India’s labour ecosystem is undergoing a historic transformation with the implementation of the new labour codes. By consolidating 29 central labour laws into four comprehensive codes, the government has fundamentally redefined how wages, benefits, industrial relations, and workplace safety are regulated. These reforms are designed to modernize employment practices, improve ease of compliance for businesses, and extend social security coverage to a wider section of the workforce.
For employers, HR leaders, and payroll professionals, the new labour codes represent a clear shift in goalposts. As a result, organizations must revisit salary structures, recalibrate benefit calculations, and rethink workforce planning strategies. Meanwhile, for employees, these reforms bring greater clarity and consistency. More importantly, they promise improved retirement benefits, enhanced transparency in compensation, and stronger job security provisions over the long term.
Why India Introduced the New Labour Codes
For decades, India’s labour laws were fragmented, overlapping, and difficult to administer. Different definitions of wages across laws created confusion, while compliance requirements varied significantly between states and sectors. This complexity disproportionately affected small and medium enterprises and left millions of informal and gig workers outside the social security net.
The new labour codes aim to address these challenges by creating a unified and simplified framework. The reforms focus on five key objectives:
- Simplifying compliance through consolidation
- Standardizing wage and employment definitions
- Expanding social security coverage
- Improving working conditions and safety
- Supporting economic growth through workforce flexibility
Together, these measures seek to align India’s labour framework with modern employment realities while balancing the interests of workers and employers.
Overview of the Four Labour Codes
The reform package consists of four major legislations:
- Code on Wages
- Code on Social Security
- Industrial Relations Code
- Occupational Safety, Health and Working Conditions Code
Each code addresses a specific aspect of employment while working together as an integrated system.
Code on Wages: Redefining Salary Structures
One of the most impactful changes under the new labour codes is the standardized definition of wages. Under the new framework, wages must constitute at least 50% of an employee’s total remuneration. Basic pay and dearness allowance form the core wage, while employers cap allowances and bonuses at the remaining portion.
This change has far-reaching implications for payroll and benefits. Since statutory benefits like provident fund, gratuity, and leave encashment are calculated based on wages, employees may see higher long-term savings and retirement benefits. However, this also increases the employer’s contribution obligations, especially for organizations that previously relied heavily on allowances to structure compensation.
For HR teams, this means revisiting salary break-ups, ensuring compliance, and communicating changes clearly to employees to manage expectations around take-home pay.
Code on Social Security: Expanding the Safety Net
The Code on Social Security marks a major shift toward inclusivity. For the first time, gig workers, platform workers, and unorganized sector employees are formally recognized under labour law. This opens the door for broader access to provident fund, insurance, and pension schemes.
Another notable change is the eligibility for gratuity. Fixed-term employees are now entitled to gratuity after completing one year of service, compared to the earlier five-year requirement. This reflects the growing prevalence of contract-based employment and ensures that short-term workers are not excluded from long-term benefits.
From an employer’s perspective, therefore, this shift requires stronger workforce tracking. In addition, organizations must improve benefit administration and, more importantly, adopt more robust payroll systems in order to accommodate diverse employment types effectively.
Industrial Relations Code: Flexibility and Balance
The Industrial Relations Code focuses on dispute resolution, trade unions, and workforce restructuring. A key change under this code is the increased threshold for requiring government approval before layoffs or retrenchments. Organizations with up to 299 employees can now manage workforce adjustments with greater autonomy.
This flexibility helps businesses respond more effectively to changing market conditions, particularly during economic downturns. However, it has also raised concerns among worker groups about job security and bargaining power.
To strike the right balance, organizations must complement this flexibility with transparent communication, fair HR policies, and proactive employee engagement strategies.
Occupational Safety and Working Conditions Code
The Occupational Safety, Health and Working Conditions Code, in particular, strengthens workplace standards across industries. At the same time, it introduces clearer and more consistent norms for working hours, overtime compensation, and employee safety. As a result, organizations are expected to place greater emphasis on compliance, while employees benefit from improved working conditions and enhanced protection.
Key provisions include:
- A maximum of 48 working hours per week
- Mandatory overtime compensation at twice the regular wage
- Written appointment letters for all employees
- Enhanced safety measures for women working night shifts
- Periodic health check-ups for workers in certain age groups
These changes reinforce the importance of employee well-being and place greater accountability on employers to maintain safe and compliant workplaces.
Impact on Payroll and HR Operations
The implementation of the new labour codes requires organizations to rethink how they manage payroll and HR compliance.
1. Payroll Restructuring
Organizations must align salary structures with the new wage definition to avoid compliance risks. This may increase statutory contributions and affect overall cost-to-company calculations.
2. Policy and Documentation Updates
Organizations need to update employment contracts, HR policies, and appointment letters to reflect the new legal requirements. Accurate documentation is critical to avoid disputes and penalties.
3. Technology and Compliance Readiness
Organizations must upgrade payroll and HR technology systems to handle revised calculations, benefit eligibility, and reporting requirements. Automation will play a key role in managing compliance at scale.
What This Means for Employees
For employees, the new labour codes offer greater clarity and security. Standardized wage definitions reduce ambiguity, expanded social security coverage improves financial resilience, and improved workplace safety norms enhance overall job quality.
While take-home pay structures may change for some employees, the long-term benefits, particularly retirement savings and gratuity, are likely to outweigh short-term adjustments.
Conclusion
India’s new labour codes represent a landmark reform that reshapes the country’s employment framework. By simplifying laws, expanding benefits, and modernizing compliance, the reforms aim to create a more balanced and future-ready workforce ecosystem.
For businesses, the transition demands careful planning, transparent communication, and investment in compliant payroll and HR systems. For employees, the changes signal stronger protections and improved long-term financial security.
