Impact of Labour Code 2022 on Indian Wage System

Impact of Labour Code 2022 on Indian Wage System

Labor law, also known as employment law, is a body of laws, administrative rulings, and precedents that deal with the legal rights of workers and the organizations they form.

In general, labor law addresses Workplace health and safety and employment standards, including general holidays, annual leave, working hours, unfair dismissals, minimum wage, layoff procedures, and severance pay, collective bargaining, and unfair labor practices are all examples of industrial relations.

Introducing new wage code 2022

During the presentation of the Union Budget in 2021, the Indian government merged 29 labor laws into four new codes. These are the four labor laws: The 2019 Wage and Hour Cod,  The 2020 Industrial Relations Act,  The 2020 Social Security Code  and the 2020 Occupational Safety, Health, and Working Conditions Code.  The four new codes are the New Wage Code, the Industrial Relations Code, the Code on Occupational Safety, and the Code on Health and Working Conditions.

Numerous modifications have been made to the current labor regulations. However, the most significant change has been made to the definition of “wage.” The new wage code created as a result of this modification aims to directly account for 50% of wages in employee salaries.

Impact of New Wage Code

According to the New Wage Code Act of 2022, an employee’s basic pay cannot be lower than fifty percent of the CTC (Cost to Company). The minimum four main components of an employee’s CTC are the Basic Wage, Retirement Benefits (including PF and the National Pension System), House Rent Allowance (HRA), and Other Tax-Friendly Allowances. Additionally, it is possible that the four-day workweek will be implemented. The Labour Ministry made it clear that employees must work 48 hours a week, so they may have to work 12 hours a day.

These new reforms will have a direct impact on the salaries, provident funds, and perks of central government officials, as well as the private working class’s compensation structure and tax obligations. Employees’ retirement funds will also be increased in accordance with the new regulations.

The leave related rules will likewise be adjusted. This includes justifying the encashment of leaves as well as the carryover of leaves to the subsequent year. Additionally, a work-from-home model that has gained popularity during the pandemic is being considered by the government.

Prime Objectives of New Labour Code

  • Benefit of the pension  scheme (EPFO) to all organized, unorganized, and self-employed workers is one of the main goals of the New Labour Code.
  • Creation of a social security fund for providing comprehensive social security to the unorganized sector.
  • In the case of employees with fixed terms, the requirement for minimum service in order to receive a gratuity has been eliminated.
  • Making a public data set of laborers of the  unorganized sector through enlistment on Portal.
  • Mandatory online posting of vacancies by employers with more than 20 employees.
  • A Universal Account Number, or UAN, for workers in the Unorganized Sector, EPFO, and ESIC.
  • A Universal Account Number (UAN) based on Aadhaar to guarantee seamless portability.


By combining four of 29 existing labor laws, these codes aim to consolidate and simplify the nation’s overlapping labor laws. It will reduce the number of definitions and authority for businesses and give industry and employment a big boost.