Impact on Manufacturing – Flexibility vs. Cost

For Manufacturing Industries (factories, foundries, production plants, etc.), the shift to the 4 Labour Codes is a major overhaul. The new system generally offers more operational flexibility (hiring/firing/shifts) but may increase payroll costs due to the new definition of “Wages.”

Here is the specific impact on the Manufacturing sector:

1. Operational Flexibility (Hiring & Shifts)

The most significant relief for manufacturers comes from the Industrial Relations (IR) Code and OSH Code, which relax the rules for managing the workforce.

• Higher Threshold for “Standing Orders”:

  • Old System: Factories with 100+ workers had to have certified “Standing Orders” (rigid rules for classification, shifts, and termination).

  • New System: This threshold is raised to 300+ workers.

  • Impact: Factories with fewer than 300 workers have full flexibility to hire, fire, and manage shifts without seeking government certification for their rules.

• Fixed-Term Employment (FTE):

  • New System: You can now directly hire workers for a fixed period (e.g., 6 months for a specific order) without using a contractor.

  • Impact: You can treat them as regular employees for that duration. They get pro-rata gratuity (even if they work less than 5 years) but you are not obligated to keep them after the term ends.

• Contract Labour Threshold:

  • Old System: Applied if you had 20+ contract workers.

  • New System: Applies only if you have 50+ contract workers.

  • Impact: Smaller units can use contract labour with less compliance paperwork. Note: Contract labour is generally prohibited in “Core Activities” of the manufacturing process unless the activity is fluctuating/seasonal.

• Women in Night Shifts:

  • New System: Women are legally allowed to work in night shifts (7 PM – 6 AM) in factories, provided you ensure safety, working conditions, and obtain their consent.

2. Financial Impact (The “50% Rule”)

The Code on Wages introduces a change that could increase your monthly payroll and retiral burdens (PF and Gratuity).

• New “Wage” Definition:

  • The Rule: “Wages” = Basic + DA + Retaining Allowance. If other allowances (HRA, Overtime, Conveyance, etc.) exceed 50% of the total remuneration, the excess amount is added back to “Wages” for calculating PF and Gratuity.

  • Manufacturing Context: Factories often have low Basic pay and high allowances (Production Incentive, Night Shift Allowance, Heat Allowance).

  • Impact: If your allowances are high, your PF contribution and Gratuity liability will likely increase significantly.

3. Factory Compliance & Safety (OSH Code)

The Occupational Safety, Health and Working Conditions (OSH) Code subsumes the old Factories Act, 1948.

• New “Factory” Definition:

  • Old: 10 workers (with power) / 20 (without power).

  • New: 20 workers (with power) / 40 workers (without power).

  • Impact: Very small micro-units are now outside the strict “Factory” regulations.

• Single License:

  • Instead of renewing multiple licenses (Factory license, Contract labour license, etc.), you will have a single all-India license valid for 5 years.

• Leave Eligibility:

  • Workers now qualify for earned leave after working 180 days (previously 240 days). This means temporary workers will qualify for paid leave faster.

• Safety Committees:

  • Mandatory only for factories with 500+ workers (dealing with hazardous processes may have stricter norms).

4. Unions and Strikes (IR Code)

• Flash Strikes Banned:

  • Union workers cannot go on a “flash strike.” They must give a 14-day notice before any strike. This is critical for continuous process industries (like furnaces/foundries) where sudden stoppages cause damage.

• Sole Negotiating Union:

  • If you have multiple unions, you only need to negotiate with the one that holds 51% of the workforce. You don’t need to deal with every small union.

Summary: Good vs. Bad for Manufacturing