India’s Labour Codes 2025: Reconstructing the Legal Architecture of Work in a Transforming Economy

India is at a pivotal moment in the development of its regulatory framework governing its workforce through labour law reforms. The consolidation of the previously existing four Comprehensive Labour Codes into 1 complete Code which consolidates all 29 Central Labour Laws is not merely an updating of existing legislation; it has resulted in a significant shift in the way the Government of India regulates its workforce. The new Labour Codes have been referred to as “Labour Codes 2025” and they are part of a larger Government initiative to create a balance between the need for economic growth and protection for workers and employees in an increasingly digital workforce. The Labour Codes also address the rise of the Gig Economy, or temporary or gig jobs, and the need to protect workers who are employed under informal work situations.

Indian labour law has been a complex, fragmented and heavily-regulated system for many years. This made it difficult for employers to meet their compliance requirements due to many laws having overlapping requirements and for employees who are potentially covered by several different laws within different industries and regions of the country. The introduction of the Code on Wages, Code on Industrial Relations, Code on Occupational Safety, Health and Working Conditions and Code on Social Security is a departure from this historical legal framework as it brings together the previously disparate parts of labour law and creates a single legal structure based on uniform legal principles for all sectors of the economy.

The importance of these reforms extends beyond their ability to simplify the workplace; they also represent a significant shift in the way workers, employers, and governments perceive the relationship between them. The way that India’s labour laws are currently being viewed has changed from one of simply ensuring that businesses follow the rules to being viewed as a means of achieving economic policy goals and social justice, as well as improving access to jobs. As all the phases of implementing these codes will be implemented in varying timeframes throughout India’s states, it is anticipated that the transition year 2025 will represent the full implementation of these codes, moving the theoretical concepts associated with the codes to a stage of enactment.

Why Reform Became Inevitable

The labour law system in India was heavily influenced by the colonial laws introduced when India was under British rule, as well as by the different types of welfare policies implemented after the independence of India. In general, these laws included the Factory Act, the Payment of Wages Act, the Industrial Disputes Act, and the Employee Provident Fund & Miscellaneous Provisions Act.

These laws created separate and independent systems of labour laws for different categories of employees (workers) and employers, while at the same time not being co-ordinated with one another. Over time, this created a fragmented system of law containing different definitions and meanings for workers, employers, establishments and wages, leading to inconsistencies in interpretation and difficulties in implementing them.

The informal economy’s rise is creating an increasingly sizeable protection gap for many of India’s workers because many remain outside the bounds of coverage for statutory social security benefits by virtue of not meeting rigid statutory eligibility thresholds, while also being limited in terms of the sectors for which these benefits can be claimed allegedly by the provisions of legacy regulations. As a result, a considerable segment of India’s workforce does not benefit from the protections afforded by statutory social security benefits and remains unprotected from the lack of access to health insurance, retirement savings, and safe working conditions associated with working in gig jobs, contractual arrangements, or through apps.

From a business perspective, regulatory overload translated into administrative inefficiencies, litigation risks, and compliance uncertainty. Small and medium enterprises, in particular, bore disproportionate compliance burdens. At a macroeconomic level, such statutory complexity discouraged formalisation and impeded labour mobility across states and sectors.

The Labour Codes thus emerged not merely from a regulatory impulse but as a structural response to an evolving economy. By unifying labour law into a code-based system, the government initiated a shift toward coherence, accessibility, and enforceability in employment regulation.

Code on Wages

The Code on Wages merges four core legislations governing payment of wages, minimum wages, equal remuneration, and bonuses. The introduction of the national floor wage is the most significant innovation under this Code.

The most significant innovation under this Code is the introduction of a national floor wage. While states retain the authority to fix minimum wages, no prescribed wage rate can fall below the centrally determined floor threshold. This establishes wage equity across industries and geographies, reducing systemic wage disparity.

The legal definition of “wages” under the Code has also been rationalised. In the past, employers often segmented compensation into allowances to reduce statutory liabilities. By redefining wages to include all remuneration except a narrowly defined exclusion list, the Code prevents artificial manipulation of salary structures and ensures uniformity in calculating provident fund contributions, gratuity payments, and bonus eligibility.

The Code further mandates time-bound wage disbursement and simplifies adjudication mechanisms through the introduction of a dedicated inspector-cum-facilitator framework. The emphasis is on dispute prevention and legal awareness rather than punitive enforcement alone. Gender equality is reinforced through codified pay parity provisions and non-discriminatory recruitment standards.

