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Labor Codes for NGOs & How to be Ready - Part 2

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Thank you Sharad from Saathi Development Services for sharing this resource with us. 

Layout of Session

  • Code on SS (continued)

  • OSHWC Code

  • Other standalone laws that coexist

The Code on Social Security, 2020

Subsumed Legislations

  • The Employee's Compensation Act, 1923

  • The Employees' State Insurance Act, 1948

  • The Employees' Provident Funds and Miscellaneous Provisions Act, 1952

  • The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959

  • The Maternity Benefit Act, 1961

  • The Payment of Gratuity Act, 1972

  • The Cine-Workers Welfare Fund Act, 1981

  • The Building and Other Construction Workers' Welfare Cess Act, 1996

  • The Unorganised Workers' Social Security Act, 2008

Chapter Layout in Code

  • Chapter 1: Preliminary

  • Chapter 2: Social Security Organization

  • Chapter 3: EPF

  • Chapter 4: ESIC

  • Chapter 5: Gratuity

  • Chapter 6: Maternity Benefit

  • Chapter 7: Employee Compensation

  • Chapter 8: SS for construction workers

  • Chapter 9: SS for unorganized, gig and platform workers

  • Chapter 10: Finance & Accounts

  • Chapter 11: Authorities, Compliance, Recovery

  • Chapter 12: Offences and Penalties

  • Chapter 13: Employment information and Monitoring

  • Chapter 14: Misc

First Schedule of SS Code - Applicability

Definition of Establishment means:

  • a place where any industry, trade, business, manufacture or occupation is carried on.
  • or a factory, motor transport undertaking, newspaper establishment, audio- visual production, building and other construction work or plantation; or
  • a mine, port or vicinity of port where dock work is carried out.

  • Employees' Provident Fund (EPF): Every establishment in which 20 or more employees are employed.

  • Employees' State Insurance Corporation (ESIC): Every establishment in which 10 or more persons are employed (other than a seasonal factory).

  • Gratuity: Every shop/establishment in which 10 or more employees are employed (or were employed on any day of the preceding 12 months).

  • Maternity Benefit: Every shop/establishment in which 10 or more employees are employed (or were employed on any day of the preceding 12 months).

  • Employees Compensation: Applies to employers and employees to whom Chapter 4 (ESI) does not apply and are mentioned in the Second Schedule.

Key Provisions in the Code

  • Calculation of EPF, ESI and Gratuity as per definition of Wages. This is the biggest
    change.
  • EPF coverage is universal, not restricted to Schedule 1 establishment.
  • EPF and ESI threshold for coverage and wage ceilings unchanged. Be on the lookout.
  • In ESI one employee in hazardous/life threatening occupations entails ESI registration
  • EPF Contribution is 10% for employer and higher than 10% for employee
  • EDLI contribution upto 1% of wages plus one fourth of 1% as admin charge
  • ESIC covers every establishment, not restricted to factories, shops etc. and extends to all districts in the country (not notified areas presently). Inlaws and dependent siblings added as beneficiaries.
  • Presumption as to employment injury-Commute related accident considered employment related and Occupational disease defined in ESI Chapter
  • Opt in/opt out possible for EPF/ESI with conditions i.e. 5 year lock in, majority of employees agree, all filings and dues paid and approval by CPFC/ESIC DG with 60 days decision window
  • Govt working on one UAN and common ECR for EPF and ESIC since Wage definition is uniform now
  • Mandatory insurance of gratuity
  • New category of flexi hiring introduced-‘Fixed term employee (FTE)’. FTE is defined as engagement with written contract of employment for a fixed period provided that—hours of work, wages, allowances and other benefits shall not be less than that of a permanent employee doing same/similar work; and shall be eligible for all benefits, under any law for the time being in force, available to a permanent employee
  • State rules may decide maximum period for FTE and maximum no. of FTE
  • Gratuity eligibility for FTE upon 1 year of service. Continuous service for 240/190 days for 6/5 day working week. For six months count, period reduced proportionately. Service beyond 6 months will be considered as 1 year.
  • Retrospective applicability of gratuity prior to 21.11.25 based on new definition of Wages to cast additional liability on employer
  • ICAI guidance is to recognize such increased liability due to new definition of wages for gratuity and EL immediately as vested past service costs or amortized over remaining vested period as per GAAP AS-15
  • Vacancy notification on career centres-except where employment is for less than 90 days and establishment has less than 20 employees
  • Adhaar only proof for registration and availing benefits under SS code
  • Transitional period to be allowed for compliance under SS Code
  • 5 year limitation for EPF inquiry for dues/applicability by authorities, inquiry to be completed within 2 years. Unlimited lock back period removed.
  • New category of beneficiaries: Platform workers, gig workers, unorganized workers. Coverage-16-60 years, 90 days engagement in 12 months to be registered for SS benefit. Social security fund with 1-2% (capped at 5%) of turnover as contribution by employers/aggregators.
  • Schemes for life, disability, health, maternity, and pension benefits for gig and platform workers through setting up of SS Fund
  • All types of worker-organized, unorganized, self employed under SS coverage envisaged
  • National and State Social Security Boards to be established
  • Registration/deemed regn for EPF/ESI via Shram Suvidha portal within LIN

