Decriminalisation and Compounding across the Labour Codes

Under the old labour laws, a minor lapse such as a missing register could lead to criminal prosecution, while serious violations were often settled informally. The Codes try to correct both problems: they make compliance the first goal, keep fines rather than imprisonment for most first offences, and allow offences to be compounded on payment, while reserving imprisonment for serious and repeated breaches. This note compares the enforcement model across the four Codes.

1. The Enforcement Ladder

Figure 1: How the Codes escalate enforcement

• Opportunity to comply. The Code on Wages (s.54(3)) and the Social Security Code (s.137) require a written direction to comply before prosecution for specified contraventions; the OSH Code follows a similar improvement-notice approach.
• Adjudication by officers. Fine-only offences under the Code on Wages (s.53) and the IR Code (s.85) may be decided by an officer not below the rank of Under Secretary, after an inquiry, without going to a criminal court.
• Fine-only first offences. Under the Code on Wages, first offences carry fines of up to ₹50,000, ₹20,000 or ₹10,000; imprisonment arises only on repetition within five years (Topic 9)
• Broader policy. The same approach appears in the Jan Vishwas (Amendment of Provisions) Act, 2023, which decriminalised minor offences across many Central laws.

2. Compounding Compared

Figure 2: Composition under each Code

• Who compounds. A Gazetted Officer or other officer notified by the appropriate Government.
• Effect. Before prosecution, compounding bars prosecution for that offence; after prosecution, the accused is discharged with notice to the court.
• Non-compliance. An employer who fails to comply with a compounding order pays an additional amount, such as 20% of the maximum fine under the Code on Wages, IR Code and Social Security Code.

3. What Remains Serious

• Social security dues. Deducting an employee's contribution and not paying it carries imprisonment of at least one year and fine of ₹1 lakh (Topic 27)
• Large-scale retrenchment. Lay-off, retrenchment or closure without permission in establishments of 300 or more attracts fines of ₹1 lakh to ₹10 lakh, and more on repetition (Topic 18)
• Death at work. Safety contraventions causing death attract imprisonment and fines, with part of the fine to the heirs (Topic 35)

4. The Debate

• Case for. Simpler compliance, fewer prosecutions for technical lapses, faster closure of cases, and composition money directed to workers' welfare.
• Case against. Trade unions argue that fines and compounding may become a cost of doing business, reducing deterrence, especially where inspection capacity is limited.

5. Frequently Asked Questions

What does decriminalisation mean under the Labour Codes?

It means that many first or technical contraventions are punishable with fines rather than imprisonment, can be decided by an adjudicating officer rather than a criminal court, and can be compounded on payment. Employers also get an opportunity to comply before prosecution. Imprisonment is reserved mainly for serious or repeated offences.

How does compounding differ between the Codes?

The Code on Wages allows compounding at 50% of the maximum fine, but not for offences punishable with imprisonment. The IR Code and OSH Code allow 50% for fine-only offences and 75% for offences punishable with imprisonment up to one year or fine. The Social Security Code allows half and three-fourths respectively. Repeat offences within the set period cannot be compounded.

6. Related Topics

• Topic 36: Compliance under the Labour Codes. The compliance framework.
• Topic 38: Transition, Repeal and Savings. Offences committed under the old Acts.