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Discussion Paper: Streamlining multi-state labour compliances and future of work

01 Feb 2022

The Indian Information Technology and Business Process Management (IT-BPM) industry is one of the largest employment providers in the country. The industry provides employment to nearly 4.5 million people directly and over 10 million people indirectly. The export focus industry operates on a 24*7*365 model to serve its global customers. The agility and flexibility to customize its offerings to the world has been the success mantra for the growth and development of the USD 194 billion industry. The industry is also providing mission critical services to several other industries such as banking, healthcare, insurance etc. and has been given a status of ‘essential services’ by various state governments in India.

The evolving nature of its services and business requirements including the service delivery models makes this industry quite unique from the other sectors of the economy. For instance, unlike in the case of a manufacturing unit, where majority of the workforce is likely to work and operate from the unit itself, IT employees could be deployed anywhere in the country or other geographies to serve their clients. Similarly, even within the services segment, wherein majority of the services companies such as banks, hospitality, etc. have B2C (business-to-consumer) focus, the majority of the work carried by IT employers is focused on B2B (business-to-business) and works as per the requirements of their clients.

Today, one key challenge which is being faced by the IT establishments specifically those which operate in more than one state is regarding variations in state-specific shops and establishments (S&E) laws which govern the working conditions of the workforce employed by them. The S&E laws regulate working conditions related to payment of wages, working hours, health, and safety benefits, opening, and closing hours, leave provisions etc. Such laws are enacted by each state to regulate the working conditions of employees in S&Es that operate within the respective state. However, such provisions may differ from state-to-state. IT establishments are required to seek registration under S&E laws in every state in which they operate and ensure compliance with the provisions of the law.

The variations in working conditions in state-specific S&E laws often create challenges for the employers to adopt uniform working conditions for their employees. The central government in the past attempted to address this challenge by introducing the Model Shops & Establishments (Regulation of Employment and Conditions of Service) Bill in 2016 in consultation with the state governments. The bill was aimed at bringing in uniformity in the provisions of the S&E laws across states/UTs and helping employers adopt uniform HR and leave policies across all establishments in various states and UTs. However, very few states till date have adopted or amended their state S&E law in line with the provisions of Model S&E Bill.

Meanwhile, the central government was parallelly working towards implementing the recommendations of the Second National labour Commission Report, which had proposed rationalizing and simplifying the central labour legislations into four labour codes i.e., Industrial Relations, Wages, Social Security, Occupational Safety, Health and Working Conditions. In line with the recommendations, the central government in 2019 passed the Code on Wages, 2019, which was followed with the passage of the remaining three labour codes in 2020 i.e., the Code on Social Security, 2020, the Industrial Relations Code, 2020 and the Code on Occupational, Safety, Health and Working Conditions, 2020 (OSH Code). Collectively, 29 central labour legislations will be repealed, and their provisions would be consolidated into these four labour Codes. Like in the case of the Model S&E Bill, the four labour codes are aimed at bringing in uniformity as well as reducing the compliance burden on employers.

While the central government is yet to notify the implementation date of the labour codes, it is important for IT employers to assess the impact of these reforms from an operational and compliance perspective, especially due to the fact that the codes for the first time, also contain provisions which so far were governed only by the state S&E laws. For instance, provisions of annual leaves (which are provided for under the S&E laws) can also now be seen under the OSH Code. Similarly, there now exists overlapping provisions with regard to health and safety conditions, accumulation of leave, working hours etc. in both central and state laws.

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