The management of employee relations and labour in India has drastically changed. For many years, in the field of Human Resources, managing relations was done using the Industrial Disputes Act from 1947. This was a system which had many bizarre and unnecessarily complex structures, permissions, and ended with a vague result. The system has now changed, as the Industrial Relations Code has come into effect. The previous frameworks have been changed and condensed into a more streamlined and modern system.

For Human Resources leaders and managers, it is more than just a new system. This is a new and comprehensive operational model. It has changed the parameters and requirements for standing orders, modified the prior regulations around layoffs, and introduced new components, such as a fund to promote the retraining of employees.

In this document, we explain the Industry Relations Code, focusing on the requirements of HR, in order to comply with the regulations while managing the reconfiguration of the workforce.1. New Benchmarks: Standing Orders and the '300' Rule

Perhaps the most talked about change in the Industrial Relations Code is the change in applicability for Standing Orders. Under previous rules, any industrial company had to formally certify Standing Orders (work rules governing conditions, misconduct, and timing of shifts) if they had 100 or more employees.

The IR Code shifts this rule, raising the applicable threshold to 300 employees or more.

For many mid-size companies (100-299 employees) this means flexibility. You are no longer constrained by the rigid and cumbersome processes of certification. However, this “freedom” has an implied risk. In the absence of certified Standing Orders, the terms of employment are determined by the appointment letter and the company’s internal policies.

Companies that are below the 300-employee threshold are now required to draft “high employment” contracts to remain compliant with HR regulations. If your employment contracts are vague or ambiguous around issues of termination, shifts, or discipline, you can no longer rely on statutory Standing Orders. HR legal Compliance now rests on the strength of your company’s internal policies.

From a certain employee count in a company, there are obligations which have to be fulfilled in regard to an employee headcount. Being an example, if your company has over 300 employees, the Industrial Relations Code (IR Code) states that you need to implement the Model Standing Orders that have been issued by the Central Government, provided that you have not certified your own. Therefore, it is important to monitor your employee count with great care and precision. This means that an HR legal compliance software which notifies you when you are about to hit the 299-employee mark is a necessity, not a luxury.

Layoffs and Retrenchment: The Permission Regime

The most important aspect of the new Industrial Relations Code is to try and strike a balance when it comes to the complex nature of workforce restructuring. The notion of Retrenchment is one that not only employees, but HR professionals also experience fear towards. However, the new code attempts to provide a more balanced approach towards business personnel flexibility, and protecting the workforce.

The 300-Worker Threshold for Permissions

Previously, the laws stated that 100+ employees in an entity would require the employer to obtain permission from the government in advance before any layoffs, closures, or retrenchment activity could occur. That has now changed, as the new IR Code states that an employer must have a workforce of 300 or more before these actions are considered.

If your company has less than 300 employees:

• You are not required to obtain permission from the government for retrenchment.

• You are, however, still required to observe the notice period of one month, and also, provide retrenchment compensation, which is an average of 15 days pay for every completed year an individual has worked.

If your establishment employs 300 or more people:

• It is necessary to obtain prior approval from the concerned government authority for any retrenchment or layoffs.

• Applications must be made at least 60 days prior to the scheduled retrenchment date.

Although the achievements of this amendment sought to improve business operations for the better, they do, however, increase the onus on HR legal compliance. Should you miscalculate your employee numbers, and thereby, omit obtaining the requisite approval for retrenchment when you in fact had 300 employees (due to, for example, the misclassification of contract employees), the retrenchment is illegal ab initio, and you become liable for the imposition of penalties and possible reinstatement.

Retrenchment and the Worker Re-Skilling Fund

The Industrial Relations Code contains a brand new legislative requirement which was not previously found in the old legislation; the Worker Re-Skilling Fund.

The government acknowledges that retrenchment leaves employees in a precarious position. The IR Code, therefore, stipulates that when an employee is retrenched, the employer is required to pay a sum equivalent to 15 (fifteen) days of the employee’s last monthly salary into a fund, and this must be done within 45 days, and the amount must be credit directly to the employee’s bank account.

The Financial Implications

This means that the HR and Finance teams will, for the purposes of restructuring, have to factor this additional cost into their plans.

• Prior Liability: Notice Pay + Retrenchment Compensation (15 days per year).

• Current Liability: Notice Pay + Retrenchment Compensation + Re-Skilling Fund Contribution (15 days’ wages).

Neglecting this fund is a breach of. To achieve 100% HR legal Compliance, your payroll and full-and-final settlement (FnF) systems should be updated to include and calculate this component automatically.

The Retrenchment Exemption

Most significantly, the IR Code outlines that the non-renewal of a contract upon the contract’s expiry does not constitute retrenchment. Therefore, if a fixed-term contract ends, the employer has no obligation to pay retrenchment compensation.

However, in the interest of HR compliance, a pro-rata gratuity has to be paid to FTEs who complete a year’s service (as opposed to the 5 years required for permanent employees).

This enables HR, with firm and compliant documentation, to build teams for individual projects without having to take on the long-term risk of having permanent headcount. Tracking contract end dates with a compliance management system, however, is critical. If an individual works even one day after their contract expiration without the contract being renewed, they may, by law, be considered a permanent employee, which may trigger retrenchment liabilities.

Technology’s Impact

With the IR Code raising thresholds and adding new funds, tracking everything on spreadsheets is going to be a mess. HR legal compliance is now a matter of being driven by data.

• Headcount Monitoring: Crossing the 299-employee mark is going to require Standing Orders and Government permissions, so you need advance preparation to ensure you have real-time Headcount Alerts.

• FnF Automation: To help avoid litigation relating to calculation errors, the calculation of retrenchment compensation and the Re-Skilling Fund must be automated.

