Implementation and Implications of the New Labour Codes in India
The Indian government’s ambitious labour reform effort has taken shape in the form of four new labour codes. These aim to simplify India’s employment laws, improve compliance efficiency and strengthen labour protection. To that end, the Indian government has recently approved the enactment of three new labour codes – the Social Security Code, the Industrial Relations Code (“IR Code”) and the Occupational Safety, Health and Working Conditions Code (“OSH Code”). These labour codes have been passed by the Indian legislature and are on their way to becoming law; the four codes, along with the three labour codes and the Wage Code (which was passed in 2019), will transform and consolidate a large number of labour laws in India and will undoubtedly have an impact on companies and their employment policies in India.
What
Are the Four Labour Codes?
1. Code on Wages, 2019
The Wages Code,
2019 is a major legislative amendment aimed at simplifying and unifying the
laws relating to wages in India. It replaces four earlier laws - the Minimum
Wages Act, the Payment of Wages Act, the Payment of Bonus Act and the Equal
Wages Act. The Code introduces a uniform definition of "wages" across
different labour laws, which helps to avoid confusion in calculating salaries,
bonuses and social security contributions. The Code primarily ensures that all
workers, irrespective of the industry or type of employment, will receive the
minimum wage fixed by the government. It also makes it mandatory to pay wages
on time, protecting employees in the contractual and unorganised sectors as
well. In addition, it empowers the Central and State Governments to fix floor
wages - a baseline below which no worker can be paid. After the Code comes into
force, actual sector-specific wages will be fixed by government notifications
(issued from time to time). While some types of wage deductions are permitted,
such deductions cannot exceed 50 per cent of the total wages drawn by the
employee or worker. Overall, the Code promotes fairness, transparency, and
consistency in pay-related practices across the country.
2.
Industrial Relations Code, 2020
The Industrial Relations Code, 2020 aims to streamline the laws related to trade unions, industrial disputes, and employment conditions. It merges three earlier laws: the Trade Unions Act, the Industrial Disputes Act, and the Industrial Employment (Standing Orders) Act. This Code introduces a legal framework for fixed-term employment, simplifies the process for layoffs and retrenchments in larger establishments, and strengthens the dispute resolution mechanism through Industrial Tribunals. It also sets clearer rules for strikes, requiring prior notice, and promotes the formation of negotiating unions to improve employer-employee dialogue. Overall, it seeks to balance worker rights with business flexibility.
3.
Code on Social Security, 2020
The
Code on Social Security, 2020 consolidates nine existing laws related to social
welfare, including EPF, ESIC, gratuity, maternity benefits, and more. Its
primary goal is to extend social security coverage to all workers—whether in
the organized, unorganized, or gig economy. It introduces universal
registration for workers and employers, and allows for the creation of welfare
schemes for gig and platform workers. The Code also simplifies contribution
mechanisms and enables digital recordkeeping for better transparency. By
unifying multiple laws, it aims to ensure that every worker has access to
essential protections like health care, retirement savings, and income support.
4.
Occupational Safety, Health and Working
Conditions Code, 2020
The
OSH Code, 2020 brings together 13 different laws related to workplace safety,
health, and welfare. It applies to a wide range of sectors including factories,
mines, construction, transport, and journalism. The Code sets uniform standards
for working hours, leave, cleanliness, ventilation, and safety equipment. It
mandates free health checkups, clean drinking water, and restrooms in
establishments. It also introduces a single license and registration system for
contractors and establishments, making compliance easier. The goal is to create
safer, healthier, and more humane working environments across India. Expands
benefits like EPF, ESIC, and gratuity
Current
Implementation Status (as of 2025)
·
All
four codes have received
Parliamentary approval.
·
However,
full implementation awaits finalization of rules by each state.
·
The
central government is promoting digital compliance platforms and awareness
drives for smoother adoption.
Key Implications
The implementation of the new Labour Codes is
expected to bring notable changes across the employment ecosystem. For
employers, compliance will become more streamlined with a significant reduction
in the number of returns and registers required. Digital filings,
self-certification, and risk-based inspections will enhance transparency and
efficiency, while increased flexibility in hiring—particularly through
fixed-term employment—offers operational agility. Employees stand to benefit
from a standardized wage definition, which will impact their take-home pay and
boost social security contributions. Additionally, broader coverage under
schemes like EPF, ESIC, and maternity benefits, along with stricter workplace
safety standards, will enhance overall worker welfare. For MSMEs, the reforms
are projected to slash compliance burdens by over 90%, introducing a single
license and registration model alongside simplified norms tailored to small
businesses. These changes collectively signal a shift toward a more modern,
unified, and inclusive labour law framework in India.
Challenges & Considerations
Despite the promise of simplification and modernization, the new Labour Codes face several practical and structural challenges:
1. State-Level Readiness
Labour laws fall under the Concurrent List, meaning both the Centre and states must frame rules. While the central laws are passed, many states are still finalizing or notifying their rules, leading to inconsistent implementation timelines.
2. Awareness & Training Gaps
Many employers—especially MSMEs—and workers are unaware of the new provisions. Without proper training and outreach, there’s a risk of non-compliance or misinterpretation of the codes.
3. Inclusion of Informal Sector
India’s vast informal workforce (over 90%) poses a major challenge. Bringing gig workers, daily wagers, and small contractors under formal compliance requires targeted strategies and digital onboarding.
4. Digital Infrastructure & Access
While the codes promote digital compliance, many small businesses lack the tools or capacity to adopt e-filing, self-certification, and online registers—especially in rural or semi-urban areas.
5. Policy Ambiguity & Updates
Frequent government notifications and evolving interpretations create uncertainty. Companies must stay agile and update their HR policies and employment contracts accordingly.
6. Enforcement & Monitoring
Effective implementation depends on robust inspection systems, grievance redressal mechanisms, and coordination between central and state labour departments.
Final Thought
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