The New Labour Codes: India’s Biggest Transformation in Employment Law, Corporate Compliance & Governance (2025 Guide)

India has taken a transformative step in reshaping its employment and labour framework. The notification by the Ministry of Labour & Employment  implementing the four Labour Codes is regarded as biggest transformation of the labour laws since the country’s Independence. The new Labour Codes, which are Code on Wages (2019), Industrial Relations Code (2020), Social Security Code (2020), and the Occupational Safety, Health and Working Conditions (OSHWC) Code (2020) unite 29 existing laws into one new and upgraded framework that not only secures the workers' rights but also eases the business operation for employers. The labour regulations are made simpler, social-security coverage is broadened, compliance requirements are cut down, and a very clear ecosystem for both employers and workers is created.

The reform is not just limited to superficial changes, it changes the foundation of the entire employer - employee relationship and it highlights India’s determination to adjust its labour system to the current global standards, and the characteristics of a fast-changing workforce. It is very important for companies to have a good grasp of the intent, the structure, and the consequences of these Codes, not only for compliance but also for risk management and planning of skilled workforce strategically.

Background: Why Labour Reform Was Necessary

 India's labour framework [WI2] has always been very diverse and scattered. For decades, the 29 central laws evolved independently, and this resulted in:

• Different and conflicting definitions of common terms such as “wages”, “employee”, “establishment” and “contractor” and many more
• Enormous compliance burden, as the employers had to file multiple returns, maintain several registers and deal with different authorities.
• Older regulations did not evolve to support modern business models, including digital platforms, start-ups, and flexible or remote working arrangements.
• Uncertainty and disputes that led to court interpretations of different statutory provisions.
• Restricted coverage that excluded gig workers, platform workers, freelancers, and informal workers from the welfare system.

India's aspiration of becoming a global manufacturing and services centre demanded a labour framework that was uncomplicated, adaptable, technology-ready, and inclusive. The Labour Codes attempt to modernize the system by solving long-standing structural problems while still making worker welfare the priority of the regulators.

Analysis of Each Labour Code

 1.  Code On Wage 2019

The Code on Wages provides a universal definition of wages that can be used throughout both social-security and labour-compliance frameworks. By establishing a unified definition of wages, the Code significantly strengthens wage code compliance, reducing ambiguity and payroll disputes across industries.

Key changes include:

• Implementing a single definition of “wages” throughout the labour Codes, reducing ambiguity and litigation
• A 50% rule for pay structure, making the basic pay plus the dearness allowance at least half of the total salary
• Introduction of a universal minimum wage that has eliminated the previous distinction between scheduled and unscheduled industries.
• The National Floor Wage has given the states a chance to standardize their minimum wage rates.
• Wage payments to be done within a specified time frame, such that daily, weekly, and monthly wage categories each have fixed time limits.
• Overtime, permissible deductions, and bonus eligibility have been clearly defined with an aim to reduce related disputes.
• Gender parity in wages has been established, and this guarantees equal payment for all the same job irrespective of gender.
• Broader coverage that includes all workers in all establishments irrespective of the salary thresholds.
• The inspector-cum-facilitator system is an inspection process that is more transparent, tech-enabled, and consultative.
• Digitisation of records, allowing for the electronically maintained registers, returns, and wage documentation that would make compliance easier.

 2. Industrial Relations Code, 2020

The Industrial Relations (IR) Code is designed to modernize the interaction between employees and employers, and at the same time, allowing the latter the flexibility to adapt to the constantly changing market conditions.

Key highlights include:

