Upcoming Indian Labor Code Changes to Affect Working Hours, Salary

Changes are coming for companies in India ahead of a targeted July 1, 2022, effective date for multiple Labor Code updates, including changes in working hours, employee provident fund (EPF) contributions, and salary.  

With regard to the changes in working hours, the labor codes do not intend to change the number of hours which can be worked in a week.  Instead, the new labor codes will permit companies to increase working hours from eight to nine hours a day to 12 a day.  If this is done, however, companies must provide employees with three days off every week.   

The second change relates to employee provident fund contributions and take-home salary.  The new Labor Codes may put an employee’s basic salary at 50% of the gross salary.  While this helps the employee in the long-term, it may result in a decrease in take-home pay for some employees and particularly those in the private sector.   Of course, the near-term decrease in take-home salary will be offset in the future by increased retirement and gratuity amounts.  The aim would be to enhance employee retirement security.   

The Indian Government continues to work to implement a set of new Labor Codes, including four codes – touching on salary, EFP contributions, and working hours – as soon as possible.  However, despite the Government’s intentions, several states have not been able complete the implementation changes.  

HRPI View: While future of work is being hotly debated across the world, HR will do well to identify roles that can be shifted to a 12-hour 4-day week. We feel that such a change may have a good impact on curbing attrition.