New Labour Codes Reshape India’s Gig Economy Landscape

On March 29, 2024, the Government of India enacted a significant overhaul of its labour laws, consolidating 29 existing regulations into four comprehensive codes. This reform aims to enhance compliance among employers, modernise outdated provisions, and establish a streamlined framework to facilitate business operations and increase employment opportunities. The new legislation is poised to affect gig and platform workers across multiple sectors, including delivery, logistics, transportation, and e-commerce.

For the first time, gig and platform workers are formally recognised under Indian law, granting them access to social security benefits. According to the new codes, aggregators will be required to contribute between 1% to 2% of their annual turnover, capped at 5% of the total payments made to these workers, towards a dedicated social security fund. This initiative has been described by Vaibhav Bhardwaj, a partner at Khaitan & Co., as a “tangible financial commitment,” although he noted that some of these costs may ultimately be transferred to consumers.

Major consumer internet companies, including Amazon, Zepto, and Flipkart, have expressed support for the new codes. In contrast, both Swiggy and Eternal, previously known as Zomato, stated in regulatory filings that they do not anticipate any long-term financial impact from the changes. Nevertheless, compliance challenges are expected, particularly for smaller businesses that rely on contractual labour.

Compliance Challenges Ahead

While the introduction of the new codes is seen as a progressive step, clarity on essential rules and interpretations remains pending. Bhardwaj commented, “The compliance timeline will ultimately depend on when both central and state rules are notified.” Several Indian states have previously enacted legislation concerning gig workers, raising questions about how the new codes will function alongside existing local regulations.

The government is also urged to standardise the amounts allocated for social security measures, such as Employee State Insurance (ESI) and Provident Fund (PF), to address disparities among various categories of gig workers. Major Prashant Rai, chairman and managing director of Balram Corporate Services, emphasised the importance of timely payments from principal employers to contractors for social security contributions. He advocated for the registration of workers on the eShram Portal to improve tracking of these contributions.

Anticipating Financial Impacts

The financial ramifications of the new compliance requirements for companies will take time to materialise. Stakeholders are awaiting comprehensive details regarding the establishment of a dedicated fund to support gig and platform workers in areas such as life, disability, health, and old-age benefits. In an official statement, Eternal expressed its commitment to enhancing outcomes for gig workers and indicated that the specifics of the Code on Social Security (CoSS) would become clearer once the corresponding regulations are established.

Similarly, Swiggy reported that it is enhancing its digital systems to integrate the new requirements into its operations seamlessly. The company does not foresee any significant impact on its cost structure or long-term financial viability as a result of the changes. It reiterated its commitment to supporting the government’s vision for a modern and inclusive social security framework.

The speed at which the central and state governments implement the new regulations will be crucial, as will the response from employees and trade unions. Bhardwaj noted that organisations will require adequate time to update their processes, including employment contracts and payroll systems, to comply with the new laws. In the initial phase, he does not expect aggressive enforcement of non-compliance, especially with the introduction of the ‘inspector-cum-facilitator’ role, which suggests that authorities will guide employers rather than impose penalties immediately.

Overall, this reform marks a significant shift in India’s approach to its gig economy, aiming to provide greater security and recognition for workers who have long been classified as part of an unorganised workforce. The real impact of these changes will unfold as companies adapt to the new legal landscape and the government finalises the necessary regulations.