Deft balancing of interests must be continued till all stakeholders come on board.
Workers at a candle making factory in Agartala, Tripura. ANI
Last week’s enunciation of 4 Labour Codes to replace the existing 29 Central laws is the first major labour reform in independent India. Their notification on 21 November 2025 marks the culmination of a two-decade-long endeavour to update the archaic workforce-related legal framework in sync with the goals of an inclusive society and a developed economy. Several of the displaced legislations were either a legacy from the colonial rule or originated in the socialist era of controls, licensing, and sheltered economic engagements. Deploying the time-honoured factor of production—labour—with greater fairness and higher productively, aims to promote the nation’s global competitiveness while enhancing resilience in its economic activities. Though the process of liberalizing the Indian economy and integrating with the external world was initiated in 1991, the domestic labour markets had remained virtually immune from any progressiveness. Varied national priorities, and absence of the requisite political will to undertake measures impacting a large section of society, had hitherto allowed the dis-equilibrium to subsist. Though the Union Government had framed the new laws in 2019 and 2020, these had been kept in a limbo. After a long hiatus, the same political configuration now dominates the Centre, the two Houses of Parliament, and 20 of the 29 provincial governments. That has prompted the NDA government to activate these enactments. The bold move effects substantive modifications in the prevailing set of regulations. Comprehensive provisions have been introduced in Code on Wages, 2019, Code on Social Security, 2020, Industrial Relations Code, 2020, and Occupational Safety, Health and Working Conditions Code, 2020. Only a handful of Central statutes dealing with issues like the banning child labour, sexual harassment at workplaces and emigrant workers, besides about a hundred of the earlier state laws stand retained. With Labour being a subject in the concurrent list, the existing and the new State laws need to pass muster of not being in conflict with the Central codes.
The social and economic compact into which the 29 Central laws have been subsumed should act as an economic catalyst. Along with addressing the demands for higher and rising wages, greater social security, and pronounced women’s participation in workforce, the four Codes hasten the move towards formalization. Appointment letters would be given to new employees. Fixed-term employment is permissible. The Codes address concerns of the rapidly expanding class of new jobs, specifically e-commerce and related gig work for which a legal framework has been created. Simultaneously, the Industrial Relations Code provides flexibility to most employers to rationalize their workforce. That has hitherto been a highly contentious issue. Reducing existing Central laws helps eliminate incongruities by more precisely defining the commonly used terms like worker and wages. The concept of wage has been standardized in the four Codes to include basic pay, dearness allowance, and the other allowances retained in the cost to company that are not specifically exempted. HRA, employer provident fund contribution, and commission are excluded. The aggregate admissible allowances cannot exceed 50% of the total remuneration. At least one-half of an employee’s CTC is to be treated as wages for calculating gratuity, PF, ESIC contribution, maternity benefits etc. This would expand the base for contributions and benefits. Employers would no longer be able to restructure pay solely to reduce their own tax liability.
The Wage Code, which combines the earlier 4 wage laws, prescribes that the minimum wage level in no state can be lower than the prescribed national minimum wage. Besides introducing a statutory floor wage, the Code provides for minimum wage prescription by “appropriate governments” for different categories of skilled workers, geographical areas and job conditions. For similar work, all employees must be paid the same wages without any gender inequality. Work from home is permitted. Daily working hours are limited between 8 and 12 hours within a maximum of weekly 48 hours. The Occupational Safety, Health and Working Conditions Code combining 13 existing laws, allows women to work in all establishments for all types of work with a right to work at night under due safety provisions. An annual free health check-up has to be arranged for each employee. Timely payment of wages and issue of wage slips stand mandated as proof of worker’s employment, wages, allowances, deductions, and net pay. The Code on Social Security merging 9 existing laws provides for the now well-defined gig and platform workers being eligible for PF and ESIC benefits. Their aggregators would contribute 1-2% of annual turnover for workers’ welfare into a new Social Security Fund. Additional inflows into it can come from corporate social responsibility funds, Central and State governments. A national database is envisaged to enrol unorganized workers. Gratuity would be admissible to fixed-term employees upon their completion of one year of service. Besides a retrenchment allowance, a “Reskilling Fund” would facilitate the retraining of laid off workers. ESIC benefits stand extended throughout the country and no longer limited to notified areas or only the employers with a certain minimum number of workers. In a hazardous industry, ESIC benefits would be available even with one workman. Plantation industry workers may voluntarily join ESIC. Such extensions should enable the cash rich ESIC to expand and better its medical facilities.
