Synopsis: This article explains the introduction of new labour laws and how its impacting real estate projects cost, and compliance which includes 50% rule, impact on salary, working hours and more.
India is doing its most significant employment reform measure in a long time by combining 29 outdated labor laws into four new ones to upgrade the employees’ skill and make compliance easy.
New Labour Laws
There are 4 new Labour codes that impact more on the real estate segment:
1. The Core Concept: The 50% Rule
- The Rule: Your basic pay must be at least 50% of your total CTC
- The Impact: Previously, companies kept basic pay low for example 30-40% and allowances high like HRA, special allowance, etc because to reduce their PF and Gratuity liability.
- Now, if your allowances exceed 50%, the excess amount will be added back to wages for calculation purposes.
- Impact to Real Estate: Construction Costs Will Increase, prices may go up. The builders will probably transfer this additional cost to buyers, which will consequently result in a rise of property prices (especially affordable housing).
2. Impact on Salary
| Component | Changes | Why? |
| Provident Fund (PF) | Increases | PF is calculated as 12% of Basic pay. Since Basic pay is forced up to 50% of CTC, the PF contribution (both your and employer’s) goes up. |
| Gratuity | Increases | Gratuity is also calculated on Basic Pay. A higher basic pay means a higher gratuity payout when you leave. |
| Take-Home Salary | Decreases | Since more money is deducted to PF and Gratuity from your fixed CTC, the monthly cash in hand will likely drop (estimated 5-19% drop for some). |
- This means you will get less money now(monthly), but more money later (retirement/exit).
- Impact on Real estate: Since most of the projects last for 2-3 years, developers/contractors now have to contend with the issue of paying a huge amount (15 days’ wages per year of service) as Gratuity in addition to normal wages, this law significantly impacts on working capital.
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3. Working Hours & Weekly Offs
- Total Hours: The weekly limit remains 48 hours.
- Flexibility: Companies can allow a 4-day work week, but you would have to work 12 hours per day (12 x 4 = 48) to meet the requirement.
- Overtime: Overtime wages must be paid at twice the rate of normal wages if you work beyond the standard hours.
- Impact on Real Estate: Very often, the sites where construction takes place use 12-hour shifts to finish the work on time. This will now be a much higher cost for the developers, to avoid this developers delay the project.
4. Full & Final Settlement (F&F)
- The Change: Companies must settle your dues (F&F) within 2 working days of your exit (whether it is resignation, termination, or retrenchment).
- Current Reality: Currently, companies often take 45 to 90 days. This law makes that illegal.
- Fixed-Term Employees: If you are on a fixed-term contract (contractual job), you are now eligible for Gratuity if you complete just 1 year of service.
- Impact on real estate: The contractor is to pay the worker’s full settlement within 2 days if he fires the worker or the worker quits.
Other Impacts
1. The “Migrant Worker” Overhaul
Migrant labor workers are moving from UP/Bihar/WB to metros is the lifeblood of the real estate industry. The OSH Code (Occupational Safety, Health and Working Conditions Code) is making their situation better
- Journey Allowance: The employer has to pay a lump sum as the fare for the worker to travel to and from his hometown.
- Portability: The migrant worker will hold a “portable” social security account. If he works at a construction site in Mumbai for 6 months and then shifts to a site in Bangalore, his PF and benefits will accompany him digitally should be linked to Aadhaar.
- Registration: Every migrant worker is to be legally registered. The period of “unregistered” workers living in temporary shanties with no records is coming to an end.
2. Tougher Compliance & More Delays
Digital Records: Deployment of digital compliance is gradually taking over the system of keeping physical “musters” (attendance registers). The small contractors who lack the use of technology may face difficulties which could in turn result in the initial project delays as the industry undergoes the transition to the new paperwork.
Conclusion
With the new labour law expected to raise labour costs by 8 to 12%, alongside higher PF and gratuity liabilities, double wages for overtime, and increased documentation and compliance requirements, projects may initially face delays. However, these changes are also likely to create a more secure environment for millions of workers and, over time, drive improved productivity and stronger compliance structures
Written by Yatheendra N