 

Fixed Term Employee (FTE) & Gratuity

  • FTE Definition: Engagement with a written contract for a fixed period. Hours, wages, allowances, and benefits shall not be less than that of a permanent employee doing similar work. They are eligible for all statutory benefits available to permanent employees.

  • Gratuity for FTE: Eligibility upon 1 year of service.

  • Continuous Service: 240 days (6-day week) or 190 days (5-day week). Service beyond 6 months will be considered as 1 year.

  • Retrospective Applicability: Gratuity prior to 21.11.2025 may be based on the new definition of Wages, casting additional liability.

  • Accounting: ICAI guidance is to recognize increased liability immediately as vested past service costs or amortized over the remaining vested period (AS-15).

Gig & Platform Workers

  • New Beneficiaries: Platform workers, gig workers, and unorganized workers are covered.

  • Registration: Age 16-60 years, with 90 days engagement in 12 months. Aadhaar is the only proof required.

  • Social Security Fund: Funded by 1-2% of turnover (capped at 5%) from employers/aggregators. Schemes will cover life, disability, health, maternity, and pension.

Sample Comp Structure: Before vs. After New Wage Definition

Component Before New Definition After New Definition
Basic 50,000 50,000
HRA 25,000 (50% of Basic) 25,000
Special Allowance 25,000 (25% of Basic) 1,000
Conveyance - 23,880
Gross Salary 106,000 106,000
Er PF 6,000 (12% of Basic) 6,120 (12% of Wages)
Gratuity Provision 2,405 (4.81% of Basic) 2,453 (4.81% of Wages)
EL Provision 2,466 (18 days on Basic) 2,515 (18 days on Wages)
CTC 110,871 110,968
Take Home 100,000 99,800
Exclusion % of CTC 28% 50%

Note: In the "After" scenario, exclusions are capped at 50%. The structure is tweaked (shifting Special Allowance to Conveyance/others) to manage the 50% limit.

Action Points under SS Code for NGOs

  • Revisit HR classification-regular/permanent, FTE, contract, consultant.
  • Understand impact on EPF, ESI, Gratuity, EL based on definition of Wages
  • Applicability of ESI to NGOs
  • Consider keeping PF ceiling wages at Rs.15k for EPF
  • Consider funding of incremental gratuity and EL under current insurance policy once retrospective applicability clarity emerges
  • Examine both SS code and CoW while tweaking comp structure
  • Balance employee taxation (TDS) and take-home pay due to possibly higher SS benefits
  • EPF and ESI thresholds may get revised, fixed more than 8-10 years ago
  • Mandatory funding of gratuity if provision only is being made
  • Same employment terms for FTE plus Gratuity as for regular employee
  • Opt in/opt out permitted for establishments under EPF and ESI but with strict procedures

