Four new labour codes to reform jobs market

The new employment rules mark a continuation of recent regulatory reforms such as the rationalisation of the Goods and Services Tax, and the Income Tax Act, 2025, which have simplified the burden of compliance for consumers and businesses. They also mark the beginning of a new labour-market regime that creates a statutory backing for a national minimum wage for the first time, provide social-security benefits to workers across sectors and allows women to work night shifts. The new laws also define gig workers.

“Today is a historic day for my worker brothers and sisters. Our government has implemented four labour codes. This is the biggest reform in the interest of workers since independence. It will greatly empower the workers of the country. While it will make compliance with rules much easier, it will also boost ‘Ease of Doing Business’,” Prime Minister Narendra Modi said on X.

The government notified the four laws and rules needed to make them operational effective November 21, Union labour minister Mansukh Mandaviya said. The announcement closes the loop on years of tense negotiations on the sensitive sociopolitical and electoral issue of labour in a country long hobbled by a web of archaic and complex employment rules.

“Through these reforms, a robust ecosystem will be created that will protect the rights of our workers in the future and give new strength to India’s economic growth. This will not only create new job opportunities but also increase productivity. Along with this, our journey towards a developed India will also gain momentum,” Modi added on X.

Even though successive governments and most economists agree that labour reforms in the world’s fifth-largest economy were overdue and updated laws are necessary to create employment for the nearly one million job-seekers entering the Indian labour market each month, fears of a political backlash and resistance by major trade unions had kept the government from implementing the codes.

“From today, the new labour codes have been implemented in the country. With expanded social security, stronger protections and nationwide portability of entitlements, the codes place workers, especially women, youth, unorganised, gig and migrant workers, firmly at the centre of labour governance,” Mandaviya said.

The Code on Wages, 2019, Industrial Relations Code, 2020, Occupational Safety, Health and Working Conditions (OSH) Code, 2020 and the Code on Social Security, 2020 will replace a set of 29 labyrinthine laws.

New reforms include mandatory formal, written appointment letters to all workers, social security benefits, minimum wages, free annual health check-up for workers above the age of 40, and allowing women to work night shifts across sectors. The new codes also allow women entry into sectors considered hazardous and require special safety clearances, such as mining for the first time.

“Fixed-term employees become eligible for gratuity after one year of continuous service (earlier five years)…wages now include basic pay, dearness allowance, and retaining allowance; 50% of the total remuneration (or such percentage as may be notified) shall be added back to compute wages, ensuring consistency in calculating gratuity, pension, and social security benefits,” said a government statement.

Previously, stringent hiring-firing rules applied to firms with over 100 employees, making it virtually impossible to lay off workers. Over the decades, this is said to have adversely acted as an incentive for smaller firms to stay small so they could escape the rules.

According to the World Bank, with less restrictive laws, India could approximately add, on an annual basis, “2.8 million more good quality formal sector jobs”.

The codes introduce a floor for wages, which will reduce disparity across regions. Businesses can employ workers for 8-12 hours in a day, not exceeding 48 hours in a week. Currently, shifts are limited to nine hours.

Trade unions resisting the new codes argue the changes will make industrial strikes more difficult by imposing new conditions on workers and encourage a hire-and-fire model that makes it easy to sack workers.

“The codes weaken the power of collective bargaining. The labour ministry has repositioned itself as an employment facilitator rather than an upholder of workers’ rights. We will launch a movement against the codes,” said TN Karumalaiyan, the national secretary of the Centre for Indian Trade Unions, a left-leaning federation.

The Industrial Relation Code allows companies with up to 300 workers to fire workers or shut plants without prior approval of the government. The current threshold is 100 workers.

The codes guarantee doubling of wages paid for overtime work, which can happen only with the consent of workers, the minister said. States will now have to fix a minimum wage that can’t be lower than the federally fixed rate.

A key reason behind the government’s decision to roll out the codes after a long delay is that most states have now changed local laws in line with the codes. “This has created confidence on the part of the central government,” a person aware of the development said.

Opposition-ruled states, such as Karnataka, Punjab, Kerala, Himachal Pradesh, Karnataka and Telangana, have raised the threshold of employees at which firms will not require government permission to lay off workers, details from the labour ministry showed.

These states have also amended laws related to compounding of offences. Compounding under the central codes allows employers to settle certain violations by paying a fee, rather than facing prosecution.

Kerala and West Bengal, however, have not eased this regulation.

Ravinder Himte of the Bharatiya Mazdoor Sangh, a trade union affiliated to the Rashtriya Swayamsevak Sangh, the mother organisation of the ruling BJP, said although there were some concerns about certain provisions of the codes, they changes broadly reflect “forward-looking reforms aligned with aspirations of the modern workforce”.

The codes ask employers to ensure equal pay for equal work. Women can now work night shifts with safety measures, overturning earlier state restrictions on night work in certain industries. The codes extend maternity benefits, including 26 weeks of paid leave to all women workers in unorganised sectors.

The labour codes define gig and platform work for the first time, expanding social security to categories previously outside formal labour regulation. Currently, only a handful of states have laws regulating gig work.

The codes also redefine the break-up of wages to increase the share of the basic pay component – a provision to enable higher provisioning for social security for establishments, especially in the service sector. Similarly, aggregators employing gig workers have to contribute 1-2% of the annual turnover for social security, with the total contribution not exceeding 5% of the amount payable by the aggregator.