<p>Your columnist recently sat in on a Zoom briefing hosted by IMA where Rashmi Pradeep, a partner at Cyril Amarchand Mangaldas, walked members through India’s new labour code. It was clear from that session that this is not a minor tweak but a big reset. The Modi administration has now brought into force four labour codes that replace 29 older laws. Consequently, every employer in India, large or small, will feel the impact. At the heart of the reform is simplification. The Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code now shape the rule book for work in India. Together they aim to give firms a coherent framework instead of a maze of laws.</p> <p>The Code on Wages standardises what counts as wages across almost all labour laws. Allowances that once kept basic pay low will now be capped at half of total pay and any excess will be treated as wages. This shift matters because provident fund, gratuity and bonuses are linked to the wage base. Many employers long accustomed to intricate salary structures, may find that contributions rise even if the overall cost to company remains unchanged. The code also endorses a national floor wage, preventing states from setting minimum wages below that level. Over time this should narrow wide disparities in wage levels. The Industrial Relations Code brings the most sensitive changes. It raises the threshold at which factories need government approval for layoffs, retrenchment or closure from 100 to 300 workers, allowing firms below this size to adjust headcount with greater freedom. It also gives legal backing to fixed term employment while ensuring that such workers receive the same wages and benefits as permanent employees for their period of service. Rules on strikes have been tightened, with longer notice periods and more stages of conciliation. Supporters believe this flexibility will encourage employers to hire with more confidence, while critics worry about reduced job security and weaker union influence. For management, the outcome will depend on how responsibly the new flexibility is used.</p> <p>The Code on Social Security aims to bring more workers into formal safety nets. Coverage now extends in principle to gig workers, platform workers and informal labour, with digital systems planned to track and credit contributions. Fixed term workers will also qualify for gratuity even with shorter service periods. Consequently, employers face broader obligations, though they gain from a unified and clearer regime for provident fund, insurance and related benefits. The Occupational Safety, Health and Working Conditions Code merges many laws into one, creating common standards for working conditions, including health checks in specific sectors and clearer rules for inter-state migrant workers. A single licence, unified registers and electronic filings should reduce friction, at least in principle. Another relief for employers is decriminalisation. Several offences have been shifted from criminal penalties to monetary fines.</p> <p>In the near term the shift will bring more strain than relief. HR and payroll systems will need reworking to align with the new wage definition. Managers must learn the documentation and procedural requirements for transfers, disciplinary action and layoffs. Smaller firms, which generally lack specialised legal teams, may face the steepest learning curve. Yet medium term gains could be meaningful. Execution, however, remains the real hurdle. Labour is a joint subject and states differ in readiness and political appetite. Trade unions have already expressed opposition and may challenge the framework in court. Many employers will still worry about broad enforcement powers, while workers will need guidance on how the new wage and benefit structures work in practice. For these reasons the new labour code marks the start of a journey rather than its close. It is a bold reform – took years in the making – and must rightfully be acknowledged as such.</p>
<p>Your columnist recently sat in on a Zoom briefing hosted by IMA where Rashmi Pradeep, a partner at Cyril Amarchand Mangaldas, walked members through India’s new labour code. It was clear from that session that this is not a minor tweak but a big reset. The Modi administration has now brought into force four labour codes that replace 29 older laws. Consequently, every employer in India, large or small, will feel the impact. At the heart of the reform is simplification. The Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code now shape the rule book for work in India. Together they aim to give firms a coherent framework instead of a maze of laws.</p> <p>The Code on Wages standardises what counts as wages across almost all labour laws. Allowances that once kept basic pay low will now be capped at half of total pay and any excess will be treated as wages. This shift matters because provident fund, gratuity and bonuses are linked to the wage base. Many employers long accustomed to intricate salary structures, may find that contributions rise even if the overall cost to company remains unchanged. The code also endorses a national floor wage, preventing states from setting minimum wages below that level. Over time this should narrow wide disparities in wage levels. The Industrial Relations Code brings the most sensitive changes. It raises the threshold at which factories need government approval for layoffs, retrenchment or closure from 100 to 300 workers, allowing firms below this size to adjust headcount with greater freedom. It also gives legal backing to fixed term employment while ensuring that such workers receive the same wages and benefits as permanent employees for their period of service. Rules on strikes have been tightened, with longer notice periods and more stages of conciliation. Supporters believe this flexibility will encourage employers to hire with more confidence, while critics worry about reduced job security and weaker union influence. For management, the outcome will depend on how responsibly the new flexibility is used.</p> <p>The Code on Social Security aims to bring more workers into formal safety nets. Coverage now extends in principle to gig workers, platform workers and informal labour, with digital systems planned to track and credit contributions. Fixed term workers will also qualify for gratuity even with shorter service periods. Consequently, employers face broader obligations, though they gain from a unified and clearer regime for provident fund, insurance and related benefits. The Occupational Safety, Health and Working Conditions Code merges many laws into one, creating common standards for working conditions, including health checks in specific sectors and clearer rules for inter-state migrant workers. A single licence, unified registers and electronic filings should reduce friction, at least in principle. Another relief for employers is decriminalisation. Several offences have been shifted from criminal penalties to monetary fines.</p> <p>In the near term the shift will bring more strain than relief. HR and payroll systems will need reworking to align with the new wage definition. Managers must learn the documentation and procedural requirements for transfers, disciplinary action and layoffs. Smaller firms, which generally lack specialised legal teams, may face the steepest learning curve. Yet medium term gains could be meaningful. Execution, however, remains the real hurdle. Labour is a joint subject and states differ in readiness and political appetite. Trade unions have already expressed opposition and may challenge the framework in court. Many employers will still worry about broad enforcement powers, while workers will need guidance on how the new wage and benefit structures work in practice. For these reasons the new labour code marks the start of a journey rather than its close. It is a bold reform – took years in the making – and must rightfully be acknowledged as such.</p>
