India has long been recognized for its complex web of labor laws. Prior to recent efforts, there were over 40 central laws and more than 100 state laws regulating labor and employment, many of which had inconsistent definitions and outdated provisions.
The government's efforts can be traced back to recommendations made by the Second National Commission on Labour in 2002. The Commission suggested consolidating existing labor laws into coherent categories such as wages, industrial relations, social security, safety, and welfare. These changes were intended to not only streamline regulations but also ensure better working conditions, especially for the unorganized sector, which constitutes nearly 90 percent of India's workforce.
Between 2019 and 2020, the Indian government enacted four significant labor codes, consolidating 29 previous laws into a more streamlined structure. These include:
- The Code on Wages, 2019.
- The Industrial Relations Code, 2020.
- The Code on Social Security, 2020.
- The Occupational Safety, Health, and Working Conditions Code, 2020.
While these labor codes represent a major reform initiative, their implementation has faced delays. Although speculation arose that the codes might come into effect on April 1, 2022, the Ministry of Labour and Employment has not yet provided an official date for their enactment. As of March 2022, there remains no clear indication when the codes will be enforced, leaving employers and workers in a state of anticipation.
The four New Labor Codes
The Indian government has introduced a series of sweeping reforms aimed at simplifying and modernizing labor regulations through the enactment of four comprehensive labor codes. These codes consolidate and replace the previous patchwork of 29 labor laws and are designed to enhance wage protection, streamline industrial relations, ensure workplace safety, and extend social security benefits. While the new labor codes have been passed, their implementation has been delayed, leaving businesses and workers in a state of uncertainty. Below is a closer look at the four key labor codes and their potential impacts.
The Code on Wages, 2019
The Code on Wages, 2019, was introduced to standardize wage structures across various industries, replacing four previous laws: the Minimum Wages Act (1948), Payment of Wages Act (1936), Payment of Bonus Act (1965), and Equal Remuneration Act (1976). One of its most significant changes is the introduction of a "floor wage," set by the central government, which considers the worker's living standards and may vary across different geographical regions. Minimum wages set by states or central authorities must meet or exceed this floor wage, ensuring a consistent and fair wage for all employees across India. This code applies to all industries, guaranteeing that no worker is paid below the prescribed minimum wage.
Central Advisory Board for Minimum Wages
The code mandates the establishment of a central advisory board that includes representatives from both employers and employees, with a notable one-third of the board consisting of women. The board is tasked with advising on wage issues and increasing employment opportunities, particularly for women. The code also introduces penalties for violations, such as paying less than the minimum wage or gender discrimination in recruitment and remuneration.
The Code on Wages aims to protect the rights of workers by ensuring fair compensation. It simplifies wage-related laws while addressing longstanding issues like gender-based wage disparity and providing a more transparent and uniform wage structure across the country.
The Industrial Relations Code, 2020
The Industrial Relations Code, 2020, brings significant changes to India's labor dispute resolution framework and industrial relations landscape. It raises the threshold for standing orders—rules regarding employment terms and conditions—from establishments with 100 workers to those with 300, thereby granting smaller firms more flexibility in hiring and firing workers. For establishments with more than 300 workers, government permission is required before layoffs, retrenchments, or closures. The code also imposes stricter regulations on strikes, requiring a 60-day notice and prohibiting strikes during the pendency of tribunal proceedings.
This code seeks to strike a balance between promoting employer flexibility and safeguarding worker rights. However, it has sparked concerns among labor unions, as the increased threshold and stringent conditions for strikes may dilute workers' bargaining power, especially in smaller establishments. On the other hand, businesses argue that it enhances flexibility in labor management, potentially leading to increased job creation.
The Code on Social Security, 2020
The Code on Social Security, 2020, broadens the definition of "employee" to include gig workers, platform workers, and those in unorganized sectors. It replaces existing laws like the Employees' Provident Funds Act (1952) and the Employees’ State Insurance Act (1948), extending social security benefits such as provident fund, insurance, and maternity leave to a larger segment of the workforce. The code also mandates the use of Aadhaar cards to identify workers and ensure they receive the benefits they are entitled to, whether they are contractual, permanent, or in the gig economy.
The inclusion of gig and platform workers in social security schemes is a significant development in India's labor landscape, given the growing importance of the gig economy. By extending benefits like health insurance, pensions, and maternity leave to these workers, the code aims to improve their financial security and social safety net. However, its implementation will require collaboration between the central government, employers, and workers to ensure effective execution.
The Occupational Safety, Health, and Working Conditions Code, 2020
The Occupational Safety, Health, and Working Conditions Code, 2020, emphasizes improving safety standards across industries, particularly for hazardous work environments. The definition of a factory has been expanded, and the code sets a maximum of eight working hours per day. Additionally, the code addresses the rights of inter-state migrant workers, granting them portability benefits for ration cards and building worker cess contributions.
This code places a renewed emphasis on workplace safety and aims to ensure better living and working conditions for workers, particularly migrant laborers. By standardizing work hours and introducing portable benefits for migrant workers, the code aims to improve both safety and mobility in India's labor market. However, the removal of provisions for temporary accommodation near work sites has raised concerns about the welfare of migrant workers, especially those in industries requiring frequent relocation.