In effect, the Code on Wages converts wage regulation from a fragmented compliance system into a statutory guarantee of dignity and economic fairness.

Industrial Relations Code

The Industrial Relations Code seeks to recalibrate the traditional tension between labour stability and corporate flexibility. At its core, the Code addresses three areas: dispute resolution, workforce restructuring, and trade union governance.

One of its most debated reforms is the enhancement of the retrenchment threshold from 100 to 300 workers for requiring prior government approval. This change offers greater operational freedom to industries, particularly manufacturing and infrastructure enterprises, while retaining regulatory oversight for large employers. Critics argue that the increase may weaken job security, but proponents contend that excessive rigidity has historically discouraged employment generation through formal channels.

Equally transformative is the statutory recognition of fixed-term employment. For the first time, Indian law acknowledges fixed-term contracts as legitimate employment arrangements while extending all statutory benefits, including gratuity, to such workers on a proportionate basis. This creates parity between permanent and contractual employees and eliminates discriminatory treatment based on tenure.

The Code also modernises trade union regulation by prescribing negotiation frameworks and granting recognition to negotiating unions. This encourages structured collective bargaining and reduces fragmentation arising from multiple unions within the same establishment.

On dispute resolution, the Code introduces industrial tribunals with streamlined jurisdiction and procedural uniformity. The aim is to reduce judicial backlog and ensure time-bound adjudication, thus restoring faith in institutional mechanisms for labour justice.

Occupational Safety and Working Conditions

The Occupational Safety, Health and Working Conditions Code replaces a host of industry-specific statutes with a single operational framework. Its scope extends across factories, construction sites, transport establishments, mines, and warehouses, thereby introducing uniform compliance requirements.

For employers, the Code mandates appointment of safety officers, constitution of health committees, and regular medical examinations. It also introduces stringent licensing conditions for contractors and imposes accountability on principal employers in cases of labour outsourcing.

One of the most progressive elements is the recognition of inter-state migrant workers. The Code requires the maintenance of employment records, provision of travel allowance, and registration mechanisms, addressing the vulnerabilities exposed during pandemic-induced migration crises. The law thus acknowledges that labour mobility is an economic necessity that requires statutory protection.

Beyond regulatory compliance, the Code embeds workplace safety as a legal obligation, not a managerial discretion. Safety is reframed as a structural right intrinsic to employment, not an operational choice.

Social Security Code

The Social Security Code is likely to be the most comprehensive of the four reforms, as it encompasses provident funds, employee insurance schemes, gratuity laws, maternity benefits, and welfare boards, providing a unified statutory scheme.

The Code has incorporated into its fold gig workers, platform workers, and self-employment opportunities, allowing for government-designed welfare schemes that will include insurance, pension, maternity benefits, and upskilling for non-conventional workers as well as those without fixed-term employment contracts.

A key feature of this reform is the removal of the five-year eligibility requirement for gratuity in fixed-term employment. This means that contractual or seasonal employees will no longer be unnecessarily deprived of terminal benefits based on technicalities.

The establishment of an electronic universal registration system using Aadhaar will provide workers with a digital employment identity that will allow for the portability of benefits across states and entities, as India becomes increasingly mobile and digitally connected, making these types of systems necessary for maintaining social protection.

Compliance, Enforcement and Employer Responsibility

Transitioning from statute-driven to code-based compliance requires a change in how organisations operate as an entire system. Enterprises need to change their payroll structure, re-write employment documents, update their human resources policies and create methods to make the documentation of safety easier.

States have the authority to make rules and create different jurisdictions that enterprises must maintain and monitor closely. Moreover, multi-state enterprises must manage interim compliance and combine the two systems of compliance.

Additionally, enforcement has been reframed, where inspectors were replaced with inspectors-cum-facilitators. This change to an inspector-cum-facilitator indicates a move away from an adversarial approach to oversight towards facilitating compliance. Digitisation of document filings and returns provides transparency and accountability within the compliance system.

Legal Clarity Amid Transition

Although they have much potential, the Codes are not being effectively utilized across the country due to many states still having not yet provided their notification as required for them to become effective. These difficulties that occur during the transition process are common in all forms of federalism; however, the judiciary and regulators can provide clarity over time on how to interpret these ambiguities in definitions, thresholds, etc.

Labour Reform from a constitutionally defined viewpoint includes a drag-hierarchy of labour related economic liberalisation matched against social justice. There is a challenge in maintaining a balance between increased flexibility, which should not dilute labour protections as a result, and inclusiveness, which should not increase the administrative burden on employers.