For decades, India’s labour law system resembled a cluttered set of rules written across different periods, each carrying its own definitions, exemptions, and compliance requirements. With 29 separate labour Acts, businesses faced multiple registrations, inspections, and overlapping authorities, while workers often struggled to understand their rights or access benefits.
To bring structure and clarity, the Government of India consolidated these 29 laws into four comprehensive labour codes:
• The Code on Wages
• The Industrial Relations Code
• The Code on Social Security
• The Occupational Safety, Health and Working Conditions (OSH) Code
The objective is not to rewrite the labour ecosystem from scratch, but to remove contradictions, unify definitions, simplify compliance, and expand social security coverage to a broader workforce, including gig and platform workers. Most states have already drafted their rules, moving India closer to full implementation.
These labour codes impact nearly every working individual — salaried professionals, factory workers, gig workers, contract staff, micro-enterprise employees, and retail workers. They influence salary structures, eligibility for social security, definitions of “workers”, employee benefits, and workplace safety standards.
Understanding the Four Labour Codes
The Code on Wages
This code combines laws related to minimum wages, payment of wages, and bonuses, and introduces a uniform definition of the term “wages”. This unified definition forms the basis for calculating provident fund (PF), gratuity, and other social security benefits.
The Industrial Relations Code
This governs hiring, retrenchment, layoffs, and dispute resolution. The goal is to offer flexibility to businesses while maintaining essential safeguards for employees.
The Code on Social Security
This integrates PF, ESIC, maternity benefits, gratuity, and welfare measures under one framework. It also brings gig workers and platform workers into the social security fold—a historic step towards formal recognition.
The Occupational Safety, Health and Working Conditions (OSH) Code
This merges all laws related to workplace safety, working conditions, contract labour, and health standards. It standardises safety norms across industries and establishments of varying sizes.
Is the New Framework a Universal Win?
The new codes introduce both opportunities and challenges.
Impact on Employers
From a compliance standpoint, the codes aim to make operations more predictable. For instance, the Industrial Relations Code allows establishments with up to 300 workers (previously 100) to manage layoffs and closures without prior government approval. This is intended to encourage expansion and employment generation.
At the same time, the OSH Code introduces the “one-worker rule”, meaning even the smallest establishments must adhere to core safety standards.
Impact on Workers
The salary structure change is one of the biggest shifts. Under the revised definition, allowances cannot exceed 50 percent of total wages. This means the basic salary component must form at least half of the total compensation.
Since PF is calculated on basic wages:
• Higher basic = Higher PF deductions
• Higher PF = Lower take-home pay but stronger retirement savings
For example:
If the monthly CTC is ₹1,00,000, employers earlier structured basic pay at 30–40 percent. Under the new rule, basic pay must be at least 50 percent, increasing PF contributions and reducing take-home salary.
These changes strengthen long-term financial security but may reduce monthly disposable income.
Other notable employee-centric reforms include:
• Gratuity eligibility for fixed-term employees after completing one year of service.
• Easier portability of benefits for inter-state migrant workers.
• Permission for women to work night shifts with necessary safety measures.
• Stricter norms for hazardous workplaces, regardless of establishment size.
• Mandatory early-salary disbursal for IT and IT-enabled services — within the first week of every month.
Gig and Platform Workers Enter the Legal Framework
Under the Social Security Code, aggregators must contribute to a social security fund for gig and platform workers. While this marks an important milestone, the operational specifics — contribution percentages, timelines, and enforcement — still require clarity.
The Larger Debate: Flexibility vs. Protection
India’s labour codes attempt to strike a balance between two competing objectives:
• Making the labour market more flexible for businesses
• Providing better protection and social security for workers
Greater flexibility often benefits employers, while expanded protections increase administrative responsibilities. Striking the right balance will determine how smoothly the transition unfolds.
Where Do Things Stand Now?
India’s new labour codes represent an important step toward modernising workforce regulation. If executed well, they can deliver:
• Simplified compliance for businesses
• Stronger safety nets for employees
• Social security inclusion for gig and platform workers
However, the trade-offs are significant — lower take-home pay for many employees, reduced job protection in some cases, and delays until all states fully implement the codes.
These reforms are best viewed as a comprehensive reboot of India’s labour systems for a digital, dynamic economy. The true impact will depend on consistent implementation and collaborative efforts between employers, workers, regulatory authorities, and state governments.
The coming months will be crucial, as businesses review salary structures, workers assess benefit changes, and states fine-tune their rules. All stakeholders are watching closely to understand how India’s labour landscape will evolve.
