Major Changes in India’s Four New Labour Codes: A Transformational Shift for Workers and Industry and Workforce
Major Changes in India’s Four New Labour Codes: A Transformational Shift for Workers and Industry and Workforce
On 21 November 2025, India took its boldest labour-law reform step since Independence. With a single gazette notification, the Central Government brought into force all four Labour Codes:
- The Code on Wages, 2019
- The Industrial Relations Code, 2020
- The Code on Social Security, 2020
- The Occupational Safety, Health and Working Conditions Code, 2020
Together, these four Codes have replaced 29 archaic central laws and hundreds of conflicting state amendments. The result is a modern, largely uniform and digital-first labour ecosystem that touches every factory floor, construction site, gig-platform rider, security guard, software contractor and shop-floor worker in the country.
Below is a detailed walk-through of the most important changes, illustrated with real-world examples that manufacturing companies, IT firms and gig platforms are already grappling with.
1. Universal Minimum Wages and a National Floor Wage
Old regime: Minimum wages applied only to 1,900+ “scheduled employments” listed by states. A security guard in a small Delhi grocery store or a loader in a Nashik warehouse often earned below even the state minimum because their job was not “scheduled”.
New reality: The Code on Wages is universal. Every worker in every establishment — whether a 5-person startup or a 50,000-employee factory — is entitled to at least the state minimum wage, and no state can fix a rate below the yet-to-be-notified National Floor Level Minimum Wage.
Example: A garment factory in Tirupur, Tamil Nadu, earlier paid stitchers ₹6,800 per month because garment making was not fully “scheduled”. From November 2025, the Tamil Nadu floor rate of ≈₹11,500+ applies immediately, pushing the wage bill up by 60–70 % for that category.
2. New Definition of “Wages” = Higher Statutory Liabilities
Allowances (HRA, conveyance, special allowance, etc.) that exceed 50 % of total CTC are now treated as part of “wages”. This directly increases overtime pay, PF, ESI, gratuity and bonus calculations.
Real-life impact: A large auto-component manufacturer in Pune discovered that its workers’ take-home was ₹28,000 but “wages” for statutory purposes jumped from ₹15,000 to ₹22,000 because special allowance was 58 % of CTC. Overnight, monthly PF contribution rose by ₹1,800 per worker — an additional ₹1.35 crore annual burden for its 6,000-strong workforce.
3. Contract Labour Overhaul – The Biggest Headache for Manufacturing
Old threshold: Contract Labour (Regulation & Abolition) Act applied when 20+ contract workers were employed. New threshold under OSH Code: 50+ contract workers.
But the bigger blow is the prohibition of contract labour in “core activities” of the establishment unless the work is:
- normally performed by regular workmen but volume has suddenly increased, or
- of a temporary/perennial nature but done only occasionally.
Example: A leading two-wheeler plant in Gujarat was using 1,200 contract workers on the painting and final assembly lines — clearly “core” activities. Post November 2025, the company has only two legal options: (a) convert them to fixed-term or permanent rolls, or (b) stop using contractors for those processes and bring them in-house. The company estimates conversion will add ₹28–32 crore annually in social-security costs.
Simultaneously, the principal employer is now jointly and severally liable for wages, PF, ESI and bonus of every contract worker. If the contractor vanishes, the factory owner pays — and then recovers from the contractor (often shell) contractor.
4. Fixed-Term Employment (FTE) Becomes Expensive but Attractive
Old loophole: Companies kept rolling 11-month contracts to avoid gratuity (which required 5 years continuous service).
New rule: Any worker on fixed-term employment, irrespective of contract duration, gets full pro-rata benefits including gratuity after just one year of continuous service.
Example: An electronics manufacturing services (EMS) company in Sriperumbudur earlier hired 3,000 workers on rolling 11-month contracts. From 2025, every worker completing 12 months becomes eligible for ≈₹40,000–50,000 gratuity + pro-rata leave encashment. The company is now shifting to 2–3 year FTE contracts to gain certainty while still retaining flexibility at the end of the term.
5. Social Security Goes Pan-India and Inclusive
- ESI hospitals and EPF are now available across the country — no more “implemented areas” concept.
- Gig and platform workers are formally recognised for the first time. Aggregators (Ola, Uber, Swiggy, Zomato, Urban Company, etc.) must contribute 1–2 % of their annual turnover to a national social-security fund.
- Unorganised workers can self-register on e-Shram portal and avail ₹2 lakh accident insurance and health benefits.
Example: Swiggy and Zomato have already started budgeting an extra 1.25 % of turnover (estimated ₹400–600 crore combined in 2026) towards the gig-workers fund.
6. Women’s Participation and Night Shifts Liberalised
Women can now legally work night shifts (10 p.m.–6 a.m.) in all sectors with three conditions:
- consent,
- safe transport, and
- adequate security and rest rooms.
Example: Several BPO and IT-enabled services companies in Bengaluru and Gurugram that earlier ran only male night shifts are now onboarding women, instantly increasing their talent pool by 40–50 %.
7. Safety and Welfare Provisions Tightened
- Free annual medical check-up for every employee above 45 years (earlier only in factories with hazardous processes).
- Safety committees mandatory in every factory/mine/dock with 150+ workers (earlier 250–500 in different laws).
- Creche facility now mandatory if 50+ employees (male + female), earlier only when 30+ women employees.
- Single annual return replaces 12–15 different returns.
Example: A cement plant in Rajasthan with 220 workers spent ₹18 lakh setting up a modern creche and ₹9 lakh on biometric attendance + safety gear to comply with the new single-return deadline of 31 January 2026.
8. Industrial Relations – Easier Closure up to 300 Workers
Establishments with up to 300 workers can now lay off, retrench or close without government permission (earlier limit was 100). However, every retrenched worker must receive 15 days’ average pay per completed year into a government-managed re-skilling fund — a new cost.
Example: A loss-making textile mill in Coimbatore with 280 workers can now close by giving 60 days’ notice and paying statutory dues + re-skilling contribution, without waiting 6–18 months for government approval under the old IDA Section 25-O.
9. From Inspector Raj to Facilitator Raj
- Single online registration and licence on Shram Suvidha Portal.
- Randomised, transparent, web-based inspections.
- Inspectors renamed “Inspector-cum-Facilitators” who must upload reports within 24 hours and give 48–72 hours to rectify minor violations before imposing penalty.
Conclusion: Short-Term Pain, Long-Term Gain?
For employers, especially in labour-intensive sectors like manufacturing, textiles, auto components and construction, the immediate impact is a 12–25 % jump in employment cost because of:
- higher contract-worker conversion,
- broader wage definition,
- gratuity after one year, and
- mandatory welfare facilities.
Yet the reforms also deliver significant long-term advantages:
- reduced multiplicity of compliances,
- portable social security,
- lesser litigation (because definitions are uniform),
- flexibility in hiring/firing up to 300 workers, and
- a more productive and healthier workforce.
- CA Prabhakar Gupta
- 8595406324