• Recognition of fixed-term employment, granting the same legal entitlements to fixed-term workers as to regular employees (among them, payment of gratuity on a pro-rata basis).
• Conditions for layoffs, retrenchment, and closure approvals have been raised so that now up to 300 workers (increased from 100) can work without prior government approval.
• A streamlined framework for Standing Orders, applicable only to companies with 300 or more employees, resulting in easier compliance for smaller companies.
• Compulsory strike notice is a requirement to inform the employer of the intention to strike, and action can be taken for a minimum of 14 days after the notice. This obligation, which was earlier limited to public utility services only, has now been extended to all industrial establishments. Lockouts are also subjected to similar procedural formalities.
• Formation of Industrial Tribunals with two members for quicker and more uniform dispute resolution.
• Organized trade union recognition, which calls for the employer to recognize the union with 51% membership or set up a Negotiating Council where no single union reaches that level.
• Creation of a Re-skilling Fund, requiring employers to contribute an amount equal to 15 days’ wages for every worker retrenched, aimed at improving re-employability.
• Setting up a Worker Re-skilling Fund necessitating employers to pay an amount equal to 15 days' wages for each worker laid off, with the intention of making them more employable
• Streamlining of regulatory processes through electronic record keeping, communication, and filing as part of digital compliance.

 3. Social Security Code, 2020

The Social Security Code is the most comprehensive of all four, clearly reflecting the very dynamics of the workforce. Its key provisions include:

• All workers, whether they are organized or not, full-time or part-time, on contracts, in gigs, or working on platforms, are included in the universal social security coverage intended for all employees.
• All aggregators and platform companies will have to made compulsory contributions to a separate Social Security Fund for gig and platform workers.
• All fixed-term and contract workers will receive gratuity rights proportionately, even if their employment lasts for less than 5 years.
• Maternity and parental leave has been extended to 26 weeks for all mothers, including adoptive and commissioning ones.
• Informal workers will be able to register voluntarily through centralized digital platforms.
• Social security benefits like PF, pension, and insurance will be transferable among employers and locations. 
• Multiple welfare schemes (PF, ESI, gratuity, maternity benefits, and other employee welfare schemes) will be integrated into a single framework.
• Digital compliance and record-keeping that can make it possible for employers to register, contribute, and manage benefits online.

Accessibility of benefits for workers in unorganized and gig sectors will be made easier, thus widening the net of inclusivity and coverage.

  4. Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020

The OSHWC Code brings together a total of 13 different regulations related to workplace safety and working conditions that were previously applying to factories, mines, and the construction sector as well as to many other areas.

Key features include:

• A single registration and license for contractors of factories and establishments throughout various jurisdictions, which would make compliance easier.
• Updated working-hour standards that would include a standard 8-hour workday, weekly limits, and also overtime pay at a higher rate.
• An overhaul of the leave and rest regulations, providing for weekends off, and paid leave entitlements for all the workers.
• The workplace safety and health regulations have been enhanced, which now include mandatory health check-ups, emergency preparedness, and accident reporting.
• The sanitation, welfare, and facility requirements have been improved, and these include clean drinking water, canteens, and first-aid provisions.
• Stronger protection of inter-state migrant workers that involve registration, documentation, and portability of benefits.
• The requirements on the contract labour have been streamlined with a focus on employer accountability and transparency during the hiring and managing of contractors.
• The new legislation has made certain provisions for women workers, this encompasses night-shift employment with safety measures and protections related to maternity.
• Integration of multiple safety and welfare laws, consolidating 13 previous enactments into a single Code for clarity.
• Digital record-keeping and reporting have been established, which allows for the electronic maintenance of registers, returns, and compliance documents.
• The focus has been placed on occupational health and accident prevention through mandatory safety audits and training programs.

What the New Labour Codes Mean for Corporates?

The introduction of the New Labour Codes  presents both opportunities and challenges for corporate India.

 1.  Compliance Simplification and Digitalisation

 The Codes bring together several laws that were overlapping, allow for single registrations, and are promoting the digitization of the maintenance of records. For companies, this means a cut down in duplicating processes and more efficient statutory reporting to authorities.

      Difficulties:

• Businesses, especially MSMEs, might struggle with the digital implementation and adoption with their HR and payroll systems already in place.
• Consistent application relies on the enactment of the pending state-level regulations, which may create a situation of uncertainties or gaps.

2.  Payroll Cost Impact

      Uniform wage definitions and the rule of 50% basic + DA will have a significant impact on the statutory contributions that include Provident Fund, gratuity, and bonuses. As a result, companies might end up with increased labour        costs and would probably have to alter their CTC structures.

