[Image from Unsplash]
By Vineet Kaul, Vivek Patwardhan and Satish Pradhan
On November 21, 2025, India crossed a threshold in how work, protection and risk are organised. With the notification of the four Labour Codes, the country has set in motion the most far-reaching shift in its labour architecture since the 1991 economic reforms. Reactions have been mixed: cautious optimism among employers, concern among unions, uncertainty among gig workers, and confusion among multinationals who rely heavily on digitally distributed, contract-based talent in India.
The deeper significance lies in the direction the Codes signal: a shift from protecting jobs to protecting workers. For decades, India ran a dual labour market. A small formal segment enjoyed statutory protections, while nearly 85-90% of the workforce remained outside the legal frame, surviving in an informal economy where rights were theoretical. This dualism shaped behaviour everywhere: companies stayed artificially small, unions became defensive, and enforcement relied on discretion rather than transparency.
The Second National Labour Commission had warned of these distortions as far back as 2002. Yet reform stalled for two decades, and in that vacuum, both employers and workers created informal workarounds: keeping permanent headcount below 100, over-relying on contract labour, and navigating closure or retrenchment through negotiated, extra-legal pathways. When policy lags reality, practice takes over.
The Labour Codes attempt to realign law with reality. But their success will depend not on notification, but on behaviour. Implementation is where India has historically stumbled. The acid test is simple: can the country modernise labour governance without slipping back into inspector raj? The Codes create the framework; administrative culture will determine the outcome.
The Codes Apply to All Sectors, Not Just Manufacturing
One misconception persists: that the Codes primarily affect manufacturing. In truth, they cover all establishments—IT, services, consulting, BFSI, retail, logistics, startups, gig platforms.
This creates new obligations for sectors unused to labour compliance complexity. For years, designations in services evolved faster than legal definitions. Job descriptions often bear little resemblance to duties performed. Under the Codes, the definition of “worker” will matter far more than the title on a business card. Employers may need to re-examine roles and classification frameworks.
The Codes are not merely an operational shift. They represent a re-coding of India’s mental model of work.
Seeing the Invisible Worker—But with Uneven Protection
The Codes formally recognise gig and platform workers—a historic first. For decades, India’s labour imagination remained tied to factories and offices even as millions joined platform-based work. Recognition matters: it enables welfare structures, portability of benefits, and a new vocabulary for worker protection.
Yet recognition is not protection. The emerging model is a cess-funded welfare system rather than a rights-based one—an important distinction that will shape how robust gig protections ultimately become. Some states, such as Rajasthan, have enacted gig welfare legislation, but implementation has been slow and uneven. Welfare boards, funding mechanisms and benefit delivery remain patchy.
Large global firms outsourcing work to India are unsure what compliance means when their workers are technically gig contractors but operate in ambiguous employment formats. Domestic platforms worry about cost structures and P&L implications; a sharper definition of wages, benefits and liabilities may compress already thin margins.
The Codes create possibility. States will determine reality.
Women and Work: A Blindspot That Requires Intent, Not Just Law
India’s chronically low female labour force participation is a long-standing structural challenge. The Codes do little to directly address this. They permit women to work at night (with safety measures and consent), which widens opportunities in manufacturing, logistics and services. Fixed Term Contracts can, if used responsibly, offer non-stigmatised re-entry pathways after childbirth or career breaks.
But the broader enabler—a well-defined framework for part-time work—remains thin. Without clarity, women remain dependent on full-time roles or informal arrangements. The Codes alone cannot shift participation; workplace design, safety, scheduling flexibility and employer intent will matter more.
From Allowances to Accountability: Rethinking Compensation
The redefinition of wages—requiring basic pay to be at least 50 percent of gross compensation—may prove the most economically disruptive aspect of the Codes. For years, compensation structures maximised allowances to minimise statutory contributions. The Codes correct this distortion.
The Codes create a paradox: what strengthens long-term worker security through PF and gratuity can simultaneously reduce short-term liquidity—shifting the balance between present cash-in-hand and future financial safety.
Many employers have already adjusted structures without increasing overall cost, leading to lower take-home pay for some employees and higher PF and gratuity liabilities. This also increases tax burdens for many workers, raising concerns about reduced disposable income.
This shift pushes companies toward transparent, savings-oriented pay structures. But leaders must communicate clearly. Without transparent messaging, employees may interpret structural alignment as cost reduction.
