In a landmark move, the Government of India announced the implementation of the Four Labour Codes on November 21, 2025. This historic decision streamlines and modernizes 29 existing central labour laws, setting the stage for better wages, improved safety, enhanced social security, and welfare for India’s vast workforce.
India’s previous labour laws were predominantly framed between the 1930s and 1950s—an era vastly different from today’s economic realities. This resulted in fragmented, complex, and often outdated provisions that struggled to keep pace with evolving forms of employment, such as the gig economy. The consolidation into four codes addresses this long-pending need, replacing colonial-era structures with modern global standards to reduce compliance burdens and increase worker protection.
Transformational Changes: Before and After Implementation
The new codes introduce specific mandates that significantly formalize employment and expand social protection across the board.
Before vs After Reforms:
| Category | Earlier System | Under the New Codes |
| Appointment Letters | Not mandatory | Mandatory for all workers |
| Minimum Wages | Only for scheduled industries | Universal minimum wage for all workers |
| Social Security | Limited PF/ESIC coverage | PF, ESIC, insurance benefits for all, including gig workers |
| Women’s Employment | Restrictions on night shifts and hazardous jobs | Allowed with consent + safety conditions |
| Health Check-ups | No mandatory annual check-ups | Free annual check-up for workers 40+ years of age |
| ESIC | Limited Coverage: Restricted to notified geographical areas and typically applied only to establishments with 10 or more employees, often excluding small units and those engaged in hazardous processes. | Universal Application: The scheme is extended Pan-India, removing geographical restrictions. It is mandatory for establishments with even one employee if they are engaged in a hazardous process. |
| Single Registration | Multiple licenses/returns | Single license, single registration, single return |
Universal Social Security Coverage
The most transformative shift introduced by the new Labour Codes is the expansion of India’s social security net under the Code on Social Security, 2020. This single reform has substantially widened the nation’s protection framework, increasing workforce coverage from roughly 19% in 2015 to more than 64% in 2025.
- Inclusion of Gig and Platform Workers: For the first time, India’s labour laws formally define gig workers, platform workers, and aggregators, bringing millions of app-based workers under social protection. Aggregators—companies that connect workers to customers through digital platforms—must now contribute 1% to 2% of their annual turnover, capped at 5% of payouts to workers, to a new social security fund. India has 7.7 million gig and platform workers (NITI Aayog), a number expected to rise to 23.5 million by 2029-30. The new mandate will extend insurance, pension support, and health benefits to this expanding workforce.
- Pan-India ESIC Expansion: ESIC coverage is now extended Pan-India, ensuring uniform access to medical and social security benefits across urban and rural areas. The ESIC wage ceiling remains ₹21,000 per month. Previously dependent on state notifications, ESIC will now apply nationwide by default. Any establishment that employs only one worker in hazardous or life-threatening activities must provide ESIC coverage. This significantly strengthens workplace safety and guarantees that high-risk workers receive medical care, disability support, and dependents’ benefits without exception.
- Portability of Benefits: By linking welfare schemes to an Aadhaar-enabled Universal Account Number (UAN), the new labour framework ensures that benefits move with workers across states and jobs. This is especially important for India’s migrant workforce, which often lost access to entitlements when relocating. With a unified UAN, workers can maintain continuous access to provident fund contributions, social security schemes, and insurance, regardless of where they work or how often they change employers.
Key Benefits for Specific Workforce Categories
Working Hours and Overtime Limits
The Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020 mandates clear limits that benefit both productivity and worker health:
- Weekly and Daily Cap: The maximum weekly working hours remain capped at 48 hours. While the standard workday is 8 hours, it can be extended up to 12 hours (with the worker’s consent) to facilitate a 4-day work week, provided the 48-hour weekly cap is strictly maintained. One weekly rest day is mandatory.
- Overtime Pay: Any work beyond the prescribed limits must be compensated at a rate of twice the normal wage rate (2x).
Wages, Leave, and Gratuity: Direct Financial Impact
| Financial Reform | Key Statutory Change | Employee/Employer Impact |
| Universal Minimum Wage | Introduction of a National Floor Wage ensures no state can fix a minimum wage below this level. | Could increase the minimum wage for millions of workers by 20–25%, depending on the state, affecting business payroll budgets. |
| Gratuity Eligibility | Fixed-Term Employees (FTEs) become eligible for gratuity after just 1 year of continuous service, down from the 5-year requirement (which remains for permanent staff). | Greatly enhance job security and exit benefits for short-term and project-based staff. |
| Salary Structure (Take-Home Pay) | The law mandates that Basic Salary must constitute at least 50% of the total Cost-to-Company (CTC). | Employee: Take-home salary may decrease as higher mandatory PF/Gratuity contributions are deducted. Employer: PF liability increases, as contributions are calculated on a higher Basic wage base. |
| Earned Leave Accrual | Minimum annual leave accrual is now one day for every 20 working days, and carry-forward/encashment rules are more employee-centric. | Workers become eligible for paid leave sooner (after 180 days instead of 240 in some sectors), improving work-life balance. |
How Salary Structure, PF, and Gratuity Will Change
Under the new wage definition, basic salary must form at least 50% of the total remuneration, which is referred to as cost-to-company (CTC) and includes social security contributions, withheld taxes etc. This is a significant change with a wide-reaching impact as set out below:
- Impact on Take-Home Pay: Take-home salary may decline initially, as PF and gratuity contributions increase due to the higher basic wage base. However, this strengthens long-term financial security.
- Provident Fund (PF) Growth: With PF contributions calculated on a larger Basic component, both employer and employee contributions rise (each contributing 12% of Basic), resulting in higher monthly PF deposits and faster accumulation of retirement savings.
- Higher Gratuity Payouts: Although the gratuity formula remains unchanged, the higher Basic salary directly increases final gratuity amounts. Gratuity is calculated at 4.81% of Basic per month, which means employees gain significantly more over long service periods. This is particularly beneficial for employees nearing retirement or those with longer service duration. Foreign nationals who are employed in India for a year or longer on fixed-term contracts will be eligible for gratuity payments. The sponsoring employer must budget for these payouts at the end of the employment. An employment lawyer or a payroll company can provide further guidance on this.
- Adjustment of Allowances: Allowances such as HRA (house rent allowance), LTA (leave travel allowance), and special allowances may reduce or be restructured to comply with the 50% rule. While this may slightly compress immediate cash-in-hand pay, it enhances long-term benefit accrual and financial stability.
Streamlining Compliance and Penalties
For employers, the codes provide welcome relief from regulatory complexity and set clear rules for non-compliance. However, on the other hand, the cost of employee salaries, social security dues, and gratuity will increase significantly.
Compliance Simplification: The consolidation of 29 laws into 4 Codes reduces over 1,000+ different forms and return filings to just one single return.
Penalties for Non-Compliance: The codes introduce stricter financial penalties to ensure compliance:
- Penalties for violations range from ₹1 lakh (USD 1,120) to ₹10 lakh (USD 11,200), depending on the severity and nature of the offence.
- For repeated or severe violations, the law provides for the possibility of imprisonment (up to 3 years in certain cases), emphasizing the government’s serious approach to worker safety and rights.
Looking Ahead: Implementation and Economic Impact
While the codes are implemented, the immediate next step involves the Central and State Governments notifying the corresponding rules and regulations. Since labour is a concurrent subject, the states’ alignment is critical. These reforms mark a historic milestone in India’s labour governance, placing protection, dignity, and portability of benefits firmly at the centre of the nation’s workforce strategy.
__________________________________