India’s labour legislation has been an intricate network of laws for years, with more than 40 central and 100 state legislations controlling wages, industrial relations, and workers’ welfare. In 2020, the Indian government brought in four labour codes to make these legislations simpler, hoping to improve the growth of industry while safeguarding workers.
These legislation, to be implemented nationwide in 2025, include the Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health, and Working Conditions Code (2020).
As 25 states and eight Union Territories have made draft rules by October 2024, with harmonization completed by March 31, 2025, the industries are bracing for massive changes. Here’s a crisp view of these reforms and how they affect businesses, employees, and India’s industry.
The four labour codes bring together 29 central labour laws under one neat framework, minimizing compliance requirements and updating the regulations. Here’s a quick recap:
Code on Wages (2019): Provides all employees, even those in the unorganized sector, with minimum wages and prompt payments. It simplifies wage definitions to minimize conflicts.
Industrial Relations Code (2020): Streamlines recruitment, retrenchment, and resolution of disputes. It increases the level of government approval required for retrenchment or closure from 100 to 300 employees, which provides businesses with greater freedom.
Code on Social Security (2020): Provides benefits such as provident funds and insurance to gig, platform, and unorganized workers, covering close to 40 crore workers.
Occupational Safety, Health, and Working Conditions Code (2020): Implements uniform safety standards and enables women to work during night shifts with adequate security, ensuring gender equality.
These codes will strike a balance between business efficiency and workers’ welfare in support of India’s vision for a USD 5 trillion economy by 2025.
Impact on Industry
The labour law reforms are transforming the way industries function, presenting opportunities and challenges. Here’s how they impact businesses:
- Simplified Compliance and Reduced Costs
Prior to the reforms, industries had a cumbersome compliance load, with states having 423 labour-related acts and 31,605 compliances. The new codes provide single registration, licensing, and returns, reducing red tape.
For instance, a harmonized definition of wage curtails legal battles on bonuses and deductions. The transition from inspectors to “Inspector-cum-Facilitators” encourages counseling over penalization, encouraging a business-friendly environment.
It is good news for industries in business clusters such as Sri City and Oragadam, where companies such as Hyundai and Foxconn depend on smooth operations.
- Increased Flexibility in Managing Workforce
The Code on Industrial Relations permits up to 300-employee firms to retrench workers or shut plants without the government’s nod, from a previous requirement of a 30–90-day notice.
Such “hire-and-fire” flexibility, modelled along US lines, lures foreign investors by lowering exit barriers. It’s especially useful for sectors such as textiles in Bhiwandi, where seasonal fluctuations necessitate flexible staffing.
But this adaptability has created apprehensions. Labor unions, such as AITUC, contend that it compromises the security of employment for employees in small companies, which could result in exploitation. Companies have to strike a balance between cost savings and treating employees well so that morale in the workplace is preserved.
- Investment and Employment Boost
The reforms are complementary to Make in India and the PLI schemes, which promote investment in segments such as electronics and automobiles.
By streamlining compliance, the codes enhance India’s Ease of Doing Business ranking, and it invites FDI (USD 17.96 billion in FY 2023-24). Apple, for example, bases its plan to shift 18% of iPhone manufacturing to India by 2025 on such reforms.
SMEs, which have 110 million employees, gain from eased regulations, allowing them to scale up.
- Challenges in Implementation
While promising, the reforms are facing impediments. Enforcement is still weak, particularly in the unorganized sector (93% of Indian workers), where minimum wage and safety norms are usually flouted. West Bengal and Meghalaya are still harmonizing rules, holding back nationwide implementation.
Trade unions oppose the codes for limiting strikes and making union registration difficult, which could restrict collective bargaining.
Firms also have to spend on HR systems to meet new regulations, such as updated work timings and overtime allowances. For small companies, these expenses can be considerable, particularly without direct subsidy help.
The reforms intend to safeguard workers, particularly in the unorganized and gig economy spaces, but results are varied:
Positive Changes: There is now a legal right for all workers to receive minimum wages, and social security coverage is given to 40 crore unorganized workers through EPFO and ESI schemes. Gig workers, such as delivery riders, are given access to provident funds. Safety standards and health checkups are made compulsory, and women are allowed to work night shifts with consent and security.
Issues: The increased threshold for retrenchment (300 employees) exposes workers in smaller companies. Tougher rules of strike—60 days’ notice after tribunal hearings—reduce workers’ bargaining strength. De-recognition and centralized authorization to de-register unions could undermine representation, fears the unions.
In order to succeed with the new labor codes, industries can implement the following:
Upgrade HR Systems: Realign compliance and payroll processes to conform to standard wages and social security regulations. Huge companies (500+) are required to adapt as soon as enforcement begins, while SMEs have two years.
Train Employees: Educate workers to work with automated systems, as changes are compatible with Industry 4.0 implementation. Initiatives such as Skill India can facilitate this.
Deal with Unions: Win trust by meeting worker anxieties regarding employment security and strikes to prevent conflicts.
The reforms in labour law are a big leap towards industrializing India’s industrial setup. They enable economic growth through investments and employment generation—PLI schemes alone are estimated to create 1 crore jobs by 2026.
Their success, however, depends on proper enforcement. A weak enforcement, as in the past, could dilute benefits, particularly for unorganized workers.
X posts report conflicting emotions: some applaud the reforms for energizing business, while others fear less worker protection. Lurking in the background is the ever-present need to balance flexibility for business with equitable treatment for workers.
India’s labor law reforms will revolutionize industry in 2025 by streamlining compliance, increasing flexibility, and bringing in investment. Though they have much to gain—such as the creation of jobs and smoother operations—they also pose concerns regarding workers’ rights and enforcement. Industries will need to change by modernizing systems, educating workers, and practicing fair play.
As India moves towards a USD 5 trillion economy, these changes might be a game-changer—if planned carefully. For more on how companies can adapt to these changes, reach out to your local industry association or go to labour.gov.in.
Indian industry’s future is bright—let’s ensure it’s fair for all.