India’s labour landscape is witnessing one of the most significant transformations in decades. As of 21 November 2025, most of the provisions under the four Labour Codes have been made effective. The Labour Codes consolidate 29 existing labour laws into four comprehensive codes–Wages, Social Security, Industrial Relations and Occupational Safety, Health & Working Conditions (OSH).
This reform is positioned as a cornerstone for enhancing workplace safety, improving ease of doing business, promoting formalisation, fostering inclusive growth, while also aligning with global standards. For businesses, this means fewer overlapping regulations and a clearer roadmap for workforce management.
One of the key changes is the wage redefinition, as this forms the base for all calculations under the codes – resulting in an increase or decrease in the statutory liabilities depending upon the wage structure deployed by the company. The impact of this on the net take home of the employee also needs to be monitored. A full financial sensitivity analysis by employee grade, tenure, and function becomes imperative.
Amongst others, the Codes encourage gender and wage parity, introduce provisions for night shifts for women with certain safeguards, national floor wage for all, enhanced health and safety norms. They mandate appointment letters, extend social security benefits to unorganised sector, gig, platform workers and fixed term employees.
The Codes do seem to seek alignment with few of the international Labour Organisation (ILO) principles towards wages, gender equality, and occupational safety. According to ILO, over 2.78 million workers die annually from occupational accidents and diseases, highlighting the relevance of OSH provisions1. The ILO’s Global Wage Report shows persistent gender pay gaps worldwide, making India’s gender-neutral wage provisions significant 2 In June 2025, ILO committed to binding global standards for platform work which reinforces India’s progressive vision of including platform workers in the Codes3.
From a business perspective, in the long run, simplified and digitised compliance will reduce administrative burden and litigation risk, improving investor confidence. Formalisation of employment will enhance tax compliance and social security coverage. Parallelly, digital transformation initiatives of the Government, such as EPFO 3.0 etc. complement these reforms, promoting transparency and trust.
There may however be a need to navigate some short-term challenges. A key one being aligning to the new and critical definition of wages, as the ambiguities surrounding its interpretation continue especially with respect to variable/one-time payments, stock benefits etc. Some illustrations or clarifications from the Ministry in this regard in due course will certainly help clarify.
Employers would also need some immediate catch-up on cost provisioning/recalculation of benefits such as gratuity, leave encashment etc. which in the absence of any clarification otherwise, may have a retro-active effect. For instance, gratuity is calculated basis last drawn wage for every completed year of service. With the change in definition of wage under the Codes, it could lead to an enhancement of the gratuity liability for employee’s termination post commencement of the Code. Also, gratuity obligations towards fixed term employees (including the existing) would need to be provided for. Also, the ambiguity around calculation for multiple short-term contracts would need to be addressed. These adjustments could impact payroll structures, financial planning and compliance strategies in the short term.
Organisations should undertake a comprehensive classification of employees, workers, and gig workers, based on role profiles and salary levels, to ensure compliance and workforce clarity. They also need to ensure that the documentation is watertight. Organisations that depend extensively on contract labour should analyse market trends and regulatory shifts under the Codes, which restrict outsourcing in core functions while introducing a unified registration framework. These developments are likely to reshape workforce strategies, enabling more dynamic planning across sectors such as IT, logistics, global capability centers (GCCs), manufacturing, and engineering–industries where contract staffing remains a critical component.
While the Codes have come into effect, the Central and State rules are still being finalised, creating a dual compliance environment and uncertainty around eventual alignment. In the interim, organisations must carefully assess which provisions to follow during the transition, particularly where multiple state rules apply.
To sum up, the Labour Codes indeed mark a paradigm shift in India’s employment regulation, blending worker welfare with business facilitation. While they aim to lay the foundation for a future-ready workforce, their success hinges on stakeholder collaboration, robust enforcement and continuous adaptation to global best practices. For businesses, navigating the financial impact, payroll reconfiguration, state wise compliance mapping, strategic workforce planning, review of vendor agreements, audit disclosures, digitising processes, robust compliance dashboards, will be key to leveraging the reforms for sustainable growth.
A version of this article appeared in The Times of India Online on December 01 2025. The same can be read here
