Regulatory and Corporate Compliance — Overview
India’s New Labour Codes Explained (2024–2025): Key Changes, Compliance Impact, and What Businesses Must Do
By Nagavarapu Sudheer, M.Com, F.C.S., L.L.B., Partner, A2 Consultants
India has undertaken one of the most significant labour reforms in its post-independence history by consolidating 29 central labour laws into four comprehensive labour codes. These reforms aim to simplify compliance, improve worker protection, and modernize India’s labour regulatory framework.
For decades, India’s labour system was complex, fragmented, and difficult for businesses to navigate. Companies had to comply with multiple laws governing wages, industrial relations, workplace safety, and social security. The new labour codes streamline these regulations into four consolidated laws designed to improve ease of doing business while protecting worker rights.
This article explains India’s new labour codes in detail, including the major changes, compliance implications for businesses, and the expected impact on employers and employees.
Overview of the Four Labour Codes
India’s labour law reforms are built around four major codes:
- Code on Wages, 2019
- Industrial Relations Code, 2020
- Occupational Safety, Health and Working Conditions Code, 2020
- Code on Social Security, 2020
Together, these codes replace 29 central labour laws and introduce a more unified framework governing employment relationships in India.
Why India Introduced New Labour Codes
The older labour framework suffered from several structural problems:
- Multiple overlapping laws
- Complex compliance requirements
- Different definitions of “wages”
- Limited coverage of informal and gig workers
- Rigid employment regulations
The new labour codes aim to:
• Simplify compliance for businesses
• Improve worker protections
• Expand social security coverage
• Encourage job creation
• Increase labour market flexibility
These reforms are considered a key step in improving India’s investment environment and labour market efficiency.
1. Code on Wages, 2019: Major Changes
The Code on Wages, 2019 replaces four existing laws:
- Minimum Wages Act, 1948
- Payment of Wages Act, 1936
- Payment of Bonus Act, 1965
- Equal Remuneration Act, 1976
Uniform Definition of Wages
One of the most important reforms introduced by the new labour codes is the standard definition of wages.
Under the new rules:
- Basic salary + Dearness Allowance must be at least 50% of total compensation
- Allowances exceeding 50% will be added back to wages
Impact on Companies
This change will affect:
- Provident fund contributions
- Gratuity payments
- Bonus calculations
- Overall salary structuring
Many companies will need to restructure employee compensation packages to comply with the new wage definition.
National Floor Wage
The central government will establish a national floor wage.
State governments must set minimum wages above this level. This ensures a minimum wage standard across the country while allowing states flexibility to adjust wages based on local economic conditions.
Gender Equality in Pay
The new code prohibits discrimination in wages based on gender. Employers must ensure equal remuneration for similar work, strengthening workplace equality.
Timely Payment of Wages
The law mandates strict timelines for wage payments to prevent delays and ensure employee financial security.
2. Industrial Relations Code, 2020
The Industrial Relations Code, 2020 consolidates three important laws:
- Industrial Disputes Act, 1947
- Trade Unions Act, 1926
- Industrial Employment (Standing Orders) Act, 1946
This code governs employment relationships, trade unions, layoffs, and dispute resolution.
Increased Threshold for Layoffs
Under previous laws:
Companies with 100 employees or more required government permission for layoffs or closures.
The new labour code increases this threshold to:
300 employees
This gives medium-sized companies more operational flexibility in workforce restructuring.
Introduction of Fixed-Term Employment
The code formally recognizes fixed-term employment.
Key features include:
- Employers can hire workers for a fixed period
- Fixed-term employees receive equal benefits as permanent workers
- No obligation to convert them into permanent employees
This reform allows businesses to manage workforce requirements more efficiently.
Recognition of Negotiating Union
Where multiple trade unions exist:
- A union with 51% membership becomes the negotiating union
- If no union has majority support, a negotiating council will be formed
This simplifies collective bargaining and dispute resolution.
Rules on Strikes and Lockouts
The code introduces stricter procedures for strikes and lockouts, requiring advance notice periods. This aims to reduce sudden disruptions in industrial operations.