      Challenges:

• Balancing cost efficiency with compliance may require a careful restructuring of allowances, bonuses, and variable pay components.
• Companies hiring gig workers, platform workers, or contractors must determine contributions for all the different engagement models, which would complicate the administration greatly.

   3.  Workforce Flexibility

 The recognition of fixed-term employment coupled with the higher thresholds of layoff and retrenchment thresholds grants companies more flexibility in their workforce policies. Trade union recognition laws are more transparent, and dispute-resolution procedures are made simpler.

     Challenges:

• Companies will have to update their policies, standing orders and standard employment contracts to be in line with the new laws.
• Misalignment or poor communication with the employees can lead to more disputes, particularly concerning retrenchments, rights of gig workers and fixed-term contracts.

4.  Strategic HR Implications

      The Codes will require companies to update their human resource Policies for the following:

• Policies on leave, overtime and working hours.
• Improving safety, health and welfare conditions according to OSHWC standards.
• Maintaining electronic records of payroll, social-security payments and employee complaints resolutions.

         Challenges:

• Providing training for all human resources managers and line supervisors in the new Codes.
• Creating digital systems capable of managing multiple registers, returns and compliance among different jurisdictions.

 5.   Governance and Risk Management

 Labour compliance now has board-level significance. Non-compliance can attract penalties, litigation, and reputational risk, particularly for large                 corporations and multinationals.

         Challenges:

• Monitoring adherence across multiple states and subsidiaries.
• Integrating labour compliance into broader ESG (Environment, Social, Governance) frameworks.
• Tracking evolving enforcement trends, especially for gig and platform workers.

Implementation Challenges and Open Questions

Despite strong intent, the success of the upcoming 2025 labour code will only depend on the actual implementation.

Here are some key challenges:

• State-level rules that are pending will be important for enforcement of the Codes in the respective jurisdictions.
• Several businesses across India would not be structurally ready, especially MSMEs, to comply with the new regulations, run their payrolls and to submit reports.
• Higher labour costs are anticipated due revised wage structures and wider social-security commitments.
• Need for digital setup and technical know-how that is especially needed by the smaller companies to cope with electronic record-keeping and filing.

In addition, the situation where social security payments for gig and platform workers are administered efficiently will continue to depend on proper guidelines and collaboration of enforcement.

Conclusion

The new labour laws India is designed to alter the country’s labour landscape completely in a positive way, if it’s properly implemented and uniformly applied in all states. For companies, it will be vital to start their preparation very early. Organizations that reactively adjust their cost structures, change policies, improve compliance systems, and train management personnel will be at a big competitive advantage.

Ultimately, the Labour Codes are more than mere legal reforms, but rather a new social contract that brings together economic flexibility and strong worker protection. Their impact in the long run will be determined by the cooperation between the different players involved, the readiness of the industry, and the continuous monitoring by the regulators.

By consolidating 29 legislations into four unified Labour Codes, India is modernising its regulatory landscape and moving closer to global labour standards. The Codes are designed to simplify obligations, support business growth, and create a more balanced and transparent environment for both employers and employees.

Water & Shark offers specialised services including meticulous drafting of agreements and HR policies, structured implementation strategies, and continuous advisory support to help organisations navigate this transition with confidence and align their workforce practices to international benchmarks.

FAQ – Frequently Asked Questions.

1. When will the new Labour Codes officially come into force?

The Codes have been passed by Parliament, but their implementation depends on state level rules being notified. Once both central and state rules align, the Codes will come into effect.

2. Will the new wage definition increase payroll costs for companies?

Yes, because the 50% rule for basic wages will increase PF, gratuity and other statutory contributions. Organisations may need to restructure CTC formats accordingly.

3. Do gig workers and platform workers get social security benefits under the new Codes ?

Yes. For the first time, gig and platform workers are covered under social security. Aggregators must contribute to a dedicated Social Security Fund.

4. What changes for employers in terms of compliance?

Compliance will shift to digital platforms, with single registrations, unified returns, standard definitions, and e-maintenance of records. This simplifies processes but requires system upgrades.

5. How should companies prepare for the transition?

By updating HR policies, revisiting employment contracts, aligning pay structures to the new wage definition, training HR teams, and integrating digital compliance systems.