Current status of implementation with its challenges and controversies
The enactment of India’s four new labor codes—Code on Wages, Industrial Relations Code, Occupational Safety, Health and Working Conditions Code (OSH Code), and Code on Social Security—has faced numerous challenges since their passage between 2019 and 2020. While these labor codes aim to consolidate 29 outdated laws into a modernized framework to boost economic growth and improve working conditions, their implementation has been delayed repeatedly. Initially scheduled to come into effect by April 2022, the implementation process has stalled due to state-level compliance issues and stakeholder resistance, with no clear indication they will be operational before the 2024 general elections.
The delayed rollout of these labor codes highlights both regulatory hurdles and strong opposition from various stakeholders. One of the primary challenges is the shared jurisdiction over labor laws between India’s central and state governments. Though the central government has passed the codes, state governments are responsible for drafting and notifying their own rules under each code before they can be fully implemented. This duality has led to significant inconsistencies in the compliance process across the country. As of now, 31 states have published draft rules under the Code on Wages, while 26 states have done so for the OSH Code. However, progress has been slower with the Industrial Relations Code and Social Security Code, with fewer states finalizing their respective rules.
Several trade unions, particularly those unaffiliated with the Rashtriya Swayamsevak Sangh (RSS), have been vocal critics of the labor codes. They argue that the Industrial Relations Code and OSH Code undermine workers' rights, especially by making it easier for companies to lay off workers and imposing stricter regulations on strikes.
For instance, under the new provisions, workers must give 60 days' notice before initiating a strike, and flash strikes—a previously common tactic—are now banned. Unions contend that such provisions limit workers’ ability to negotiate for better wages and working conditions, leading many to label the codes as "anti-worker."
Despite these challenges, the government remains committed to implementing the labor codes, which are a key part of Prime Minister Narendra Modi’s broader economic reform agenda. The reforms are designed to improve wage security, enhance occupational safety, and bring unorganized and gig workers into the social security net, all of which are expected to modernize India’s labor market. Proponents argue that these changes will boost the ease of doing business and attract greater investment into the country.
Maharashtra notified rules for the codes on March 20. The Union government had recently directed the Union Territories to speedily frame rules regarding the key industrial relation code, which have been complied with. These are the National Capital Territory of Delhi, Andaman and Nicobar Islands, Chandigarh, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu and Puducherry.
Uttarakhand, Chhattisgarh, Odisha, Arunachal Pradesh, Uttar Pradesh, Madhya Pradesh, Haryana, Jharkhand, Himachal Pradesh, Punjab, Manipur, Bihar, and UT of Jammu and Kashmir, have framed required regulations under the new labour laws.
Impact on foreign companies
Simplification and consolidation of Laws
The introduction of India’s new labor codes brings much-needed clarity and simplification to a previously cumbersome legal framework. For foreign companies, this is a significant development. The consolidation of these laws into four key codes (the Code on Wages, Industrial Relations Code, Social Security Code, and the Occupational Safety, Health, and Working Conditions Code) streamlines compliance procedures, making it easier for foreign businesses to understand their obligations and adhere to Indian labor regulations.
The simplification not only reduces legal ambiguity but also makes India a more attractive destination for foreign investment. With clearer regulations, foreign companies can dedicate more resources to operations rather than managing complex compliance issues.
Flexibility in hiring and firing
One of the more progressive aspects of the new Industrial Relations Code is the flexibility it offers in workforce management. The code allows companies with up to 300 employees to hire and fire workers without seeking government approval—a marked improvement from the previous threshold of 100 workers. This shift grants foreign companies’ greater freedom to scale their workforce in accordance with business needs, enhancing agility in a competitive market.
However, foreign firms must balance this regulatory leniency by ensuring fair treatment of employees to avoid industrial disputes. Transparent employment practices and clear communication with workers are vital to maintaining positive industrial relations in light of these relaxed regulations.
Compliance and penalties
While the labor codes aim to create a business-friendly environment, they also introduce stricter compliance requirements, especially for foreign companies unfamiliar with India’s regulatory nuances. The government has implemented enhanced monitoring and stricter penalties for non-compliance, which places an added burden on foreign businesses to stay updated and strictly adhere to these standards.
Failure to comply with the regulations can result in substantial fines, reputational damage, and operational disruptions. It is crucial for foreign companies to invest in robust compliance management systems, maintain meticulous records, and ensure that their HR and legal teams are well-versed in the new labor codes.
The main benefits with the implementation of the new labor codes are:
- Simplification of procedures and reduction in requirements, resulting in reduced compliance costs.
- Single registrations will replace the need for registrations under multiple labor laws.
- Ability to hire workers for a fixed duration, which will encourage companies to hire individuals directly rather than through contract agencies.
Some of the main disadvantages of these labor codes will be:
- Consequences of noncompliance will be more severe, since penalties have been enhanced.
- Companies may need to apply for some first-time compliances and registrations.
- Material aspects of the implementation of the labor codes have been left to notifications to be issued by the government from time to time.
- Aggregators such as ride-hailing services, logistics companies and food-and-grocery delivery companies will be obliged to offer social security benefits to their workers.
- The leave and working time provisions under the OSH code will overlap with the provisions of state-level shops and establishment acts, and no specific mechanism has yet been prescribed to resolve conflicts.
