Labor Reforms in India in 2016

By SHRM India Content Team May 30, 2017

The Prime Minister, Narendra Modi's vision of 'Brand India' and 'Make in India' has all positive factors tilting in its favor, except one - the labor laws. India's archaic labor laws have been a major roadblock in attracting investors, especially those, governing in the manufacturing sector. Labor reforms are perceived as a key driver to boost the country's economic growth, promote investment and create new job opportunities.

This year, the government has taken a bold step by ushering in several labor reforms at par with International Labor Organization (ILO), which will have a significant impact on the Indian industry and workforce.

Let's take a look at these reforms.

Maternity Benefits:

The landmark amendment to the Maternity Benefit (Amendment) Bill, 1961  addresses the issue of high turnover of the female workforce in organizations as a result of maternity break. This would ensure that women can continue their professional aspirations, get equal employment opportunities and avail full paid absence from work even post maternity. The highlights of this amendment are:

  • Every woman will be entitled to 26 weeks of benefits instead of the earlier provision of 12 weeks. Every woman can avail the maternity benefit before 8 weeks from the date of delivery instead of the earlier provision of 6 weeks. However, the new extended period of 26 weeks will not be available to a woman who has two or more children. Their maternity benefit will continue to be 12 weeks, which cannot be availed before six weeks from the expected delivery of delivery.

  • A provision to grant 12 weeks of maternity leave to: (i) a woman who legally adopts a child under 3 months of age; and (ii) a commissioning mother, who is a biological mother using her egg to create an embryo implanted in another woman.

  • A provision to provide 'work from home' option after the maternity leave, depending on the nature of work and as decided mutually between the employer and the woman employee.

  • Every establishment with 50 or more employees should provide crèche facilities within a prescribed distance.  The working mother will be allowed 4 visits to the crèche in a day, which also includes her interval for rest.

  • The maternity benefits should be communicated to every woman either in writing or electronically at the time of her appointment in the new job.

While the amendment has been made this year, several organizations in India are already doing their bit for women employees. For instance, in ICICI Bank, India's leading private bank, women make one third of the total workforce. In order to ensure their retention and provide them a strong support system at work, the bank provides them 'work from home' for one year, which can be extended or clubbed with the maternity leave if required. The other initiative in this direction is facility to take a child up to 3 years of age along with a caregiver during travel for official work, the expenses of which will be borne by the company.

Child labor:

In a country where 1 in every 11 children is working and more than 33 million of the population is engaged in child labor, the Child Labor (Regulation and Prohibition) Amendment Act 2016 is a huge welcome relief. India has been since long trying to curb the problem of child labor and make the reforms at par with international child labor laws. There are three amendments:

  • Prohibition of the employment of children up to 14 years of age. The only exception is family enterprises and farms where they are allowed to work after school hours.

  • Prohibition of employment of 14-18 year olds in hazardous industries. The Indian law categorizes 64 industries as "hazardous industries" which include mining, timber handling & loading, transport, grinding and glazing of metals, among a few others. 

  • Stricter penalties for violation of above two laws - a jail term of up to two years or a fine up to Rs. 50,000. The bill also has a provision of creation of Rehabilitation Fund to be used for rehabilitation of child laborers.

However, this amendment is still facing criticism on the grounds that the definition of a 'family enterprise' is vague and children may either skip school or may have to put in longer hours to contribute to the family business. It is expected that central and state governments may introduce a monthly stipend and mid-day meal programs for attending school, thereby encouraging parents to send their children to school.

Employee Compensation:

The Employees' Compensation Act, 1923, provides for payment of compensation to workmen and their dependents in the case of injury by industrial accidents, including certain occupational diseases arising out of and in the course of employment resulting in death or disablement. It also provides for appeal in a high court if the disputed amount of compensation exceeds Rs. 300. However, compensation is often subject to disputes and results in a higher number of litigations ever year. The Employee's Compensation (Amendment) Bill seeks to reform this concern. The highlights are:

  • The disputed amount of compensation has been raised to Rs. 10,000 which may be further increased later through a notification.

  • There is an increase in penalty for violation of the Act to Rs. 50,000 from the current Rs. 5, 000, which may be later raised to Rs. 1 lakh. 

  • It is mandatory for employers to inform the employee about his or her right to compensation. In the event of failure to do so, the employer may face penalty.

Overtime Working:

The manufacturing industry is subject to seasonal ups and downs. There is a period when factories need to enhance its production to meet the market demand. However, the existing Factories Act of 1948 limited the number of overtime hours, which did not allow the factories to achieve optimal production capacity. The Factories Amendment Bill will facilitate the ease of doing business and enhance job creations. As per the amendment,

  • The overtime limit of factory workers has been increased from 50 hours to 100 hours in a quarter.

  • For factories with "exceptional" workload, it would increase it from 75 hours to 115 hours in a quarter.

  • Further, there is a provision to increase the limit to 125 hours in "public interest."

Though, there are provisions for ensuring that no employees work more than 12 hours, this bill has received cheers from workers who get an opportunity to earn more by working overtime.

24x7 Business Hours:

Currently, the working hours of shops and establishment are governed by different legislations in every state. This restricts the growth of the economy and creation of employment opportunities. The Model Shops and Establishments (Regulation of Employment and Conditions of Service) Bill, 2016 seeks to reform the existing norms:

  • It provides freedom to the organizations to operate 365 days in a year and gives free hand to determine their opening and closing time. 

  • Women would be permitted to work during the night shift, if provided with safe & a hygienic working environment, crèche, transportation and other adequate facilities.

This flexibility to operate 24X7 will give a much needed boost to the retail, enable customers to shop anytime, help India cater to international clients and provide for "optimum utilization" of resources by being able to run multiple shifts out of the same facility. 

Ease of doing business:

The Small Factories Bill 2014 is perhaps the most far reaching and critical of all changes being currently discussed. It seeks to exempt small units with less than 40 workers from compliance to 14 labor laws, including Employees Provident Funds and Miscellaneous Provisions Act and Employees State Insurance (ESI) Act. The glacial and cumbersome procedures for compliance with these statutory laws had made it unviable for small scale entrepreneurs to enter the manufacturing sector. With this provision gone, there would be less harassment and paperwork for small entrepreneurs. This liberation can trigger the much needed push required for "Make in India" campaign.

There are more reforms down the road….

Though most of the bills have been welcomed by the industry and analysts, the amendments proposed in the Industrial Disputes Act, 1947, Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946 are attracting some resistance as well. These laws deal with regulations around retrenchment and formation of labor unions. The amendments suggested would allow the companies to hire and fire with ease, and without government approval in case the number is less than 300. In addition, there are tougher rules for forming unions. The trade unions feel that this bill is loaded in favor of the factory owner and they even went on a nationwide strike on September 2, 2015 to protest.  However, experts say that the reforms would benefit both, the employee as well as employers, as more people would venture into manufacturing and they would bring in more jobs. Another reform could be The Contract Labor (Regulation and Abolition) Act, which should make it easy to hire and manage workers on temporary contracts.

While there are debates going over several aspects of the reforms, and loopholes in them, by and large, most agree that all the above reforms were long overdue. They are expected to bring the necessary capital, enterprise and employment needed by the Indian economy.

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