3. Occupational Safety, Health and Working Conditions Code, 2020
The Occupational Safety, Health and Working Conditions Code, 2020 merges 13 labour laws related to workplace safety and working conditions.
This includes laws governing:
- Factories
- Contract labour
- Migrant workers
- Mines
- Construction workers
Single Registration System
One of the biggest compliance improvements is the single registration system.
Companies operating in multiple states can obtain:
- one registration
- one license
This significantly reduces regulatory complexity.
Improved Workplace Safety Standards
Employers must ensure:
- safe work environments
- proper ventilation
- sanitation facilities
- drinking water
- medical facilities
The government may also prescribe industry-specific safety standards.
Rights of Inter-State Migrant Workers
The code introduces protections for migrant workers, including:
- journey allowance
- access to welfare schemes
- portability of benefits.
This addresses long-standing issues faced by migrant labour in India.
Women in Night Shifts
The code allows women to work night shifts, subject to safety safeguards.
This reform supports greater female participation in the workforce.
4. Code on Social Security, 2020
The Code on Social Security, 2020 consolidates nine social security laws, including:
- Employees’ Provident Fund Act
- Employees’ State Insurance Act
- Maternity Benefit Act
- Payment of Gratuity Act.
Social Security for Gig Workers
For the first time, the law recognizes:
- gig workers
- platform workers
- unorganized workers.
Digital platforms may be required to contribute to social security funds to support these workers.
Gratuity for Fixed-Term Employees
Under previous laws, employees needed five years of continuous service to qualify for gratuity.
Under the new code:
Fixed-term employees are eligible for pro-rated gratuity, even if they have not completed five years.
Universal Social Security Registration
The government plans to introduce a universal worker registration system that allows workers to access benefits across different employers.
This improves portability of social security benefits.
Compliance Impact on Businesses
The new labour codes significantly affect corporate compliance and HR policies.
Key areas companies must review include:
Salary Structure
Organizations must ensure basic wages meet the 50% rule.
Employment Contracts
Contracts should reflect new provisions for fixed-term employment and employee benefits.
HR Policies
Policies must align with new requirements for:
- workplace safety
- employee benefits
- working hours
- grievance procedures.
Social Security Contributions
Employers must prepare for expanded social security coverage, including obligations related to gig and contract workers.
Impact on Employees
Employees benefit from several protections under the new labour framework:
• standardized wage definition
• stronger social security coverage
• improved workplace safety
• benefits for gig and platform workers
• greater gender equality in employment.
However, the increased layoff threshold for companies may create concerns regarding job security among labour unions.
Implementation Timeline
Although the labour codes have been enacted, full implementation requires state governments to finalize their rules.
Most states have already drafted their rules, and the codes are expected to be implemented once all states complete the notification process.
Businesses should begin preparing now to ensure a smooth transition.
Key Advantages of the New Labour Codes
The reforms aim to create a modern labour ecosystem that benefits both employers and employees.
For Businesses
- simplified compliance
- fewer laws to manage
- flexibility in hiring
- easier workforce restructuring.
For Workers
- stronger wage protection
- expanded social security coverage
- safer workplaces
- benefits for informal workers.
Conclusion
India’s new labour codes represent a major transformation in the country’s labour regulation framework. By consolidating 29 laws into four simplified codes, the government aims to strike a balance between worker welfare and ease of doing business.
For companies operating in India, the new labour codes require proactive preparation. Businesses must review their compensation structures, employment contracts, HR policies, and compliance systems to align with the upcoming regulatory changes.
Nagavarapu Sudheer is a veteran tax and regulatory consultant at A2 Consultants with over 24 years of experience. A fellow member of the Institute of Company Secretaries of India (F.C.S) with a background in Law (L.L.B) and Commerce (M.Com), he has specialized in FDI structuring and group corporate restructuring for Fortune 500 companies and global startups alike. https://in.linkedin.com/in/sudheer-nagavarapu-4225334b
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