The Occupational Safety, Health and Working Conditions Code, 2020 (OSHWC)

Subsumed Legislations

  • The Factories Act, 1948

  • The Plantations Labour Act, 1951

  • The Mines Act, 1952

  • The Working Journalists and other Newspaper Employees Act, 1955

  • The Contract Labour (R&A) Act, 1970

  • The Motor Transport Workers Act, 1961

  • The Inter-State Migrant Workmen Act, 1979

  • The Working Journalist Act, 1958

  • The Beedi and Cigar Workers Act, 1966

  • The Sales Promotion Employees Act, 1976

  • The Cine Workers and Cinema Theatre Workers Act, 1981

  • The Dock Workers Act, 1986

  • The BOCW Act, 1996

 

Provisions prior to OSH code

    Contract Labor (R&A) Act 1970-applies to establishment employing 20 or more contract labor or contractor engaging 20 or more contract labor in past 12 months. Registration by establishment/ license by contractor. Rules for wages, working hours, welfare provisions etc

     

    Chapter Layout in Code

    Chapter 1: Preliminary
    Chapter 2: Registration
    Chapter 3: Duties of Employer and Employee
    Chapter 4: Occupational Safety and Health
    Chapter 5: Health, Safety and Working Conditional
    Chapter 6: Welfare provisions
    Chapter 7: Hours of Work and annual leave with wages
    Chapter 8: Maintenance of Registers and Records
    Chapter 9: Inspector cum Facilitators
    Chapter 10: Special provisions of employment of women
    Chapter 11: Contract labor and ISMW etc
    Chapter 12: Offences & Penalties
    Chapter 13: Misc

    Key Provisions (OSHWC Code)

    • Employer Duties: Ensure no hazards causing injury/occupational disease, comply with OSH standards, annual health examination, safe working environment, disposal of hazardous waste, issue appointment letters. No charges to employees for safety/health.

    • Working Hours: Max 8 hours per day, but spread over permitted up to 12 hours (with rest interval). Max 6 days per week.

    • Overtime (OT): OT for work beyond 8 hours at 2X the wage rate. Max 125 hours in a quarter (Delhi proposed 144 hours).

    • Rest Interval: 30 minutes after every 5 hours.

    • Weekly Holiday: One paid holiday.

    Comp off for work on weekly holiday must be availed within 2 months.

    Welfare: Cleanliness, hygiene, ventilation, drinking water, lighting, toilets. Canteen (100+ employees) and Crèche (50+ employees) mandatory.

    Appointment Letter: Mandatory with specified terms (wages, deductions, OT).

    Women Employment:

    • Night Shift: Consent required for working between 7 PM and 6 AM with safety measures.

    • Hazardous Jobs: Permitted with consent and safety measures (except pregnant women).

    Contract Labor Provisions

    • Applicability: Every establishment employing 50 or more contract labor (previously 20).

    • Core Activity Prohibition: Employment of contract labor in "core activity" is prohibited.

    • Core Activity Definition: Any activity for which the establishment is set up and includes any activity essential to such activity.

    • Non-Core Activity: Sanitation, security, canteen, loading/unloading, courier, gardening, housekeeping, laundry, transport, and intermittent activity.

    • Test for Core Activity:

      1. Is it incidental/necessary for the industry?

      2. Is it of perennial nature (sufficient duration)?

      3. Is it ordinarily done through regular workers?

      4. Is it sufficient to employ a considerable number of whole-time workers?

    • Exceptions: Contract labor permitted in core activity if:

      • Normal functioning ordinarily requires a contractor.

      • Activities do not require full-time workers for the major portion of the day.

      • Sudden increase in volume of work needs to be accomplished in specified time.

