 Ms. Vidhya Soundararajan
The Second National Commission on Labour (2002) had highlighted how India’s maze of labour laws had become overly complex and fragmented. Acting on its recommendations, last week, the government notified four major labour codes on Wages (2019), Industrial Relations (2020), Social Security (2020), and Occupational Safety, Health and Working Conditions (OSHW) (2020), effectively merging 29 older laws into a more coherent framework. This is a welcome step: long overdue and among the most awaited reforms in recent years. By simplifying definitions, enabling digital compliance, and streamlining registration and inspections, the new codes cut red tape, reduce legal uncertainty, and make it easier to do business, especially for the manufacturing and services sector.
The code on Wages marks a major shift by introducing a statutory national floor wage. Earlier, the wage floor served only as a guideline for states and was not legally binding. The code also extends minimum wage coverage to all sectors, replacing the earlier system that applied only to a list of scheduled employments. Under the old framework, several occupations such as private security, courier and care services were often left out of individual state schedules. By making coverage universal and establishing a binding floor wage, the reform strengthens income security for workers while providing greater predictability in labour costs for employers, supporting both fairer industrial relations and more informed business planning.
The Social Security code brings together nine earlier laws and, for the first time, extends coverage to unorganised, gig, and platform workers. It also includes fixed-term employees, who are now entitled to pro-rata gratuity and benefits on par with permanent staff. By recognising non-traditional forms of work, like gig and platform work, the code reflects the changing realities of India’s labour market. These changes are especially significant, since research consistently finds that access to social security improves worker welfare while simultaneously increasing productivity, reducing absenteeism, and improving retention. Firms that embrace these standards can also gain reputational advantages and align more easily with global value chains that prioritise Environmental, Social, and Governance (ESG) goals.
The OSHW Code significantly expands the scope of workplace welfare and protection. It mandates annual health check-ups (for employees above 40 years of age) and welfare facilities such as canteens, restrooms, first-aid centres, and crèches, extending these requirements to a wider range of establishments. These provisions mark a clear improvement over earlier laws like the Factories Act, which were unevenly enforced and applied mainly to factories. In parallel, the code introduces greater flexibility for employers. Draft provisions allow state governments to set limits on permissible overtime hours, subject to worker consent. Several states have since raised the quarterly overtime cap from 75 hours to as high as 125 or 144 hours, while requiring double wages for overtime work. Admittedly, effective enforcement and ensuring that consent remains voluntary are crucial for these provisions to be meaningful in practice. Still, when implemented alongside strong labour protections, such measures can create a win–win: offering higher income potential for workers and greater operational flexibility for firms.
The Industrial Relations code brings greater flexibility to workforce management by raising the threshold for prior government approval for retrenchment and closure from 100 to 300 workers. This allows firms to adapt more easily to changing market conditions while retaining essential worker protections. In the long run, such flexibility can encourage formal job creation, as firms are less likely to avoid hiring or stay below legal limits. By lowering these barriers, as supported by many studies, the code supports a shift toward formal employment, giving workers better access to regulated working conditions, social security, and job stability, while helping businesses grow more efficiently.
The shift from the old “inspector-raj” system to an “Inspector-cum-Facilitator” model marks a move toward cooperative, tech-driven compliance. Risk-based, digital inspections reduce arbitrariness and bring India’s labour framework closer to global standards. Industry has welcomed the change, citing less paperwork, fewer overlaps, and reduced human interface. With unified portals like Shram Suvidha, compliance is now simpler and more transparent. While some worry about weaker enforcement, inspections haven’t been abolished—just made more targeted, less intrusive, and more transparent, improving both efficiency and accountability.
Finally, the formal recognition of non-standard forms of employment signals a forward-looking orientation. While gig and platform workers do not yet enjoy full employee status and hence lack entitlements such as collective bargaining or minimum wage guarantees, their inclusion in the social security framework represents an important first step toward more inclusive labour regulation.
All in all, the new labour codes mark a major step toward bringing India’s workplace laws in tune with today’s economy. They aim to strike a balance: protecting workers while making it easier for businesses to grow and hire formally. The real test, however, lies in how smoothly and consistently these reforms are rolled out across states. If implemented well, they could make compliance simpler, improve working conditions, and boost India’s competitiveness. Taken together, these changes move India closer to its goal of building a more resilient, fair, and inclusive economy.
The author is affiliated with the Centre of Advanced Economics Research & Learning (CAFRAL) |
