India's Labour Law Revolution
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Arvind NishadNovember 23, 2025
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India's Labour Law Revolution: What the 4 New Codes Mean for Every Worker and Employer
As of November 21, 2025, India has implemented its most significant labor law reform since independence, transitioning the nation into a new era of labor regulation. These historic changes affect every employee in the country, including factory workers, corporate employees, gig workers, delivery partners, startup employees, and government staff.
The sweeping changes redefine your salary, PF, gratuity, bonus, working hours, and rights. While this overhaul has necessitated changes in legal compliance for employers, its main objective is to modernize a labor system that had become complicated, confusing, and outdated.
The Consolidation: Four Codes Replace 29 Laws
The core of this reform lies in consolidating 29 old, scattered labor laws into just four comprehensive Codes. This consolidation simplifies the legal regime, making compliance easier for employers and legal analysis easier for lawyers and law students. The previous legal regime was confusing, complicated, and outdated.
The four new Labour Codes are:
1. Code on Wages, 2019
2. Social Security Code, 2020
3. Occupational Safety Health and Working Conditions Code, 2020
4. Industrial Relations Code, 2020
These codes replace major previous acts such as the Minimum Wages Act, Payment of Wages Act, Gratuity Act, EPF Act, Factories Act, and the Industrial Disputes Act, Bonus Act, ESI Act, and Contract Labour Act.
Major Game Changer: The 50% Basic Salary Rule
One of the most significant legal changes is the new definition of 'wage' introduced in the Code on Wages. This is considered the biggest legal game changer.
The new legal requirement mandates that Basic Salary must be a minimum of 50% of the employee's total Cost to Company (CTC).
This change closes a major loophole where companies historically kept basic pay low to reduce their Provident Fund (PF) contributions.
Impact on Employees and Long-Term Gains
While the immediate consequence is that your take-home salary will be slightly reduced, the long-term benefits are substantial.
An increased basic salary automatically results in higher contributions and amounts for:
• PF Contribution: Both employee and employer contributions will increase.
• Gratuity Amount: Greater contributions will lead to higher payouts.
• Other Benefits: Bonus calculation, overtime allowance, compensation, maternity benefits, leave encashment, and ESI provisions will also be impacted positively.
Ultimately, this reform leads to much stronger retirement protection for workers.
Redefining the Work Week: Flexibility and Overtime
The new laws introduce greater flexibility in working hours while maintaining safeguards for employees. The limit is set at 48 working hours per week.
1. The 4-Day Work Week is Now Possible: The new rules set a limit of 48 working hours per week. This flexibility allows establishments to adopt a schedule where employees work 12 hours a day for four days (e.g., Monday, Tuesday, Wednesday, Thursday), followed by three days off (e.g., Friday, Saturday, Sunday).
2. Double Overtime Pay: If an employee works more than the stipulated 48 hours in a week, they will be compensated with double the previous overtime allowance.
3. Sector-Specific Flexibility: The provision for flexible working hours specifically benefits sectors such as IT, factories, hospitality, startups, and gig platforms.
Social Security: Formal Recognition for the Gig Economy
The Social Security Code mandates "Social Security for All Workers." Crucially, it provides legal recognition and support for several categories previously excluded or marginalized:
• Giga Workers and Platform Workers: Individuals like online food delivery partners are recognized in law for the first time.
• Other Inclusions: Contract laborers, construction workers, unorganized workers, and fixed-term employees are also recognized.
These newly recognized workers will now be eligible for essential benefits, including insurance, health benefits, maternity support, old age protection, and government welfare schemes.
Gratuity Eligibility Expanded
The strict requirement that mandated 5 years of continuous service for gratuity eligibility has been removed. Now, fixed-term employees, gig workers, and contract workers are also eligible for gratuity. This is a major pro-employee change.
Changes in Industrial Relations: Strikes and Layoffs
The Industrial Relations Code introduces new rules regarding strikes and organizational restructuring.
Strike Rules
To go on strike, workers must now provide a 14-day advance notice to the establishment. Furthermore, strikes are prohibited under certain circumstances:
1. During conciliation (when negotiation talks are ongoing).
2. If the matter is pending before a Tribunal Court.
Layoffs and Retrenchment
The threshold for establishments needing mandatory government permission before undertaking lay-offs or retrenchment has been raised.
• Previous Threshold: Over 100 workers.
• New Threshold: Over 300 workers.
This change provides companies with fewer than 300 employees greater flexibility in hiring and firing decisions. Workers who are laid off or retrenched are entitled to standard compensation based on the protocols, especially if the establishment exceeds the 300-employee limit.
What Employers Need to Do
Companies face increased compliance pressure under the new Codes. Non-compliance can lead to heavy penalties for the establishment. Employers must:
• Revise Appointment Letters and update salary structures according to the new pay scale (50% basic pay rule).
• Increase PF and ESI Compliance.
• Maintain Digital Registers for all employees, including a specific register for gig workers.
• Follow enhanced Safety Standards.
• Adopt online legal compliance processes.
Conclusion: A Step Towards a Modern Labor Economy
These four Labour Codes consolidate scattered laws, increase uniformity, strengthen worker security, and ensure faster dispute resolution through a new Tribunal system and online processes. While concerns remain regarding the potential for longer working days (12 hours) in the four-day week structure and easier firing processes in certain sectors, the overall framework is designed to move India toward a modern labor economy.
These are not merely new laws; they are the start of a new labor law era in India.
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Arvind Nishad
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