Three Key Takeaways:
- India’s four new labour codes consolidate 29 laws, extending social security to 500 million workers including gig economy participants for the first time.
- Fixed-term employees now qualify for gratuity after one year, whilst a mandatory 50 per cent wage rule is projected to increase employer gratuity liabilities by 25–50 per cent.
- Trade unions representing 10 major organisations have called nationwide protests for 26 November, citing weakened job security despite government claims of enhanced worker protections.
India activated sweeping labour reforms on 21 November, consolidating 29 colonial-era regulations into four unified codes that extend protections to an estimated 500 million workers across organised and unorganised sectors.
The Code on Wages, Industrial Relations Code, Code on Social Security and Occupational Safety, Health and Working Conditions Code collectively reshape workplace regulations around minimum wages, social security access, employment contracts and safety standards. First passed by Parliament between 2019 and 2020, the codes took effect following years of deliberation and stakeholder consultation.
Expanding the Social Safety Net
The reforms mark a significant expansion of India’s social protection framework. According to International Labour Organization data, India’s social security coverage increased from 19 per cent in 2015 to 64.3 per cent in 2025, bringing over 940 million citizens under at least one social protection benefit. The country now ranks second globally in beneficiary count.
Central to the new framework is the extension of gratuity eligibility to fixed-term employees after one year of continuous service, down from the previous five-year requirement for permanent workers. This change accompanies a revised wage definition requiring basic pay to constitute at least 50 per cent of total compensation.
The 50 per cent wage rule carries immediate implications for employers. Where companies previously structured salaries with basic pay comprising 30–40 per cent of total cost to company, allowances exceeding 50 per cent must now be reclassified as wages for calculating provident fund, gratuity and other statutory benefits. Industry analysts project this could increase gratuity liabilities by 25–50 per cent for many organisations.
Workforce Inclusion and Regulatory Simplification
For the first time, gig and platform workers receive formal recognition under the Social Security Code. Aggregators must contribute between one and two per cent of annual turnover to social security funds, with benefits including provident fund access, health insurance and life cover becoming portable through Aadhaar-linked universal account numbers.
The government estimates India’s gig economy will expand from approximately 10 million workers in 2024 to 23.5 million by 2030. However, regulatory clarity remains incomplete. Platform companies including Zomato and Zepto have acknowledged they are evaluating compliance requirements, whilst worker registration through the E-Shram portal – which had enrolled approximately 300,000 platform workers as of August despite government estimates of 10 million gig workers nationally – presents practical challenges.
Compliance procedures undergo significant streamlining. Businesses will file single registrations and returns across all four codes, replacing previous multi-layered reporting. The Industrial Relations Code raises the threshold for government approval on layoffs from 100 to 300 workers, whilst factory applicability limits increase from 10 to 20 workers with power.
Strategic Implications for HR Leadership
The wage restructuring demands immediate attention from compensation teams. With higher statutory contributions reducing take-home pay for many employees whilst increasing retirement benefits, organisations must recalibrate salary structures and prepare workforce communications around these trade-offs.
Fixed-term employment gains enhanced protections. These workers now receive benefits on par with permanent staff, including pro-rated gratuity and equal treatment during employment. This formalisation addresses longstanding inequities whilst adding cost considerations for companies that have relied on fixed-term contracts without accounting for severance obligations.
Gender equity provisions expand considerably. Women may work night shifts across all sectors including mining and hazardous industries, subject to consent and mandatory safety measures. The codes prohibit gender-based pay discrimination explicitly, with maternity leave extended to 26 weeks and parents-in-law included in the family definition for benefits.
Workforce Response and Implementation Challenges
Trade union reaction has been sharply divided. Ten central trade unions including the Centre of Indian Trade Unions, All India Trade Union Congress and Indian National Trade Union Congress condemned the reforms and announced nationwide protests for 26 November, describing the codes as facilitating corporate exploitation through weakened job security and restricted strike provisions.
In contrast, the RSS-affiliated Bharatiya Mazdoor Sangh welcomed implementation as a significant milestone for inclusive labour governance.
The reforms proceed despite uncertainty around detailed implementation. As labour falls under concurrent jurisdiction, both central and state governments must frame corresponding rules. States are currently finalising these regulations, creating a transitional period where existing provisions remain in force alongside the new framework.
Forward-Looking Considerations
The labour codes represent India’s most comprehensive workforce policy overhaul since independence. Prime Minister Narendra Modi described the reforms as empowering workers whilst simplifying compliance and easing business processes.
For senior HR professionals, the immediate priorities are clear: restructure compensation frameworks to reflect the 50 per cent wage rule, assess gratuity liability increases, formalise fixed-term employment practices, implement night shift safety protocols for women employees and establish compliance mechanisms across the unified four-code framework.
The codes aim to position India’s labour market competitively for a targeted $5 trillion economy by 2027. Success will depend on effective rule-making at state level, sustained digital infrastructure for portable benefits and organisations’ capacity to balance enhanced worker protections with operational flexibility.
Beyond immediate compliance, the reforms signal India’s strategic shift toward a modernised, inclusive workforce ecosystem aligned with global standards whilst supporting demographic strength across organised and unorganised employment sectors.
