India fully operationalised the four Labour Codes on 21 November 2025 after the Centre and States completed the required rules and notifications. These codes replaced 29 central labour laws with a unified framework covering wages, industrial relations, social security, and occupational safety. The reform is considered one of the most significant changes in India’s labour governance since Independence.

The four labour codes are:

1. Code on Wages, 2019
2. Industrial Relations Code, 2020
3. Code on Social Security, 2020
4. Occupational Safety, Health and Working Conditions Code, 2020

Why is it in the News?

Although Parliament passed these labour codes during 2019–2020, they remained pending for implementation because labour is a subject in the Concurrent List, requiring both the Centre and States to frame rules.

The complete operationalization from 21 November 2025 marks:

• Transition from a complex “license-raj” labour regime to a simplified framework
• Reduction in compliance burden for businesses
• Promotion of ease of doing business and investment
• Expansion of social security to informal and gig workers
• Greater use of digital compliance systems and the e-Shram platform

Constitutional Background:

Labour falls under Entry 22 of the Concurrent List (Seventh Schedule) of the Constitution.

This means:

• Both Parliament and State Legislatures can make laws on labour
• States had to draft rules consistent with the central framework
• Delays occurred because several States took time to finalize implementation rules

Need for Labour Reforms:

1. Complex and Outdated Laws

Before the reforms, India had:

• 29 central labour laws
• Multiple overlapping definitions and compliance systems
• Laws dating back to the 1940s

This created legal complexity and compliance difficulties for industries and MSMEs.

Large Informal Workforce:

Nearly 90% of India’s workforce is employed in the unorganised sector without proper social security or formal protection.

The new codes aim to formalise workers through:

• Digital registration,
• Portability of benefits,
• e-Shram database.

Ease of Doing Business:

The reforms aim to:

• Simplify labour regulation,
• Reduce inspector-based controls,
• Encourage manufacturing,
• Attract Foreign Direct Investment (FDI).

The Four Labour Codes:

Code on Wages, 2019:

The Code on Wages, 2019 was introduced to create a uniform framework for minimum wages, payment of wages, bonus, and equal remuneration across organised sectors and covered establishments. One of its major features is the provision for a National Floor Wage, under which the Central Government can fix a minimum base wage that States cannot go below while determining their own minimum wages. This system aims to ensure minimum livelihood standards for workers, provide wage protection, and reduce regional wage disparities across the country.

Under the Code on Wages, 2019, the new definition of wages mandates that Basic Pay, Dearness Allowance (DA), and Retaining Allowance together must constitute at least 50% of an employee’s total remuneration. This change is expected to increase Provident Fund (PF) and gratuity benefits, improve long-term retirement savings, and promote greater wage transparency. However, it may also reduce employees’ take-home salary because of higher PF deductions and could lead to a short-term decline in consumption spending.

Code on Social Security, 2020:

The Code on Social Security, 2020 aims to universalise social security coverage and extend welfare benefits to workers in the informal and digital economy. The code seeks to provide broader protection to workers who were previously outside the formal social security system.

One of the major features of the code is the formal recognition of gig workers and platform workers for the first time in India’s labour framework. This includes ride-sharing drivers, delivery personnel, and app-based service workers. To support these workers, the code proposes a dedicated Social Security Fund for gig workers, platform workers, and unorganised labourers. The code also requires digital aggregators to contribute between 1% and 2% of their annual turnover toward worker welfare, subject to a maximum limit of 5% of the amount paid to workers. Overall, the code represents a significant step toward inclusive labour welfare and social protection in the growing digital economy.

Industrial Relations Code, 2020:

The Industrial Relations Code, 2020 was introduced to regulate trade unions, industrial disputes, layoffs, retrenchment, and strike procedures under a single framework. The code aims to balance industrial growth with worker protection while improving labour relations in industries.

