India’s Landmark Labor Laws Off to a Rocky Start

India’s overhaul of its decades-old labor laws last year will make it easier to do business in the long term, but for now businesses are still grappling with the transition. Meanwhile, several labor unions continue to protest against the new laws, saying they undermine workers’ rights.

The new laws replace 29 labor-related laws with four codes — namely the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health, and Working Conditions Code, 2020.

The codes were officially “notified” on Nov. 21, 2025, after which some provisions of the new laws have come into effect. However, for certain provisions to be executed, they need a set of rules to be notified by the federal or state government, which hasn’t happened. “Most of the organizations are right now waiting for the rules to come, so are we,” said Sahil Sharma, CHRO, RateGain Travel Technologies Limited, a software company headquartered in Noida.

Streamlined Compliance 

Investors and businesses have welcomed the new laws as it reduces the administrative and legal headache of having to deal with tens of laws and their compliances.  

“The new Labor Codes signal a shift towards business friendliness,” said Rashmi Pradeep, a lawyer with Cyril Amarchand Mangaldas in Bengaluru. “Simplifying compliance and streamlining definitions are central to that goal.”

For instance, in the past, different labor laws had different definitions of a “wage,” including some allowances and not others. So firms had to work with a different number to calculate minimum wage, and a different number to calculate a social security benefit like gratuity, which is a percentage of wage.

“Now it is uniform,” said Ajay Singh Solanki, an attorney with AZB & Partners Advocates and Solicitors in Mumbai. 

The Code on Wages defines wage as basic pay plus all allowances, with a few specified exclusions. However, if specified exclusions are more than 50% of overall pay, any excess would be added back to wages to keep it at least 50%.  

This has a major implication, because historically companies in India have given employees low basic pay, like 20% to 40% of overall compensation, keeping the rest as allowances. This helped lower their payouts on social security benefits which are calculated on basic pay, but that calculation will now change.

“Most employers are focusing on how their current salary structure needs to be read in light of the new wages definition,” Solanki said. 

The laws on wages do not require any further rules, so they are already in effect and companies are legally required to calculate their obligations based on the new definition.

However, there is a delay in cases where provisions require new schemes and rules to be notified. A prime example is The Provident Funds Act, 1925, which governs the main social security benefit for corporate employees in India. While in theory this has been subsumed under the new Code on Social Security, the old law is yet to be repealed and replaced by new schemes. Until that happens, employers are continuing to follow the old rules on how much money is to be contributed to the provident fund. 

In addition, the new labor codes have introduced some requirements which did not exist in the earlier laws. For instance, they require that companies create a Workers Reskilling Fund meant to support retrenched or terminated workers. Another new provision is to create a fund to provide some sort of social security for gig and platform workers, through contributions from companies that use their services. “There are no old rules to fall back on for such new provisions, so the industry will have to wait to get more clarity on the same,” Pradeep said. 

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Labor Unions Object 

The pro-business nature of the new laws has triggered a pushback from labor unions, who say the laws weaken their rights.

“They constitute the most sweeping and aggressive abrogation of workers’ hard-won rights and entitlements since independence,” according to the Center of Indian Trade Unions (CITU), which is seeking a repeal of the new laws.

Among their objections is a new provision that workers say will make it easier to terminate them. 

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As per the old laws, if a factory or mine, which had more than 100 workers, wanted to fire anybody it would need to take permission from the state government. The new law requires such permission to be taken only by organizations which have fewer than 300 workers. The law leaves it open to states to raise the threshold of workers further. A vast majority of factories in India employ fewer than 300 workers. 

“Raising the retrenchment, layoff and closure threshold to 300 workers for prior government permission enables hire-and-fire in more than 90% of the Indian workplaces,” the CITU said.  

Another objection is that the new code requires industrial workers to give a 14-day notice before going on a strike. Earlier, this was required only for public utility services companies, but now even private company workers will have to provide such a notice. “The new notice requirement before a strike is a real concern for unions. It dilutes the effectiveness of their bargaining power,” Pradeep said. 

Unions have organized several protests. Though the federal laws are in place, some unions are hoping that the state governments, which are yet to issue rules, can make changes in the laws themselves. 

Members of the Karnataka State IT/ITeS Employees Union (KITU), which represents information-technology workers in the southern state of Karnataka where tech majors like Google and Microsoft have offices, recently met with the state’s labor commissioner to ask for this. “We are pushing for amendments at the state level,” said Suhas Adiga, general secretary of KITU.

Shefali Anand is a New Delhi-based journalist and a former correspondent for The Wall Street Journal.