INTRODUCTION
India has taken an important step in reshaping its labour law system by bringing four new labour codes into force. These include the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020 and the Occupational Safety, Health and Working Conditions Code 2020. This reform matters because earlier labour laws were scattered across almost twenty nine different Acts, many of them decades old and written for a very different industrial era. The old laws often overlapped or repeated the same ideas with different terminology, and in some cases even conflicted with one another. As a result, both workers and employers frequently faced confusion about their rights, responsibilities and compliance procedures.
By merging all those scattered laws into just four broad codes, the government has created a single, more organized structure that is easier to understand and easier to enforce. Instead of working with multiple authorities, forms and guarantees, the process is now integrated. The Intention is to protect workers, increase transparency and curb unnecessary disputes. For employers, it is aimed at cutting down on the paperwork and compliance abilities that are complicated and allow the employer to focus on their business.
Overall, this reform is intended to create a balance between these competing goals. If managed effectively, the new structure will create workplaces that are fair, productive and better suited to the modern economy.
WHAT THE OLD SYSTEM LOOKED LIKE?
In the past, India’s labour law system was established over decades, stemming from many separate Acts that were implemented at different times. Instead of a cohesive system, India built about twenty-nine central labour laws that dealt with wages, industrial disputes, health and safety, social security, contract labour, and many other topics separately. These Acts were never intended to work together as a system and therefore, evolved into a complicated patchwork.
This resulted in each law having its own language and its own definition of fundamental terms such as worker, employee, wages, and establishment. Something as simple as calculating wages or deciding who counted as an employee changed from one Act to another. Employers had to file many different forms and returns to comply with different departments. Workers had difficulty knowing which law applied in order to protect them. It did not create certainty but simply created confusion for both parties.
For instance, the Minimum Wages Act 1948 and the Payment of Wages Act 1936 both dealt with wages, but one controlled the minimum rate of pay and the other controlled how wages should be paid and within what timeline. Even though they sounded similar, each required their own compliance process and different penalty rules. Even their definition wasn’t same leading to litigation and arguments.
The same issue existed with workplace conditions. The Factories Act 1948 governed safety rules and working hours for factory workers, while separate laws applied to contract labour or establishments outside factory settings. The result was that the rights of a worker could change simply because of where they worked or the number of people employed there.
Social-security benefits were also fragmented. For instance, gratuity was regulated by a separate law and a worker needed five years of continuous service to qualify. If they switched jobs or worked on a fixed contract, they usually lost the benefit. Thus, it needed restructuring, not more layers.
WHAT WERE THESE NEW CODES?
For beneficial functioning the scattered framework is now consolidated into four comprehensive labour code-
- The Code on Wages 2019, combines provisions related to wage regulation and payment, such as the Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act and the Equal Remuneration Act.
- The Industrial Relations Code 2020 brings together the provisions pertaining to trade unions, settlement of industrial disputes and terms of employment. It includes provisions on strikes, lockouts, layoffs, retrenchment, and the rights of employers and employees in collective bargaining.
- The Code on Social Security 2020 merges laws relating to provident fund, employee state insurance, maternity benefit, gratuity, compensation and social security funds. A key feature is the inclusion of gig workers, platform workers and unorganized sector workers, who previously fell outside protections.
- The Occupational Safety, Health and Working Conditions Code 2020 binds provisions for worker safety, working hours, welfare facilities and workplace conditions. It applies to factories, mines, construction and other establishments, aiming to strengthen safety standards and unify compliance.
These four codes intend to create a transparent & uniform system that is easier to follow and more relevant to the contemporary labour market.
MAJOR CHANGES IN THE NEW SYSTEM
The legal significant changes that these new codes have brought are as follows-
- Legal right to minimum wage
- Code mandates that every worker must have a legal right to a minimum wage.
- The actual minimum wage will vary based on region, category of work and skill level.
- It says the central government will set a “statutory national floor wage” based on minimum living standards, and no state may set minimum wages below this benchmark.
2. Uniform definition of wages
The new definition stipulates one big requirement that ‘the basic pay must make up at least 50 % of the total salary’ impacting provident fund, gratuity and social security benefits.
3. Gratuity for fixed-term workers after one year
Fixed-term employees qualify for gratuity after just one year of service, rather than the older requirement of five years.
4. Overtime pay at double the regular rate
The codes fix the overtime compensation at twice the normal wage rate when work goes beyond the standard hours.
5. Appointment letters mandatory
All workers must receive a written appointment letter that lays out their terms of employment, wages, hours of work and other conditions ending ambiguity.
