New Labour Codes promise better worker protection, compliance

New Delhi: The new Labour Codes, notified last week, mark the biggest reform of India’s labour laws in decades, merging 29 legislations into four streamlined codes aimed at strengthening worker protection, easing compliance, and giving businesses more flexibility.

Impact on employee pay

A uniform definition of “wages” caps allowances at 50 per cent of total compensation. This raises basic pay, increasing PF and gratuity contributions but may slightly reduce take-home salary. Retirement benefits, however, will grow. Experts say the change increases compliance obligations and costs for employers, who often split wages across multiple allowances to lower tax and social security payouts.

A senior official said the new wage definition took effect immediately with the notification of the Code on Wages, 2019, on November 21, 2025.

For employers

Companies will face higher PF and gratuity contributions and may have to restructure CTCs to stay compliant. Since basic wages must now constitute at least 50 per cent of gross pay, social security contributions will rise. Employers will continue contributing 8.33 per cent of the capped Rs 15,000 basic wage to the Employees’ Pension Scheme, with the balance flowing into the Provident Fund, boosting EPF savings.

Job security and hiring flexibility

Fixed-term employees will enjoy the same statutory benefits as permanent staff, including gratuity (subject to tenure rules). Clearer dispute-resolution processes could strengthen job security. At the same time, employers gain flexibility as the threshold for layoffs and closures has been raised to 300 workers.

Work hours and safety

The codes standardise working hours with a 48-hour weekly cap and clarify overtime and leave rules. Stricter safety and welfare norms, including mandatory annual health check-ups for workers aged 40 and above, aim to improve workplace conditions.

Social security expansion

The codes formally recognise gig, platform, and unorganised workers, widening access to EPF, ESI, maternity benefits, and injury compensation. Digital registration is expected to make these benefits easier to claim.

Simplified compliance rules reduce paperwork for employers while making rights and benefits easier for workers to track and enforce.