India Unveils Major Labor Overhaul

After five years of deliberations, India is launching its biggest labor-law overhaul in decades, with significant implications for employers with operations in the country.

The four new labor codes replace a wide range of existing laws. The goal is to boost formal employment and attract global investment, but companies should expect short-term compliance adjustments, higher costs for certain worker categories, and uneven implementation across Indian states.

Key changes include:

The Code on Wages

• Introduces a uniform definition of “wages,” clarifying the treatment of allowances, bonuses, and gratuities.

• Caps non-wage allowances at 50% of total salary—meaning a larger portion of compensation becomes “wages,” affecting statutory benefits and contributions.

• Establishes a minimum wage floor across all states.

• Guarantees timely payment of wages to all employees.

• Enforces “equal pay for equal work,” including gender-neutral pay laws.

The Industrial Relations Code

• Raises the threshold for mandatory government approval for layoffs, retrenchment or closure from 100 to 300 employees.

• Formally recognizes fixed-term employment—with wages and working conditions equal to those of permanent workers.

• Requires grievance redressal committees with equal worker representation, including women.

• Restricts engaging contract workers in roles considered core to the business.

• Simplifies rules for union recognition.

The Code on Social Security

• Broadens social-security coverage to traditional employees, gig and platform workers, contract workers, and unorganized sector workers.

• Introduces portability of social security benefits across states and employers, aiding migrant workers and people changing jobs.

Occupational Safety, Health and Working Conditions (OSHWC) Code

• Mandates issuance of formal appointment letters.

• Standardizes working hours (e.g., 8-hour day, 48-hour week) and mandates overtime pay for extra hours; employee consent is required for overtime.

• Formalizes protections for women, including conditions under which night shifts are permitted (with consent and safety provisions) and equal treatment across genders.

HR Policy Global perspective: The new Indian Labor Codes aim to simplify compliance by consolidating dozens of laws into four unified frameworks, reducing reporting burdens and standardizing definitions such as “wages,” ”worker,” and “employee.”

• While employers may benefit from greater flexibility in hiring through fixed-term employment and clearer industrial-relations procedures, they will also face increased compliance costs and potentially greater regulatory scrutiny once implementation is complete.

Next steps for employers:

• Stay alert: Further implementation details will roll out in the coming weeks. Alignment with state legislation may create challenges as enforcement ramps up.

• Get ready: Review each change against your existing policies and procedures and prioritize any required modifications.

• Plan your communication: Local media coverage is extensive, so be prepared to address employee questions on key items impacting wages, allowances, and working conditions.

With thanks to Atul Gupta (Partner, Employment and Labour, Trilegal) for additional insights on the challenges ahead for employers.