Centre unveils new labour codes, overhauls workforce practices, benefits

The Centre on Friday rolled out four new labour codes that extend basic social security and minimum wage guarantees to over 400 million workers across the formal and informal sectors.

Further, the codes include provisions such as equal pay for women, gratuity for fixed-term employees after one year, free annual health check-ups for workers above 40 years, double wages for overtime, and full health security for workers in hazardous sectors.

The codes replace a labyrinth of 29 fragmented laws, a statement by the labour ministry said, calling it a significant effort to modernise archaic laws. Some of these laws date back to the colonial and immediate post-Independence era (1930s–1950s), in a world that was “fundamentally different”, the statement added.

The new framework, effective immediately, consolidates the country’s employment statutes into four codes: the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020.

While the labour ministry’s statement said the government will engage with stakeholders in framing rules, regulations, and schemes, under the Code, a senior government official told Mint that the Centre will publish draft rules within a week, open them for 45 days of public comments, and finalise them within the following 45 days. Provisions that require no rules take effect immediately, while others will be notified after consultations.

A key feature across all four codes is the revised definition of ‘wages’, which will now include basic pay, dearness allowance and retaining allowance, and employers must ensure that at least 50% of total remuneration qualifies as wages.

That is different from earlier when employers often structured salary packages so that basic pay plus DA formed a small portion of total compensation, with large parts allocated to allowances that did not count towards benefits such as gratuity or provident fund.

The change is expected to impact the calculation of various social security contributions, including Provident Fund (PF), Employees' State Insurance Corporation (ESIC), Workmen’s Compensation, and maternity benefits.

The new labour codes have been widely welcomed, though accompanied by some caution.

Lohit Bhatia, president-workforce management at Quess Corp, said besides strengthening ease of doing business, “reducing the compliance burden by single register, reducing licensing across establishments will lead to additional investment including in labour dominated sectors and, thus, employment activity”.

“It is still early days and it formalises employment and protects the rights of employees,” Neeti Sharma, chief executive officer of TeamLease Digital told Mint. She noted that CTC (cost to company) may rise as benefits like gratuity and leave encashment will now be calculated on the 50% wage floor.

Madhu Damodaran, regional managing partner, AM Legals, a law firm, concurred: “While for employees this is great, it will also increase the cost for the employers who may pass on the cost. So in some cases it could have an adverse impact on the take-home salaries.”

Aditya Narayan Mishra, managing director of CIEL HR Services, said the transition will require preparation from employers, especially MSMEs and labour-intensive sectors. “Compliance costs may rise initially, and states must move in unison for smooth rollout,” he said. With phased implementation and supportive digital systems, he added, the reform could be transformative.

Varun Jain, head of retirement, India, for advisory, broking and solutions company, WTW, said while the codes enhance social security and coverage for employees, employers will need to operationalize the changes and assess any potential additional costs such as wage settlement, and financial implications on retiral benefits.

“It's a wait-and-watch on the implementation roadmap as it will be interesting to see if the government allows companies to have some transition time,” said Jain.

Gig economy formalized

Perhaps the most significant change is the expansion of social protection. For the first time, the codes formally recognise gig workers, platform workers and aggregators, and extend social security benefits to them.

Sonal Arora, country manager at GI Group Holding, said the codes legitimise gig work as a key part of India’s labour market and give delivery partners, drivers and independent contractors more transparent and accountable payout systems.

In a statement, the labour ministry said all workers — including gig workers — will now get PF, ESIC, insurance and other social security benefits. Niti Aayog estimates India’s gig workforce will grow from 10 million in 2024–25 to 23.5 million by 2029–30.

This means companies such as Flipkart, Amazon, Swiggy, Zomato, Blinkit, and Zepto, among others, must allocate 1–2% of annual turnover — capped at 5% — towards gig and platform workers.

Rajneesh Kumar, chief corporate affairs officer, Flipkart Group, said the codes offer a predictable framework for businesses and workers. Spokespersons of Uber and Amazon also welcomed the move.

The new system is also encouraging sectors like logistics to hire more gig workers, as documentation and onboarding are expected to become easier. “We will now invest in training more workers to incorporate them in the skilled workforce,” said Jitendra Kumar, co-founder and executive director of third-party logistics firm Emiza.

