New Labour Codes: Transformative shifts and their implications for India’s workforce and employers

By Puneet Gupta

New labour codes 2025 explained: India’s labour landscape is undergoing its most significant reform since Independence. The Government has consolidated 29 central labour laws into four comprehensive Labour Codes, the Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health and Working Conditions (OSHWC) Code (2020). Effective from 21 November 2025, these Codes aim to streamline compliance, strengthen worker protections, and align India’s labour market with modern economic realities. At the heart of this reform is the harmonisation of scattered and often contradictory laws into a unified framework, introducing common definitions for key concepts such as “wages”, “employee”, “worker”, and “employer”. By standardising registration, inspections, and filings, the new regime promises smoother administration for businesses and greater clarity for workers.

Uniform Wages and Formalisation

One of the most impactful changes is the introduction of a national floor wage and a standardised definition of “wages”. This move prevents fragmentation of salary components and ensures statutory benefits like gratuity, leave encashment and overtime are calculated on a consistent basis. For provident funds, given the Rs 15,000 current threshold in the scheme, as long as basic salary exceeds Rs 15,000, provident fund contributions may continue on basic salary, avoiding any increase. While this strengthens income security for workers, it also compels employers to analyse the impact on salary structures and benefit calculations. The Codes further advance formalisation by mandating written appointment letters for all employees, in state government prescribed format. Existing employees may need to be issued a fresh appointment letter within 3 months of notification of state rules.




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Social Security for All

A defining feature of the new framework is the inclusion of gig, platform, and unorganised-sector workers within the social security net. Governments are empowered to design schemes offering health insurance, maternity benefits, and old-age protection. For platform companies, once the gig worker social security scheme is launched, this means new compliance obligations, including mandatory contributions to a social security fund, worker documentation, and periodic reporting. Aggregators will contribute 1–2% of annual turnover, capped at 5% of payouts to gig and platform workers.

Flexibility and Workforce Models

The Industrial Relations Code introduces greater flexibility by raising thresholds for prior government approval in cases of layoffs, retrenchment, and closure, a long-standing industry demand. Fixed-term employment is now formally recognised, granting full statutory benefits and gratuity eligibility after one year of service. These changes enable companies to align workforce strength with market cycles while offering workers clarity on tenure and benefits. At the same time, contract labour is prohibited for core activities except under defined circumstances, pushing businesses toward more transparent hiring practices.

Working Hours and Safety Standards

The Codes retain the 48-hour weekly limit but allow flexibility in daily schedules, provided overtime is paid at twice the regular wage rate and rest intervals are maintained. This creates opportunities for workers to earn more through structured overtime while enabling employers to manage production peaks efficiently. The OSHWC Code strengthens workplace safety norms, mandates annual health check-ups for workers over specified age, and permits women to work night shifts with consent and safety measures. These provisions enhance occupational health and gender inclusivity, requiring employers to invest in safety infrastructure and compliance systems.

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The Road Ahead

While the Codes are now in force nationwide, detailed rules and schemes under central and state jurisdictions are awaited. Until the new rules are notified, current rules will continue to apply along with labour codes. Organisations must immediately review job roles, hiring models, compensation structures, and HR policies to ensure compliance. This reform represents a paradigm shift balancing worker welfare, labour market flexibility, and ease of doing business. For employers, it means near-term structural adjustments but promises long-term clarity and efficiency. For workers, it offers formal recognition, stronger protections, and expanded access to social security, positioning India’s labour ecosystem for a more organised and equitable future.

(Puneet Gupta is Partner, People Advisory Services- Tax, EY India)

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