Penalties Structure under new Labour Codes

Blog   wpadmin   September 17, 2021

Executive Summary:

      • This article focuses on shifting perspectives under the new labour legislation for penalizing offences.
      • This article also compares the penalties for offences under the new Labour Code to those under previous labour laws.


Complex labour law processes are simplified by combining and encoding 29 labour legislation into four codes:

  • (a) Code on Wages, 2019,
  • (b) Industrial Relations Code, 2020,
  • (c) Code on Social Security, 2020 and
  • (d) Occupational Safety, Health & Working Conditions Code, 2020.

It aims to decrease the compliance load and facilitate business. The objective is to reduce compliance. The decriminalization of crimes is an important aspect of these Labour Codes.

Need for Decriminalization:

The reason behind decriminalization is that the imprisonment is a too harsh punishment for non-mala fide economic offences. The legal procedure surrounding by an offence including incarceration substantially raises employer concern, and reducing the risk of such proceedings leads to better ease of doing business. Criminal sanctions, particularly the fear of incarceration for small, often accidental offences, are a key factor for poor company investment. As a result, decriminalization of some accidental corporate crimes is desired to the greatest extent feasible since they impede both domestic and foreign investors.

The Ministry of Labour and Employment wanted to add rules with higher fines to labour regulations in order to establish strong deterrence while lowering the risk of incarceration. The idea is that strong deterrent clauses with hefty fines will compel companies to have watertight internal organizational and operational processes in place to guarantee that there are no gaps in compliance. Decriminalization, along with the simplicity of maintaining registers and supplying data under the new Labour Codes, guarantees that the compliance process is streamlined and that the chance of committing non-serious, non-wilful offences owing to inadequate internal systems is minimized.These legislative decriminalization initiatives would eliminate punitive restrictions that are impediments to conducting business and establish confidence.

Mensrea considered as point of focus:

Most criminal offences do not require incarceration as a penalty, and the court has the option of sentencing the offender to imprisonment or only imposing a fine. This guarantees that incarceration as a form of punishment is used sparingly and that the judge has a solid, justifiable cause for doing so.

The Codes, on the other hand, establish severe penalties for deliberate breaches by the employer. Section 133(a) read with Section 133(i) of the Code on Social Security, for example, imposes imprisonment for up to 3 years and not less than 1 year if contributions, such as insurance and provident fund contributions, have been deducted but not paid by the employer. This is due to the employer’s purposeful and wilful default in this case, which must be dealt with sternly under the law. Employers that commit serious and wilful violations of the Codes will not go unpunished, according to the Codes.

If the employer fails to make the contribution but does not deduct it from the employee, the required punishment is less severe since the seriousness of the offence is lessened. The employer might then be sentenced to six months in imprisonment, with two months obligatory.

Similarly, Section 104 of the Occupational Safety, Health, and Working Conditions Code holds employers responsible if they violate any special or general order issued under Section 38 of the Code, which governs safety and dangerous/hazardous conditions in mines, factories, and ports. A hefty fine of at least INR 2 lakh, which can be increased to INR 5 lakh, is provided. However, after recording reasons, the court has been given the authority to impose a punishment less than 2 lakh rupees. Cases of non-wilful and non-intentional default or negligent violation might be a reasonable justification for imposing a lower fine.

Possibility to Comply Prior with Prosecution:

Section 54(2) of the Code on Wages, Section 110 of the Occupational Safety Code, and Section 137 of the Code on Social Security have been included as intriguing additions that will further decrease needless prosecution under the Labour Codes. Before starting criminal actions against an employer, these rules demand that they be given an opportunity to comply with the applicable provisions. There has been considerable criticism that the Labour Codes are too liberal and do not provide for effective punishment of employers. That, however, is not fully correct.
As a result, we can observe that rules pertaining to fines and offences under the Labour Codes have been constructed to encourage ease of doing business by decriminalizing corporate crimes and economic offences.

Revised Penalties under the New Labour Code:

Code on Wages

Code On WagesBeforeAfter
The Payment Of Wages Act, 1936Min: INR 1,500
Max: INR 7,500
Max: INR 20,000
The Payment Of Wages Act, 1948Min: INR 500Upto 6 monthsMax: INR 50,000
The Payment Of Wages Act, 1965Min: INR 1,000Upto 6 monthsMax: INR 20,000
The Payment Of Wages Act, 1976Min: INR 10,000
Max: INR 20,000
1-3monthsMax: INR 20,000

Code on Social Security, 2020

Code On WagesBeforeAfter
Employee’s Compensation Act, 1923Max: INR 5,000Max: INR 50,000
Employees’ State Insurance Act, 1948Min: INR 4,000
Max: INR 10,000
1-3 yearsMin: INR 50,000
Max: INR 1,00,000
1-3 years
The Employees’ provident Funds and Miscellaneous provisions Act, 1952Max: INR 4,000Upto 1 yearMin: INR 50,000
Max: INR 1,00,000
1-3 years
The Maternity Benefit Act ,1961Max: INR 5,000Upto 1 yearMax: INR 50,000Upto 6 months
The Payment of Gratuity Act, 1972Min: INR 10,000
Max: INR 20,000
3 months – 1 yearMax: INR 50,000Upto 1 year
The Building and Other Construction Workers Welfare Cess Act, 1996Min: INR 50,000
Max: INR 1,00,000
1-3 year
The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959Min: INR 500
Max: INR 1,000
Max: INR 50,000

The Occupational Safety, Health and Working Conditions Code, 2020

The Occupational Safety, Health and Working Conditions Code, 2020BeforeAfter
The Factories Act, 1948 (Factories ActMax: INR 1,00,000Upto 2 monthsMin: INR 5,00,000Upto 2 years
The Mines Act, 1952 (Mines Act)Max: INR 1,000Upto 3 monthsMin: INR 5,00,000Upto 2 years
The Dock Workers (Safety, Health and Welfare) Act, 1986Max: INR 500Upto 6 monthsMin: INR 5,00,000Upto 2 years
The Occupational Safety, Health and Working Conditions Code, 2020BeforeAfter
The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act)Max: INR 2,000Upto 3 monthsMin: INR 2,00,000
Max: INR 3,00,000
The Contract Labour (Regulation and Abolition) Act, 1970 (CLRA)Max: INR 1,000Upto 3 monthsMin: INR 2,00,000
Max: INR 3,00,000
The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 (ISMW Act)Max: INR 1,000Upto 1 yearMin: INR 2,00,000
Max: INR 3,00,000
Sales Promotion Employees (Condition of Service) Act, 1976 (Sales Promotion Act)Max: INR 1,000Min: INR 50,000
Max: INR 1,00,000

The Industrial Relations Code, 2020

The Industrial Relations Code, 2020BeforeAfter
The Industrial Employment (Standing Orders) Act, 1946Max: INR 5,000Min: INR 50,000
Max: INR 2,00,000
The Industrial Disputes Act, 1947Max: INR 100Min: INR 50,000
Max: INR 1,00,000
Upto 1 year
The Trade Union Act, 1926Max: INR 500Max: INR 1,00,000


There should be no further penalty for the relatively less serious crime underlying the shift of viewpoint to punishment according to labour legislation. The principal punishment in this case is the penalty for a less serious violation. Prison punishments may lead to poor investment in sectors for such a small offence. Therefore, the prospect of punishing offences under the new Labour Code must be changed. And this Article offers light on the changing prospects of penalty being imposed under the new labour legislation. It also compares the shift in penalties between the old labour regulations and the new labour code.

Legal Team

Proind Business Solutions Private Limited
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