• Audit Trails: The IR Code puts the onus of proof on the employer in a dispute, so digital documentation of notifications, permission requests, and pay stubs is your best defence.

Utilizing comprehensive Labour Law Compliance management software guarantees that your company remains legally compliant, allowing your HR compliance to transform from a liability to a competitive advantage.

Conclusion

The Industrial Relations Code is more than just a legal update; it is a catalyst to modernize systems. While the shift from 100 to 300 employees to obtain permissions is a relief, the Re-Skilling Fund and new definitional tightening require greater focus.

HR leaders need to transition from "managing situations" to "managing data." Mistakes on retrenchment dues or the failure to trigger a Fixed Term contract transition can be expensive litigations.

The new HR legal compliance era requires contemporary tools to navigate the changing landscape. Outdated procedures and legacy systems limit your efficiency.

Would you be interested in seeing our Automation Labour Law Compliance software and how it calculates the Re-Skilling Fund and tracks your FTE expiries as it FTE expires?

Frequently Asked Questions (FAQs)

Q1. Is the increase in the Standing Orders threshold to 300 the same in all states?

While the Central Industrial Relations Code sets a threshold of 300, there is a concurrent subject of labour. Some states may change this threshold. Always look at the specific state regulations where your factory or office is positioned to stay compliant with HR laws.

Q2. What are considered “wages” in the calculation of the Re-Skilling Fund?

Within the Code on Wages, (which prescribes the definitions for the IR Code) “wages” for calculation purposes may mean the basic pay, dearness allowance, and retaining allowance, and excludes HRA and bonus, as long as the exclusions do not exceed 50 percent of the total remuneration.

Q3. Is there a need for government permission for retrenchment if there are 250 workers?

No. The Industrial Relations Code states that for entities with less than 300 workers, no prior government permission is required for retrenchment. Yet, notice and compensation are still required.

Q4. Is it possible for us to classify all permanent employees as Fixed Term Employees?

No. It may be considered an Unfair Labour Practice to modify permanent roles to Fixed Term Employment to reduce retrenchment liability. FTE should be reserved for new employees or for defined project-based needs.

Q5. In what way can organisations be assisted by Praans Consultech with respect to compliance with the Industrial Relations Codes?

With respect to compliance, Praans Consultech assists organisations by integrating legal knowledge and compliance through technology. Praans Consultech positively impacts HR departments by having them retain and comply with limits, as well as lose less with regards to the documentation and process policies and compliance.

Q6. What methodology is used to calculate the "average pay" for retrenchment compensation?

The wages owed to a workman are averaged as follows:

· For monthly paid workmen, the average is for the three full calendar months before the retrenchment.

· For weekly paid workmen, the average is for the four full weeks prior.

Q7. Do we need to pay Gratuity if a Fixed Term Employee leaves?

If the Fixed Term Employee has served for a year, they qualify for Gratuity on a pro-rata basis as per the IR Code. This represents a notable exception to the standard rule of the 5-year period.

Q8. What is the consequence for failing to comply with the Re-Skilling Fund?

Not making the required contributions is a violation of the Industrial Relations Code. Penalties for non-compliance can include large fines, or even jail time for repeated offenses, which greatly complicates HR compliance.

Q9. What will happen to our Certified Standing Orders?

Orders are still considered valid for firms with more than 300 employees, provided the orders are not contrary to the IR Code. Nevertheless, it is best to review the orders against the new Model Standing Orders, to ensure complete HR legal compliance.

Q10. Does the 300-worker limit count contract labour?

Yes. A ‘worker’, for purposes of the limit, is one who is hired for pay and includes contract labour as applicable to Chapter X (Layoff/Retrenchment). Therefore, it is critical to have accurate headcount data.

Q11. What are Negotiating Councils?

Where your firm is covered by more than one trade union, and no one union has 51% of the membership, the IR Code requires the creation of a Negotiating Council comprising union representatives for each of the unions with 20% or more. This council is then deemed the exclusive bargaining representative.

Q12. What are the penalties for non-compliance under the Industrial Relations Code?

The Industrial Relations Code introduces monetary penalties for procedural violations, incorrect documentation, and failure to follow approval requirements. Repeated or serious non-compliance can also lead to legal disputes and operational restrictions. This makes proactive HR compliance and strong HR legal compliance essential rather than optional.

Q13. Are the IR Codes relevant to policies concerning disciplinary action and termination?

Yes. There are different policies regarding the discipline of employees. The Industrial Relations Code is one of the policies that involves mandatory standing orders and methods of discipline. Termination policies have to comply with certified standing orders to eliminate the possibility of disputes, thus emphasizing the integration of the standing orders and the structured frameworks of HR legal compliance.

Q14. How is the Industrial Relations Code applicable to mergers, restructures and business transfers?

As far as mergers and restructuring are concerned, business rationalisation most often invokes the Retrenchment provisions of the Industrial Relations Code. Prior to the restructuring process, the HR function must consider employee quantities, costs associated with severance pay and the necessary approvals, so that there is no disruption to HR compliance during the transition.

Q15. Is the integration of policies with the IR Code a one-off occurrence, or is it a process?

Integrating policies with the Industrial Relations Code is an ongoing process. The volume of employees, standing orders, notices and approvals are subject to changes that must take place within a given period of time. The structure of the workforce is likely to shift as a result of changes and the degree of applicability changes, thereby necessitating the urgent need for HR legal compliance to be integrated with the Industrial Relations Code.

Disclaimer:

The views expressed in this article are for general informational purposes only and reflect our understanding of the subject matter. They do not constitute legal advice or a formal legal opinion. For case-specific guidance or accurate compliance support, please contact us at info@praansconsultech.com

The New Industrial Relations Code-Layoffs, Retrenchment, and Standing Orders

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