India's New Labour Codes: Comprehensive Guide to Salary Restructuring, Benefits and Working Conditions

Standardisation of working hours improves predictability (representational)

New Delhi:

The recently notified new Labour Codes represent a transformative shift in India's workforce management, consolidating 29 existing laws into four streamlined codes. These comprehensive reforms aim to enhance worker protection while providing businesses with improved flexibility and compliance frameworks.

The reformed Labour Codes introduce annual health checkups as a requirement for employees aged 40 and above, addressing preventive healthcare needs in the workforce. This proactive approach helps identify health concerns early, benefiting both employees and employers through improved workplace wellness.

A major advancement in these codes is the elimination of gender discrimination, ensuring equal pay for equal work regardless of gender. Women now have access to previously restricted sectors including underground mining and operating heavy machinery. Night shift opportunities have been expanded with appropriate safety provisions and consent requirements. The codes also implement flexible work arrangements such as work-from-home options specifically designed to increase female participation in the labor market.

The codes establish a new wage definition that caps allowances at 50% of total compensation. This significant change means basic pay will constitute a larger portion of total salary, resulting in increased contributions to provident fund and gratuity. While retirement benefits will substantially improve, immediate take-home salary may see a slight reduction.

This restructuring challenges current employer practices of splitting allowances to minimize tax and other obligations. Industry experts note this will not only affect employees' immediate compensation but also increase administrative responsibilities and costs for employers who must ensure compliance with the new regulations.

Companies will likely need to recalibrate their cost to company (CTC) structures to accommodate the higher employer contributions to provident fund and gratuity resulting from the 50% cap on allowances. These calculations are already in effect since November 21, when the government officially notified the Code on Wages, 2019.

Job security receives substantial enhancement under the new codes. Fixed-term employees will receive identical statutory benefits as their permanent counterparts, including gratuity when tenure requirements are met. The codes establish clearer dispute resolution mechanisms that protect workers from arbitrary actions.

Employers gain flexibility through provisions allowing fixed-term contract hiring without long-term obligations. Additionally, the threshold for layoffs and closures has been increased to 300 workers, providing greater workforce planning adaptability for businesses.

Working hours have been standardized with a 48-hour weekly cap, creating better predictability for both employers and employees. The codes also clarify overtime compensation and leave entitlements with improved enforcement mechanisms.

Perhaps most revolutionary is the formal recognition of gig, platform, and unorganized workers. These previously unprotected workers now gain access to crucial benefits including employees provident fund, employees state insurance, and maternity benefits. Workplace injury compensation has been enhanced, and platforms employing gig workers may be required to contribute to a dedicated social security fund.

The streamlined regulations make tracking and enforcing worker benefits and rights more straightforward. While employers have historically divided wages into numerous allowances to reduce tax liabilities and minimize contributions to social security schemes, the Rs 15,000 monthly threshold for the Employees' Pension Scheme remains unchanged. Employers will continue contributing 8.33% of this amount, with remaining contributions directed to the Employees' Provident Fund, ultimately increasing EPF benefits.

These landmark reforms signal India's commitment to building a modern, gender-equal workforce capable of powering the nation's economic advancement. The Ministry of Finance characterized the 2025 labor reforms as "a watershed moment focused on achieving parity for women at workplace" that "overhauls India's labour economy for a futuristic workforce."

Prime Minister Narendra Modi emphasized on social media: "The world acknowledges India's rise as a trusted global partner. The new labour reforms by the government reflect the commitment to a future-ready economy, simplifying compliance, empowering women workers and strengthening Bharat's position in the global value chain!"