Formalisation at Scale: What India’s New Labour Codes Unlock

In a landmark step toward economic reform, the Government of India has notified the four new Labour Codes, which came into effect from November 21, 2025. Pending since their passage in 2019 and 2020, these codes consolidate and replace 29 existing labour laws, marking a significant liberalisation of India’s factor markets. With the right implementation, they would fundamentally reshape the labour ecosystem for workers and employers, attract greater investment, and drive growth and job creation.

The Codes on Wages, Social Security, Industrial Relations and Occupational Safety, Health and Working Conditions were drafted and legislated after intensive discussions with state governments, trade unions, industry leaders and experts, and aim to modernise and rationalise India’s labour regime. The long-overdue and much awaited notification will help to formalise India’s massive unorganised sector, provide better social security to workers, and ease compliances for enterprises.   

According to the Annual Survey of Unincorporated Sector Enterprises 2023-24, the non-agricultural unincorporated sector employed more than 120 million workers in 73 million establishments that will now all be covered under the new laws. With labour regulations as a concurrent subject, a key achievement has been getting most of the states on board. Many of the states and UTs have pre-published draft rules under the Codes for their enforcement.

For workers, there is an array of key benefits. Definitions of terms such as ‘worker’ and ‘wage’ have been clarified and made uniform across the four Codes, extending the provisions to platform and gig workers for the first time. Single registration, licence and return is expected to streamline approvals and processes and enable portability of worker benefits. Minimum wages are proposed to be universalised and a floor wage would be set by the central government. Workers over the age of 40 will also benefit from annual health check-ups.

There are special provisions for women workers who will now mandatorily receive equal pay for equal work and are eligible to work in night shifts. A major benefit accrues to migrant workers who will now be covered in a national database and enjoy equal wages and social security wherever they work.

The Codes introduce many positives for enterprises. First, the limits for approvals regarding lay-off of workers and standing orders have been raised from 100 to 300 workers, helping enterprises to scale up. Similarly, contract labour provisions will now be applicable for enterprises with over 50 contract workers as compared to 20 earlier. The definition of factory has also been changed to include establishments with over 20 workers with power or 40 workers without power from the previous 10 and 20 worker limits respectively. This will take many establishments outside the purview of compliances.

Two, the number of rules has been reduced from 1,436 to 351 and the number of registers from 84 to eight along with other simplifications. The inspector-cum-facilitator system is to be instituted to replace onerous inspections, and digital processes are expected to usher in efficiency.

Three, decriminalisation of offences which attracted jail terms for minor infractions stands changed to civil penalties, and compounding of offences has also been reduced.

At the same time, many operational challenges can be expected for businesses especially micro, small and medium enterprises, and would need to be holistically addressed for impact. One, it is likely that rules across states will vary greatly, compelling different compliances in different states for issues such as minimum wages, inspections, registers, and others. A portal can be considered providing all relevant information for potential investors.

Secondly, reaching out the new provisions to each establishment and worker would be necessary, particularly as establishments and workers often change their occupations based on seasonality and job availability. It would be important to hold frequent sessions in villages, cities and industrial areas for ensuring that the workers at the bottom of the pyramid are aware of their rights and employers of all categories understand their commitments. The e-shram portal with about 310 million registered workers can also provide information through an app.

Third, the minimum wages, social security and worker conditions will be applicable to every organisation and employer, raising their costs. For instance, the Codes cover domestic workers which may be difficult to enforce in households, unless they are specifically exempted. Similarly, informal establishments employing part-time helpers will find it a hurdle to meet the requirements of formal contracts.

Four, it must be ensured that the inspection-cum-facilitator system truly acts as one rather than remain an inspector raj system. The single return should not turn into an additional form to be filled and must be simple and digitalised.  Transparency and accountability in monitoring the regime is critical for its smooth and efficient operations.

As with most economic reforms in India, the ultimate success of the Labour Codes will hinge on effective implementation. While large enterprises and workers in the organised sector are likely to adapt smoothly to the new framework, it is important to extend support to micro and small enterprises, as well as the vast informal labour sector, to ensure the reforms deliver their intended benefits of flexibility, social security, and inclusive growth for all stakeholders.