6. Paid leave entitlement begins earlier
Previously, many workers had to complete 240 working days to qualify for annual paid leave. Under the new regime, the requirement is brought down to 180 days.
7. Work from home formally recognized
For the services sector, remote work is now part of the regulatory framework, if the employer and employee agree to it.
8. Women allowed night shifts with safeguards
Women workers can now work night shifts (subject to safety and consent) and equal pay for equal work is explicitly mandated.
9. Inclusion of gig and platform workers
Recognizes workers engaged through platforms (app-based delivery, ride-hailing etc.) and extend social-security coverage to them. This is a major step for workers previously outside formal protections.
10. Free annual health check-up for workers above 40
Employers are now required to provide free yearly health check-ups for workers aged 40 and above, helping in preventive health care.
HOW DOES THE WORKERS BENEFIT?
- More workers are now covered by statutory wage protection. The introduction of a national floor wage prevents extremely low wage practices and ensures a basic income threshold across states. This particularly benefits informal workers, contract labour, domestic workers and daily wage earners who previously fell outside the scope of wage laws due to narrow definitions or inconsistent coverage.
- Inclusion of gig and platform workers along with fixed-term and unorganized workers, the codes recognize modern employment forms. These workers will now be eligible for benefits such as insurance, provident fund, gratuity and welfare schemes that were earlier reserved mainly for permanent employees in formal establishments.
- Workplace safety and well-being receive stronger legal backing. Mandatory health checkups for workers over 40, unified standards for hazardous work, and better welfare provisions, not previously available in many establishments. These changes acknowledge that long-term occupational health is as important as wage protection.
- The financial security of workers improves through faster access to benefits like gratuity and paid leave. Reducing the paid leave eligibility threshold from 240 to 180 working days helps more workers qualify, including those with shorter contracts. The provision of gratuity after one year for fixed-term employees ensures that short-cycle project workers are not excluded.
HOW DOES THE EMPLOYER BENEFITS?
Under the earlier system, employers faced overlapping compliance requirements under separate Acts, each demanding different registrations, returns, inspections and record-keeping. This complexity increased administrative costs and made businesses more vulnerable to procedural penalties and litigation. The new codes streamline this framework through a single registration, a single return and a common licensing system for establishments, which reduces duplication and unnecessary paperwork.
A clearer and standardised definition of wages also gives employers more predictability in structuring compensation. Earlier, wage calculations varied under different laws, which often led to disputes about what components counted for PF, bonus or gratuity. A uniform definition reduces ambiguity and the risk of litigation. Although some employers may incur higher financial obligations due to increased social-security contributions, these costs are balanced by greater stability in workforce planning and reduced compliance uncertainty.
Fixed-term employment is now explicitly recognized, allowing employers to legally engage workers for project-based roles without the ambiguity that previously existed. Provisions related to strikes and layoffs under the Industrial Relations Code aim to minimize disruption and support continuity of business operations, especially in large industrial units. Thus, creating a more structured and predictable environment for employment management and industrial relations.
DRAWBACKS
One of the drawbacks being that many workers may actually get a lower take-home salary every month. Because the new rules require that basic pay must be at least half of total salary, a larger part of the salary will go into PF and gratuity. This is good for long-term savings, but it means less money in hand right now. Trade unions also say that the new rule allowing companies with up to 300 workers to lay off employees without government permission could make jobs feel less secure. Workers may also find it harder to organize strikes because stricter notice rules have been introduced.
Another issue being that the success of these codes depends on how states implement them. Each state needs to make its own detailed rules, and if they do it slowly or differently, workers may not see these benefits soon. Gig workers, like delivery or cab drivers, have been recognised under social security, but it is still unclear how and when they will actually receive benefits. Also, it is to worry that the reducing inspections and paperwork for employers might make it easier for some establishments to ignore safety rules if not monitored properly. So, while the reforms have strong goals, their real result depends on clear implementation and fair enforcement.
AMLEGALS REMARKS
From where we stand, these four labour codes are a bold attempt to rebuild a system that had become too complicated for both workers and employers. The intention is to make rights easier to understand, make compliance easier to follow and bring fairness to groups that were ignored for far too long. If implemented well, these reforms can genuinely improve working conditions, expand social security and create more predictable workplaces. But the real impact will depend on how smoothly the rules are carried out at the state level and how responsibly employers take up their new obligations.
For any query, please feel free to reach out to mridusha.guha@amlegals.com