Kumar added that high-attrition sectors like quick commerce and logistics also stand to benefit, though issues related to interpretation and organization structures may arise initially.

“For employers, this is the moment to proactively reassess workforce structures, update employment documentation and realign compliance systems to ensure a smooth, risk-free transition to the new regime,” said Pooja Ramchandani, partner at law firm Shardul Amarchand Mangaldas & Co.

GI Group Holding's Arora added that gig-heavy companies need integrated databases consolidating wages, working hours and social security contributions. “Compliance will become proactive rather than reactive,” she said.

Textiles

For the textile sector, which relies heavily on migrant labour, the codes place direct, contractor-based and self-migrated workers on a level playing field with equal wages, welfare benefits and PDS (public distribution system) portability regardless of migration status.

Workers are protected by provisions for double overtime wages and the ability to claim pending dues for up to three years, easing dispute resolution.

The sector has largely welcomed the changes. Industry leaders praised the removal of the restriction on women working night shifts, saying it will smoothen factory operations and increase production. Exporters believe this will boost productivity and competitiveness in global markets.

Industry players welcomed single registration, single licence and single return for employers, and the move to an inspector-cum-facilitator regime that they said will strengthen ease of doing business.

Yarn producers and exporters said better wages will encourage workers to stay longer, reducing attrition in spinning units. However, they cautioned that gratuity eligibility after one year may also increase attrition.

Technology

The IT and ITES sectors see a renewed focus on transparency and fixed employment. Employers must release salaries by the 7th of each month, and companies have to create facilities enabling women to work night shifts and consequently earn higher wages.

Harpreet Singh Saluja, president of Nascent Information Technology Employees Senate (NITES), said equalising benefits for fixed-term and permanent employees, and standardising rules on work hours and overtime, he said, are important in a sector known for extended workdays, weekend work and high-pressure project cycles.

But he also warned that misuse of fixed-term roles, probation extensions, forced resignations and classifying employees as “consultants” to avoid benefits is already widespread. “If rules are not framed and enforced carefully, companies may restructure contracts to bypass obligations,” he said, adding that NITES will monitor implementation closely.

Meanwhile, in a statement, IT industry body Nasscom said eventual full implementation of the Codes can bring greater predictability and transparency.

“As rules are finalised, Nasscom will focus on supporting a smooth and practical transition for the industry,” the statement said. “A key priority will be to help ensure that the central framework under the Codes is harmonised with state level requirements, including shops and establishments laws, so that overlapping obligations and unintended compliance challenges do not arise.”

Focus on flexibility and welfare

The new codes also emphasise worker welfare. Women workers are now permitted to work night shifts and in all types of work, including underground mining, subject to consent and safety measures — expected to raise female participation in better-paying industrial roles.

Manish Sinha, former advisor to Coal India, said many reforms — workplace safety practices and higher women’s participation — were already implemented at top mining companies. The codes will now formalise these across the sector, including in smaller firms.

Next steps

According to the government official cited earlier, who spoke on condition of anonymity, the plan is to operationalise the law from the next financial year to help facilitate businesses.

With labour being a concurrent subject, this time period will also allow the Centre to work with the states to bring their rules in sync to the extent possible, and also help the state governments prepare and upgrade their IT infrastructure for e-forms and registers.

The Centre will pre-publish rules within a week, which will be in the public domain for 45 days for comments, post which suggestions will be incorporated within another 45 days. “For some provisions no rules are required, they are effective from today. For certain other provisions, rules will be framed after necessary consultation,” explained the official.

A second senior official who also did not want to be named said all states are ready, and have pre-published their rules except West Bengal. “Tamil Nadu on its part has pre-published the rules for the three codes, except for the one on Code on Social Security. Talks with Tamil Nadu are on to bridge the divergence. Also, with the new government in Delhi, the rules for the remaining two codes will be pre-published. Also in the case of Lakshadweep, everything is ready and only needs to be approved by the administrator,” the second official said.

“The rules were pre-published around five years back but a lot has changed since then. The law ministry is of the view that given the time that has passed, the rules need to be pre-published again,” added the official.