India’s Labor Law Overhaul: Snapshot of Key Changes

On November 21, 2025, India implemented a historic reform of its labor law architecture. Two significant labor codes – Industrial Relations Code (2020) and Occupational Safety, Health and Working Conditions (OSHWC) Code (2020) – became fully enforceable nationwide, and majority provisions of the Code on Wages (2019) and Code on Social Security (2020) have also come into force. We highlight below the key legal reforms, their implications, and some of the challenges employers and workers may face.

Consolidation and Simplification of Labor Laws

The four labor codes replace 29 older labor statutes, reducing fragmentation. There is a unified framework for registration, licensing, and compliance filings (referred to as “returns”) across many categories. Under the new regime, inspectors act as facilitators, not just enforcers.

The reforms aim to bring a more predictable compliance framework for employers and clearer entitlements for workers, though actual implementation depends heavily on state-level rule notifications.

Wages and Compensation Reform

• Uniform wage definition: A single statutory definition of “wages” now applies across all four codes. “Wages” must form at least 50% of total remuneration, meaning allowances cannot be used excessively to reduce Provident Fund (PF) , bonus, gratuity, and other statutory payouts. As a result, payroll restructuring is inevitable for many employers, as statutory costs may rise due to a larger “wage” component.
• Minimum wages and floor wage: A national floor wage, which establishes a minimum wage floor for the entire country, will form the basis for state-level minimum wage notifications, improving uniformity in wage protection across India . Workers in unorganized sectors are also statutorily entitled to minimum wage.
• Gender equality and workplace inclusivity: “Equal pay for equal work” is explicitly extended to all genders, including transgender persons. Protections have also been strengthened for women working night shifts.
• Decriminalization of certain offenses: First-time or minor non-compliances by an employer may lead to monetary penalties instead of imprisonment, signalling a shift toward facilitative compliance.

Enhanced Social Security Coverage

• Gratuity eligibility for fixed-term employees after one year: Under the Social Security Code, fixed-term employees become eligible for “gratuity ” after completing one year of service, a dramatic departure from the earlier requirement of five years of continuous service under the Payment of Gratuity Act. This means even workers engaged for project-based or contract-bound roles will receive long-term social security benefits. Employers with significant fixed-term or project-based workforces will need to review staffing models and update cost projections. Workers benefit from expanded protection and earlier access to a critical social security entitlement.
• Gratuity payout may increase due to new wage definition: Because “wages” must constitute at least 50% of total remuneration, gratuity calculations will use a larger base. As a result, the gratuity liability for employers is likely to rise.
• Gig workers and platform workers: Gig workers and platform workers are now formally recognized, with provisions for aggregator contributions to a social security fund. Social security also expanded to fixed-term, unorganized sector, and inter-state migrant workers. The codes also assist in portability of benefits through Aadhaar-linked universal account numbers.

Industrial Relations and Workforce Flexibility

• Retrenchment compliance: The threshold for prior government approval for retrenchment (i.e., involuntary termination of employees for reasons other than personal conduct), layoffs, and closures has increased from 100 to 300 workers, giving employers greater flexibility.
• Reskilling Fund: Employers must contribute the equivalent of 15 days’ wages for each retrenched worker in the newly introduced Reskilling Fund.
• Work-from-home: A work-from-home model is formally recognized under the Model Standing Orders for service-sector employment, subject to terms set by employers.
• Trade unions recognition: Trade unions now have a clear pathway to legal recognition. A union with 51% membership in an establishment can be categorized as a Negotiating Union with exclusive rights to represent workers in collective bargaining and grievance redressal. In case this threshold is not met, a Negotiating Council will be constituted comprising representatives of all trade unions with at least 20% membership.

Occupational Safety, Health and Working Conditions (OSHWC)

• Health and Safety Standards: The OSHWC Code consolidates safety and welfare standards across industries and introduces several modernized requirements. It mandates medical check-ups for workers above a prescribed age and engaged in certain industries. The Code also requires Safety Committees in larger establishments. Additionally, the Code formally permits women to work night shifts, subject to consent and mandatory safety measures.
• Enhanced protections for workers engaged in hazardous industries: Employers operating in hazardous industries must follow enhanced welfare, sanitation and safety provisions, reflecting stronger protections to at-risk workers.
• Dispute resolution and tribunals: The reforms enhance the dispute resolution framework by creating two-member Industrial Tribunals designed to speed up the handling of employment cases. The Labour Codes also place greater emphasis on conciliation, making it a more formal and necessary step before disputes progress further.

These reforms mark major changes in India’s labor ecosystem. The full impact, however, will unfold only as state-level rules are finalized. Until then, the transition remains incomplete, and employers must stay prepared for further adjustments as the detailed compliance requirements take shape.