutes will require them to be paid as per the company’s overtime policies instead of regular payment.


As per the new policies, for calculating the pay for overtime, a duration of 15 to 30 minutes will be considered half-hour overtime. Similarly, any overtime duration above 30 minutes should be regarded as an hour. Such overtime payment rules ensure that the employees are paid fairly for the extra time they put in for their company.


Gratuity & Provident Fund

Due to the rise in basic pay of employees, there will be an increase in the gratuity and the provident fund contribution of the employee and the employer under the new labour law. Gratuity is calculated as 4.81% of the basic salary of an employee. Similarly, the employer and the employee contribute equally to the provident fund. The amount is calculated at 12% of the basic salary, with the employer paying an additional 1% as the transactional charges.


As per the current laws regarding employee wages, private sector companies usually prefer giving various kinds of allowances such as HRA, mobile allowance, tuition allowance, medical allowance, etc., to keep the basic pay around 40% of the employee’s gross salary. However, with the basic pay set to 50% of the gross pay, the companies will be required to pay more towards the gratuity and PF of the employee, which will lead to better social security.


The increase in the PF and gratuity amount will ultimately prove beneficial to the employees as they will be getting more money in their retirement. Such retirement benefits ensure that the employee can lead a better life after retirement without depending on others. The improved social security is a direct benefit of the new labour codes.


Also Read: All about Employees’ Provident Fund (PF) – Detailed Overview


Annual Leaves

With the new laws, the Government has also shed light on new policies for annual leaves of the employees. The labour codes have reduced the eligibility criteria for leaves from 240 days of employment to 180 days. However, the total number of leaves earned in a year will remain the same at 20.


Similarly, there are no changes in the maximum quantity of leaves that can be carried forward to the next year, which is currently set to 30. While there have been no major changes in the annual leaves itself, the Government has tried to include more sectors under the new labour codes by changing the definition of ‘worker’ in the law.


However, there are various discrepancies in the new description, including blue-collar and white-collar workers. These issues are being sorted out to develop a uniform definition for ‘worker’ that can be applied to all business sectors and domains.



With the advent of the new labour laws, companies must maintain all records digitally. The Government has also expressed interest in performing random online inspections to ensure that the enterprises maintain the required documents.


There is a recommendation for employers to perform the full and final settlement of the employees within two days of leaving their organization. Undertaking this task will require them to use some automation tools to ensure that the processes are completed on time.


By digitalizing the workforce data, companies can also reduce any form of malpractice and ensure that the records can be submitted on time for statutory purposes. It will also streamline multiple HR processes such as disbursing payroll, approval of attendance and leaves, etc.


Workplace Safety

Workplace safety and working conditions are other significant concerns that the new labour laws wish to address head-on. The ‘Occupational Safety, Health, and Working Conditions Code’ provides various rules and regulations to address the security, safety, health and working conditions of the employees.


A major change has been the reduction in the duration of gratuity eligibility from 5 to 3 years. Similarly, another significant change in the new labour codes has been reworking the definition of the term ‘worker’ to include more sectors and domains. By redefining the term ‘worker’, the Government wishes to address the safety and security concerns of various employees employed with different kinds of organizations.


It includes both blue-collar and white-collar workers. However, as mentioned above, there are certain discrepancies in the definition which need to be addressed before the law can be implemented throughout the country.


For example, the new labour laws also redefine the term ‘factory’ to include mines to ensure the safety of the mine workers as well, who work under risky conditions. Similarly, the term ‘hazardous’ environment has been redefined to include all locations where dangerous activity is carried out irrespective of the numbers of workers employed within the company premises.


The new labour codes also mandate that female employees should be employed in all sectors despite the hazardous conditions and that the employer provide them with required safety equipment in case the work environment is dangerous.



It is common knowledge that there has been a massive uproar over the fact that the ‘Code of Wages’ is reducing the in-hand salary of the employees. It has reduced the morale of the low-income workers as they will be the worst hit if new labour laws are implemented.


A reduction in the take-home salary also translates to lower money in circulation and lowered investments. It is not ideal for any growing economy. As a result, the State Governments are trying to find the best option to ensure that everyone benefits from the reforms; hence, it is taking longer for the law to be implemented throughout the nation.

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