    Leave & Other Provisions

    • Earned Leave (EL): 1 day for every 20 days worked (eligible if worked 180 days in calendar year).

    • Leave Encashment: Carry forward up to 30 days; excess can be encashed. Even the 30 days CF is eligible for encashment if desired by the worker.

    • Inter-State Migrant Workers (ISMW): Earnings up to Rs. 18k/month. Entitled to journey allowance (to and fro fare) once a year and portability of benefits (PDS).

    Action Points under OSHWC Code for NGOs

    • Prohibition of contract labor in core activity.

    • Implement health, safety, and welfare provisions as per OSH standards.

    • Issue mandatory appointment letters.

    • Annual Health checkup (refer to state rules).

    • Review EL provisions for compliance with both OSH Code and State Shops & Establishments Act.

    • Leave calendar should be the calendar year, not financial year.

    The Industrial Relations Code, 2020

    Subsumed Legislations

    • The Trade Unions Act, 1926

    • The Industrial Disputes Act, 1947

    • The Industrial Employment (Standing Orders) Act, 1946

    Definition of Industry

    "Industry" means any systematic activity carried on by co-operation between an employer and worker (whether such worker is employed by such employer directly or by or through any agency, including a contractor) for the production, supply or distribution of goods or services.

    services

    Exclusion:with Ita view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature), whether or not,—
    (i) any capital has been invested for the purpose of carrying on such activity; or 
    (ii) such activity is carried on with a motive to make any gain or profit, but does not include —
    (i) institutions owned or managed by organizationsorganisations wholly or substantially engaged in any charitable, social or philanthropic service.service; or
    (ii) any activity of the appropriate Government relatable to the sovereign functions of the appropriate Government including all the activities carried on by the departments of the Central Government dealing with defence research, atomic energy and space; or
    (iii) any domestic service; or (iv) any other activity as may be notified by the Central Government;

    Key Impact Areas

    • Concept Fixed-Termof Employment:fixed-term employment
      Introduced with benefits equalnot be less than of a permanent worker
    Conditions for strikes and lockouts prescribed 
    No strikes and lock outs without giving proper notice in compliance with the norms laid down in the code Standing orders 
    Required in establishments where 300 or more workers are employed Retrenchment, lay-off and closure provisions 
    Not to permanentbe workers.applicable if workers are <300; lay-off related provisions will not be applicable if workers are <50

    Grievance redressal committee mandatory
    5 To be set up where 20 or more workers employed, requires proportionate representation

    StrikesRecognition andof Lockouts:Trade Unions
    All Conditionspossible prescribed;efforts noticehave required.

    been

    Standing Orders: Requiredmade in establishmentsorder whereto 300provide orrecognition moreto workersthe areTrade employed.Unions in India.

     

    Retrenchment/Lay-off: Provisions not applicable if workers <300. Lay-off provisions not applicable if workers <50.

    Grievance Redressal Committee: Mandatory where 20 or more workers are employed.

    Reskilling Fund:Fund
    Re-Skilling fund for retrenched employee. Employer to deposit 15 days wages for retrenched employees.employees

    Key Takeaways

    • NGOs cannot be in denial regarding theon applicability of SS laws.laws Expanded coverage (minimum wages, ESI) affects them.now

    • Expanded coverage of labor laws for NGOs-minimum wages, ESI, Payment of Wages. If not exempted specifically exempted (like IR CodeCode, forPayment charitableof orgs),Bonus, all acts are applicable.applicable to NGOs

    • Provisions in new Labor Codes are substantive, rules are being framed for implementation of Codes

    Since labor is a concurrent subject;subject, Statecentre and states formulate rules that cannot supersede Codes.Labor Codes

    TransitionDuring period:this Existingtransition period, existing rules applyand untilregulations under the old acts remain in force to the extent that they are not in conflict with the new rulesLabor areCodes' fully implemented (likely by April 2026).provisions.

