India over the years has had a multitude of laws governing labour and employment which has usually made compliance very arduous for businesses. Over the period of time these labour laws became archaic and there was a serious need to change them.

In 90’s when ‘20s were yet to roar, most of the Indian workforce was toiled in poor conditions for low pay. In railroads, mines, farms, mills, lumber yards, sweatshops, and construction sites, the common worker performed demanding and difficult labor in conditions that were often dangerous, unsanitary, unhealthy, exploitative, or otherwise harmful.

All that, however, was about to change. The last few years has witnessed an unprecedented change in the labour laws. In 2020-2021, the Indian Government has subsumed over 29 Central laws and corresponding State laws into four major Labour Codes, with the aim to simplify, modernise and restructure the current regime and increase the ease of doing business in India.

The Government of India now has four Labour Codes: the Code on Wages, 2019; the Industrial Relations Code, 2020; the Occupational Safety, Health and Working Conditions Code, 2020; and the Code on Social Security, 2020. 

All the Labour Codes have been aimed at broadening the scope of coverage, rights and protections, reducing multiplicity in definitions, authorities and compliances, and embracing more digitisation in registrations/compliances. 

However, at the same time, the Labour Codes are largely a consolidation of existing laws rather than a significant overhaul of them, with there not being substantial changes in the position of law itself.  


  • * Uniform definition of wages across all Codes making it easier for employers to structure the salary break-up and also provide for a proportional composition of fixed salary and variable components/allowances.
  • * Broadened coverage with the provisions being applicable to all types of companies including the unorganised sector in some cases with respect to applicability of minimum wages, social security benefits and registrations/compliances.
  • * Statutory recognition to the concept of Fixed-Term employment making provision for similar working conditions and benefits as regular employees.
  • * Promotion of compliance rather than penalising employers.  An opportunity to rectify the non-compliance within a specified period and no action shall be initiated unless the aforesaid opportunity has been provided to the employer.
  • * Imposition of greater penalties as well as the penalties are proportioned pertaining to the gravity and degree of non-compliance.
  • * Use of digital mode is encouraged for record keeping, registrations and compliances.
  • * Issuance of Appointment Letters is a mandatory requirement under the OSHWC Code.
  • * Introduction of the concept of “Aggregators”, such as ride sharing services, food delivery, e-market, logistic services, healthcare, travel, media, etc. who are required to contribute a percentage of revenue to help fund schemes for the unorganised sector, gig and platform workers.
  • * Women are permitted to work during night hours in all establishments including ones which are involved in hazardous process provided consent is obtained and safety measures are in place.
  • * Threshold for permission for hire and fire and for having mandatory employment policies registered has been increased to 300 workers.
  • * Greater permission requirements for workers going on strike with simultaneous mass leave being treated as strike.
  • * The definition of “Industrial Disputes” now includes disputes pertaining to separation from employment.
  • * The concept of National Floor Wage is introduced to bring some uniformity in the minimum wages across the country.
  • * Exclusion of the jurisdiction of Civil Courts under the IRC and OSHWC Code.
  • * IRC has introduced a provision for a Reskilling Fund, wherein employers are required to make a contribution of 15 days’ wages of each retrenched worker to a fund, the object of which shall be re-skilling.


  • *Notice entitlements – Governed by the ID Act or the relevant State Shops and Establishment Act (“S&E Act”).  Usually one month across most legislation for termination of employment.  Further, if there is any change in the working conditions of workmen, the change can only be implemented after giving 21 days’ notice.
  • *Leave entitlements – Governed by the relevant S&E Act or the umbrella pieces of legislation such as Factories Act, 1947, etc.  In future more uniformity has been bought on by the Codes.  The types of leave contemplated are public holidays, annual leave, sick leave and casual leave. 
    • For most states, annual leave is usually one day for every 20 days worked which is usually 12 to 15 days and sick/casual leave being in the range of five to 12 days.  Public holidays are usually between eight to 12 days. 
    • Carry forward of annual leave is approximately 30 to 45 days.  The State of Karnataka has recently increased its carry forward limit from 30 to 45 days.  Paternity leave has no legal basis but is an increasing industry practice.
  • *Maternity benefits – For the first two children, paid maternity leave is 26 weeks while subsequent births allow for 12 weeks.  Surrogacy and adoption also allow for 12 weeks of leave.  Paid leave entitlements are also available for pregnancy-related illness or medical procedures or miscarriages. 
    • Further, creche facilities (either in-house or external) need to be provided by establishments with 50 or more employees.  The provisions continue to be the same under the SS Code.
  • *Gratuity – Applicable to all employers with 10 or more employees.  The payment is made to recognise employees who have been in service for five or more years and the payment is made for any separation from employment (not being stigmatic) at the rate of 15 days’ wages for every year of completed service. 
    • The maximum amount is INR 20 lakhs.  Under the SS Code, gratuity shall be paid to fixed term employees on a pro rata basis and the threshold for payment of gratuity to working journalists has been reduced to three years.
  • *Employee Provident Fund – The Employee Provident Fund and Miscellaneous Provisions Act, 1952 requires employers in certain establishments with 20 or more employees to make contributions of 12% (both employer and employee) towards an employee provident fund with the aim of providing employees with retirement benefit. 
    • The same is mandatory for employees earning less than INR 15,000 per month but may be opted for by employee earning more.  The SS Code makes this provision applicable to all establishments with 20 or more employees and has reduced the provident fund contribution from 12% to 10%, with options for different percentages to be notified.
  • *Employee compensation – The Employee Compensation Act, 1923 provides for payment of compensation to employees for temporary or permanent disabilities caused by accidents or occupational diseases which have occurred during the course of employment and is attributable to employment.


Therefore, the Implementation of labor codes is a laudable step forward and the new labour codes go a great mile to reflect the current structure of the economy and includes more firms and employees under its ambit along with making the legal architecture much simpler, reducing the compliance cost of the firms.

This was the need of the hour and The new set of rules shall empower the relationship between the employer, employee, the government and have a positive long-term impact on the industry and further contribute towards the idea of ease of doing business.

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