The changes effected through the new Codes introduce uniformity in wage structures, social security protection for workers, and streamline the regulatory compliance by employers, particularly MSMEs. Hitherto, filing the periodic returns and labour-related reports under each applicable labour law was an onerous, time-consuming and expensive affair. A combined return under all the Codes and filing it through digital processes besides doing away with reports, should make for easing of doing business. Decriminalization of first time labour related offences would henceforth attract financial penalties, instead of the earlier-provided criminal penalties such as imprisonment. An important change in the new Industrial Relations Code is the raising of the threshold for seeking prior government approval for lay-off, retrenchment, and closure in factories, mines, and plantations from 100 to 300 workers. The new law applies to all workers (unskilled, skilled, technical, operational, clerical, or supervisory) engaged for hire or reward. In addition, the conditions for a legal strike by workers have been extended to all industrial establishments and do not remain confined to public utility services such as water, electricity, natural gas, telephone, and other essential services. It also incorporates that workers cannot strike without giving notice within 60 days before striking, instead of the earlier 14 days of giving such notice. The definition of strike has been amended to include mass casual leave, wherein casual leave has been taken by more than 50% of the workers on a given day. Admittedly, such a move would discourage flash strikes. The Code introduces a concept of a “negotiating union or council”—a trade union with 51% membership of workers being the sole negotiating council. If none is available with such a degree of membership, the negotiating council is to be formed with representatives of unions having 20% of workers as members, granting one seat for each 20%. A simplified hiring system, clearer dispute resolution mechanisms, strengthened safety norms, and well laid out procedure to rationalize the workforce are expected to give a fillip to economic activity. The ability to quickly upsize in times of better prospects and reduce the workforce in not-so-good times, gives businesses the ability to scale, invest and innovate more confidently. The reassurance of being able to adjust to the cyclical changes makes decision-making more agile, besides facilitating the creation of sustainable employment opportunities. The requirement of payment of higher wages might initially appear burdensome to employers, especially the smaller enterprises. Facilities by SIDBI and other financial institutions for higher working capital requirement might certainly be needed. However, the higher wage earnings should very soon get reflected in elevated expenditure by workers. The resultant higher aggregate demand for products and services would create a virtuous cycle of greater investment in production and an expansion of employment generation-potential. Businesses welcome such healthy macro developments.
Judging by the positive early response of major industry associations and captains of industry, there is a palpable sense of relief in the Union Government which had staked significant political capital in framing and notifying the new legislations. However most trade unions have reservations, especially the provisions of the Code of Industrial Relations. To publicly demonstrate it, a countrywide protest was staged last week by several national and state level worker bodies except the RSS-BJP aligned Bharatiya Mazdoor Sangh. Governments of West Bengal, Tamil Nadu and Kerala are also not expected to cooperate in the implementation within their jurisdictions. Karnataka’s stance too would remain ambivalent. The trade bodies apprehend that granting employers significant flexibility in matters of engaging and retrenching workers could adversely impact the overall employment levels. They also contend that the right of workers to strike is sought to be curtailed with the stipulated requirements of a longer advance notice. That the smaller unions with fewer than 20% worker membership would be ignored in the proposed negotiating unions or councils is another of their lament. Promise of better social security, worker safety or formalization of workers does not seem to cut much ice with them. Some of their fears might actually not materialize but for the time being do serve the trade unions’ purpose of creating reservations in minds of workers. Getting the states on board is as consequential as appeasement of labour unions. The Centre having legislated on a Concurrent List subject no doubt prevents them from enacting any regulation in conflict with the Central codes or the yet-to-be finalized Central rules. While the Union Labour and Employment Secretary has assured the rules thereunder would be readied within three months, there is no such commitment from the state governments, most of whom have pre-published their rules under the codes. Four states with high formal worker strength, viz., West Bengal, Tamil Nadu, Kerala and Karnataka besides UT of Delhi are, however, yet to even pre-publish their draft rules. With both the stages of inviting and dealing with the public objections remaining, the applicability of the new laws and their timing in these states, is shrouded in uncertainty. Considerable resultant “avoidable confusion” would be achieved if all the states were prevailed upon to complete their rule making in sync with the Central provisions. Normally, even without the state rules, the Union enactments could become operational upon the Central laws and their rules being notified. However, in case of the four labour codes, this would not be feasible since at a hundred odd places in them, it has been mentioned under various sections and provisions the action would be “as may be specified by the appropriate authority”. In most cases this implies by the “relevant state government”. Determination of minimum wages in each state, industry and geographical area is one such role. Getting fuller state participation is a pre-requisite to a countrywide uniformity and harmonization in labour laws. That entails the state governments quickly reviewing and aligning their existing laws and regulations—the glaring ones are the Shop and Establishment Acts which cover a large section of workers and has not been subsumed under the new enactments, and the Social Security Code offering portability of worker entitlements across states. Willingness and agility on part of provincial rulers, thereby, has become an essential ingredient for making the new legal dispensation successful.
Dr Ajay Dua, a former DG, ESIC and Union Secretary, Commerce and Industry, is a developmental economist.