    HRDraft andCentral Financerules processfor reengineeringall willcodes beprepublished required.on 30th Dec for public comments invited within 45 days. Rules by States are in draft stage/inviting comments. Full implementation likely by April 2026

    ComplianceWhile frameworkmost includesSS stifflaws penaltiesare andrepealed, web-basedthe integration.EPF&MP Act is in force

    Examine passing on incremental costs to running grants and donor negotiations for new business proposals with incremental costs going forward

    HR and finance process reengineering and expanded coverage would require increased manpower with the new Codes. Compliance framework and stiff Penalties since everything is web based and integrated Review and revision of HR Manual after final rules formally issued but provisions in Codes as notified will apply Engage with your teams on orientation andof codes including finalization of comp restructuring.and benefits. While making preparation for implementation, maintain status quo for some time. Look out for guidance from Ministry of Labor and Employment Be consistent in approach once the course of action is finalized

    Compliance Checklist under Labor Codes

    Wage Code

    SS Code

    OSH Code
    Definition of

    Employee Wages

    classification

    EPF, Gratuity,EL-Basis

    EL Basis

    Hours and days of Work per week (5/6 days)

    Definition of Wages

    EPF contribution %

    Max hours per day

    Revisit and revise comp structure

    EPF

    EDLI contribution %

    Max hours

    Leave percalendar

    day

    Minimum Wages (Centralboth central & State)

    state for multi state orgs) EDLI contribution % Leave calendar Payment of Wages timelines

    ESI coverage Panpan India

    CL/SL (not as per codes)

    Full &

    Payment Finalof (FnF)

    Wages timelines

    Opt in/opt out EPF & ESI

    EL eligibility and carry forward

    forward. Also consistency of OSH and S&E Act for EL

    FnF

    Flexi hiring through FTE

    Appointment Letter

    Deductions from Wages specified

    Flexi hiring

    Gratuity throughfor FTE

     >1 year Appointment Letter

    Annual health checkup

    Equal remuneration for all gender

    Gratuity

    Retrospective application of Wages for FTEGratuity

    (>1 year) Annual health

    Health checkup

    & Working conditions   Retrospective application

    Compulsory insurance of WagesGratuity

    for Gratuity Health & Working conditions /

    Welfare provisions

      Compulsory insurance

    Vacancy ofnotification Gratuity

    on career centre

    OSH standards

      Vacancy notification

    Availing onSS careerservices

    centre

    Prohibition for engagingforengaging contract labor in core activity

      Availing SS services Wage Slip

    ISMW

    ISMW

    Wage Slip

    Other SS Laws - Coexisting

    Shops & Establishment Act (State Act)

    • Applicability: Based on coverage of charitable institutions within the definition of 'Establishment' in the respective State Act.

    • Regulates: Working hours, holidays, leaves (EL, CL, SL), OT, etc.

    • Earned Leave: Varies by state. Generally min 240 days for eligibility, 1 EL for 20 days worked, accumulation/carry forward rules apply.

    Professional Tax (PT)

    • Levied by: State/UT on persons earning income.

    • Exempt States: Delhi, UP, Rajasthan, HP, Uttaranchal, Arunachal Pradesh, Haryana.

    • Compliance: Registration required in each state for multi-state operations. Deduction/deposit based on income slabs.

    POSH (Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act 2013)2013 

    • Mandate: Safe environment policy, Internal Complaints Committee (ICC) if employees >10.

    • Inquiry: To be completed in 90 days.

    • Reporting: Annual report to district authority (if >10 employees) and in Directors Report (for companies).

    Apprentices Act 1961

    • Mandatory: Establishments with 30 or more employees must engage apprentices (2.5% - 15% of workforce).

    • Voluntary: If strength is 4-29.

    • Training: 6 months to 4 years.

    • Stipend: Provided during training. Reimbursement available under NAPS-2 (25% of stipend capped at Rs. 1500/month).

    • Status: Apprentice is not a worker; labor laws are not applicable.

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