India’s changing labour law regime

Condensing disparate employment legislation into the Labour Codes has distilled a legal essence for reform and longevity

India’s labour law framework has undergone a historic shift. On 21 November 2025, the government of India brought into force four Labour Codes: the Code on Wages, 2019 (Wages Code); the Industrial Relations Code, 2020 (IR Code); the Code on Social Security, 2020 (SS Code); and the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code). Together they replace 29 central labour legislations into a largely unified, thematically organised legislative structure. This chapter offers an overview of the Labour Codes and the key reforms introduced.

The Labour Codes: object, purpose and legislative genesis. The roots of the codification exercise can be traced to the Second National Commission on Labour (Labour Commission), which submitted its comprehensive report to the government in June 2002. After assessing the complex statutory landscape, the Labour Commission recommended that labour legislation be grouped into four or five broad categories by function, namely: industrial relations; wages; social security; safety and welfare; and working conditions.

Acting on these recommendations, the Ministry of Labour and Employment undertook the task of simplifying and consolidating relevant provisions of existing labour laws into four thematic codes. This process resulted in the formulation of the Labour Codes, each subsuming a distinct cluster of prior legislation.

The Wages Code consolidates four statutes to establish frameworks governing minimum wages, gender pay parity and timely payment of wages.

The IR Code amalgamates three statutes to govern trade union registration and recognition, standing orders for industrial establishments, and dispute resolution mechanisms including strikes, lockouts and layoffs. The SS Code incorporates nine statutes to provide a consolidated framework for social security coverage for a diverse group of workers, including fixed-term employees, gig workers and platform workers.

The OSH Code subsumes 13 statutes, streamlining the laws governing workplace safety, health and working conditions across factories, mines, contract workers and sector-specific areas such as beedi, plantation and dock workers. Together, the four Labour Codes replace 29 central legislations and aim to create an organised regulatory framework.

The Wages Code was the first to receive presidential assent on 8 August 2019, while the remaining three codes received presidential assent on 28 September 2020. As stated in the government’s press release accompanying the implementation, the codification was intended to simplify compliance, streamline enforcement and update outdated provisions to reflect present-day economic realities and technological developments.

Labour Codes reform wages compliance

The Labour Codes introduce reforms across wage architecture, workforce structures, social security coverage and employee welfare, punishment regime, dispute resolution, collective bargaining and simplification of compliance.

Perhaps the most significant reform from a payroll and benefits standpoint is the unified definition of “wages” under the Labour Codes. A deliberate attempt to harmonise previously divergent wage definitions and the resultant inconsistent benefit computation baselines across fragmented legislations. This enables businesses to design compensation structures with greater certainty and align payroll systems into a single statutory benchmark.

Given this unified definition, employers should categorise remuneration components to determine what constitutes wages under the Labour Codes. Pertinently, the codes cap excluded components (such as house rent allowance and overtime), while computing wages, at 50% of total remuneration. A move designed to curb the subterfuge of structuring compensation packages to minimise statutory contributions towards provident fund, gratuity and other social security and employment benefits.

On workforce and employment structures, the Labour Codes formally recognise contemporary workforce arrangements, including fixed-term employment, gig and platform work. For businesses that depend on flexible staffing models, whether project-based hiring, app-based delivery networks or on-demand professional services, this recognition provides a statutory framework to structure engagements, determine applicable benefits and assess compliance obligations.

Notably, the OSH Code prohibits the engagement of third-party contract workers in the “core activities” of an establishment, with limited exceptions. An establishment may still engage contract workers where the activity is ordinarily carried out through contractors as part of its normal functioning or does not warrant full-time employees for the major portion of working hours or for extended durations, or where there is a sudden workload spike in a core activity that must be completed in a specified time.

On collective bargaining, the IR Code introduces a statutory framework for recognising negotiating unions or negotiating councils, which previously existed in states such as Maharashtra.

The SS Code extends social security coverage to organised and unorganised workers alike, bringing fixed-term employees within the gratuity net on a pro-rata basis and contemplates fund-based schemes for gig and platform workers. The SS Code also introduces a five-year limitation period for initiating proceedings concerning employees’ provident fund or state insurance contributions due from an employer, or the applicability of these regimes to an establishment, thereby reducing employer exposure to legacy liabilities.

The penalty regime undergoes a fundamental shift in orientation from punishment to facilitated compliance. Decriminalisation of minor infractions, compounding provisions, and the introduction of an inspector-cum-facilitator model afford employers a structured opportunity to remedy defaults before criminal proceedings are initiated, reducing business disruption and encouraging voluntary compliance.

Further, the IR Code streamlines the dispute resolution framework by replacing the earlier parallel structure of labour courts and industrial tribunals, having overlapping jurisdiction, with a unified two-member Industrial Tribunal comprising one judicial and one administrative member.

On compliance simplification, the Labour Codes consolidate registrations from eight to one, licences from four to one and returns from 31 to one, with a strong push towards digitisation of record-keeping and web-based inspections. While businesses will need to invest in upgrading internal systems to align with the digital infrastructure contemplated by the Labour Codes, this investment is expected to yield long-term benefits through reduced compliance friction and greater regulatory certainty.

The cumulative effect is a regulatory architecture that is materially simpler and better adapted to the realities of India’s 21st century workforce.

Navigating central, state labour laws

Labour is on the Concurrent List under the Seventh Schedule to the Constitution of India, 1950, which means that both Parliament and State Legislatures may enact laws on the subject.

The Labour Codes, enacted by the Parliament, operate as framework legislation laying down the broad principles and entitlements, while entrusting both the central and state governments with the power to frame detailed rules for their full implementation.

However, the Labour Codes do not operate in a vacuum. A substantial body of state-level labour legislation, such as laws governing working conditions in shops and establishments, and more recently enacted specialised legislations governing platform-based gig work, continue to remain in force to the extent it is not expressly repealed by or inconsistent with the Labour Codes.

This creates the possibility of overlaps, ambiguities and potential inconsistencies between the central Labour Codes and state-level enactments. Until such creases are ironed out, a practical rule of thumb for businesses navigating this transitional landscape would be to apply the Labour Codes, unless the provisions of any state legislation is more beneficial to the employee. This approach is broadly consistent with the protective intent of labour legislation and reduces the risk of non-compliance in a period of regulatory flux.

This federal architecture also means that the regulatory landscape may look different from state to state, with businesses operating across multiple jurisdictions navigating a matrix of central Labour Codes read with the central and state rules, and extant state enactments.

Labour Codes boost formalisation protection

The importance of the Labour Codes extends beyond compliance mechanics. For businesses, the consolidation promises a more predictable and transparent regulatory environment, reducing the administrative burden that has long held back growth and formalisation.

For workers, especially those in the gig and platform economy, the Labour Codes represent a major expansion of the social safety net, bringing groups that previously fell outside the traditionally envisaged workforce under formal statutory protection for the first time.

At a broader level, the reforms are designed to support formalisation of the workforce, encourage job creation and improve India’s ease of doing business.

Effectively achieving these goals will depend largely on the quality and consistency of rule-making at both the central and state levels, the capacity of enforcement agencies and the willingness of all stakeholders to engage constructively with the transition.

Labour Codes reshape India’s framework

The enactment and implementation of the four Labour Codes marks the most significant restructuring of India’s labour law framework since the country’s independence.

By replacing a fragmented body of law with a coherent, theme-based legislative structure, the Labour Codes aim to strike a fundamental balance that protects workers more broadly while giving businesses the clarity and flexibility they need to operate, invest and expand in a rapidly evolving economy.