One of the key features of the code is the introduction of Fixed-Term Employment (FTE), which allows employers to hire workers for a specific period while providing them with the same statutory benefits as permanent employees. This helps industries manage seasonal demand, project-based work, and production flexibility more efficiently.

The code also increases the threshold for prior government permission for layoffs and retrenchment from 100 workers to 300 workers, giving greater operational flexibility to larger firms. In addition, employers are required to provide formal appointment letters to workers, promoting legal clarity, accountability, and more formal employment relationships.

The code further promotes equal opportunities for women by allowing their employment in different shifts, subject to safety conditions. It also fixes the weekly working-hour limit at 48 hours and makes overtime wages compulsory beyond prescribed limits.

Another important feature is the creation of a Reskilling Fund for retrenched workers, financed through employer contributions. This is considered an important innovation aimed at helping workers upgrade their skills and improve future employment opportunities.

Occupational Safety, Health and Working Conditions (OSH) Code, 2020:

The Occupational Safety, Health and Working Conditions Code, 2020 was introduced to improve workplace safety, health standards, welfare measures, and working conditions for workers across different sectors. The code consolidates various provisions related to factories, mines, plantations, construction workers, and contract labour under a single framework to ensure better regulation and worker protection.

One of the important features of the code is the provision for free annual health check-ups for workers aged 40 years and above, promoting better occupational health and early detection of health issues. The code also expands the definition of “inter-state migrant worker” to include workers who migrate on their own and not only those recruited through contractors. This wider definition helps extend welfare benefits and legal protection to a larger number of migrant workers across the country.

Benefits of the Labour Codes:

The four Labour Codes have significantly simplified India’s labour law framework by merging 29 central labour laws into just four codes. This has reduced legal overlap, minimized confusion, and made compliance easier for industries and businesses through digital systems and streamlined procedures.

Another major benefit of the reforms is the formalisation of employment. The codes encourage greater worker registration, wider social security coverage, and increased use of appointment letters and digital labour databases. These measures aim to bring more workers from the unorganised sector into the formal economy.

The labour reforms are also expected to boost manufacturing and investment by increasing labour market flexibility, improving investor confidence, and supporting industrial growth. Simplified regulations and easier compliance are intended to make India a more attractive destination for business and foreign investment.

The codes also provide important protection for new-age workers by formally recognising gig workers and platform workers for the first time. This allows such workers to access welfare measures and social security benefits under the new labour framework.

Criticisms and Concerns:

One of the major criticisms of the labour reforms is the “hire and fire” concern. Trade unions argue that increasing the threshold for prior government permission for layoffs and retrenchment from 100 to 300 workers may weaken job security, reduce workers’ bargaining power, and encourage arbitrary retrenchment by employers.

Critics have also raised concerns about restrictions on strikes under the Industrial Relations Code, 2020. The code requires a 14-day notice period before strikes in all establishments. Trade unions believe this provision weakens collective bargaining, reduces worker mobilisation, and limits the effectiveness of labour unions.

Another concern relates to the revised wage definition under the Code on Wages, 2019. While higher Provident Fund (PF) contributions improve long-term savings and retirement benefits, they may reduce workers’ immediate take-home salary and disposable income.

Some labour groups also argue that the reforms favour employers by simplifying layoff procedures, increasing contractualisation, and weakening traditional labour protections. According to critics, excessive labour flexibility could adversely affect worker welfare and employment security.

Significance of the Reform:

The four Labour Codes represent a major structural transformation of India’s labour governance system. The reforms aim to create a balance between economic growth, labour flexibility, worker welfare, and the formalisation of employment under a unified legal framework.

The new labour framework is expected to support industrial expansion, attract global investment, improve labour productivity, and integrate informal workers into the formal economy. By simplifying labour laws and expanding social security coverage, the reforms seek to modernise India’s labour market and improve the ease of doing business. However, the long-term success of these reforms will depend on effective implementation by both the Centre and States, strong enforcement mechanisms, and proper protection of worker rights while maintaining economic efficiency and industrial growth.