Fixed Term Contracts: Legal Justice vs Social Fairness
Fixed Term Contracts (FTCs) are not new; they were reintroduced in 2017. The Codes give them visibility, not invention. FTC workers now earn service benefits such as gratuity after one year—a positive step.
But the ethical tension remains. FTCs may be fully compliant and thus “just” in the eyes of the law. But fairness belongs to a different domain. A two-year FTC followed by a six-month probation may meet statutory requirements, yet workers may still experience it as insecurity. The fear among unions—that employers will default to FTCs rather than regular hiring—is not unfounded. This is where leadership intent matters. Laws set the floor; fairness is defined by how organisations choose to rise above it.
Viewed through a moral economy lens, India now faces the challenge of balancing flexibility with dignity—ensuring that workers do not merely remain inputs in production but retain agency, predictability and a sense of security in work.
Flexibility in Retrenchment: The Real Implications
Raising the threshold for prior permission for retrenchment or closure from 100 to 300 workers corrects a decades-old distortion. In the earlier regime, industrial establishments froze at 99 permanent employees and built scale only through contract labour.
The new threshold allows these companies (factories, mines and plantations) to grow responsibly. As earlier, companies registered under the Shops and Establishments Act do not come under the ambit of this change. But the implications run deeper. It forces companies to rethink automation, workforce planning, multi-skilling and productivity in a more systematic manner. The 15-day compensation formula remains unchanged, but the practical challenge lies in redeployment, reskilling and transition.
The statutory Reskilling Fund—one fortnight’s salary—is symbolic at best. Without internal reskilling programmes and structured transitions, companies risk creating rotational precarity rather than true flexibility.
Flexibility is not an outcome; it is a responsibility. And technology will accelerate these transitions: automation will displace some roles even as augmentation creates demand for new, higher-skilled work—making reskilling not an HR programme but a survival imperative.
Trust Through Transparency—If States Avoid Old Habits
The Codes propose digital registers, randomised inspections and graded penalties—a potentially transformative shift away from negotiated compliance. But technology cannot override culture. India has lived through decades of inspector raj, where enforcement was discretionary, unpredictable and often rent-seeking. The risk now is behavioural backsliding: if inspectors recreate old methods under a digital skin, the promise of the Codes weakens.
States also face another, more immediate pressure. Much of India’s economy rests on micro and small enterprises who operate with thin margins and limited administrative capacity. For them, the Codes could feel onerous—not because they oppose formalisation, but because they lack the systems, people and time to manage digital compliance. Many will look to state governments for relief, phased transitions or capacity-building support. How states respond to this constituency will shape ground-level enforcement as much as the letter of the law.
Some states—such as Gujarat, Karnataka and Tamil Nadu—are moving early with clearer rules, extended working-hour provisions with safeguards, and digital inspection systems. Others, such as Kerala, have openly opposed the Codes. The Centre and states share responsibility for ensuring that the new framework strengthens trust rather than recreates old hierarchies of control.
Much will depend on competitive federalism. Just as GST created pressure for harmonisation, the Labour Codes may push progressive states to differentiate themselves through clarity, capability and modernised governance. Large domestic firms and MNCs increasingly factor labour governance into location decisions. States that align quickly may gain investment. Those that delay or default to old patterns may find themselves bypassed—even as pressure from small enterprises pushes them to soften or sequence enforcement.
The Codes set the architecture. States will determine whether the system they build inspires trust or fear.
A New Social Compact—And the Declining Relevance of Unions
India’s unions remain essential democratic institutions, yet their relevance has steadily eroded. This decline is partly structural: as employment shifted to services, gig work and small enterprises, the traditional factory-based organising model struggled to adapt. But part of the decline is self-imposed. Most unions have not shown sustained interest in expanding beyond the roughly 10 percent of workers in the formal sector, leaving 90 percent of India’s workforce outside their organisational imagination.
Fragmentation has further weakened their voice. Multiple federations, ideological divides and enterprise-level rivalries have replaced the unified negotiating force that once shaped national policy. In this environment, the countervailing force that industrial democracy relies on has diminished at precisely the moment when the Codes demand stronger worker institutions.
When formal mechanisms weaken, grievances do not disappear; they migrate into informal channels—social media mobilisation, legal escalations, or sudden flashpoints that destabilise workplaces. Strong unions reduce unpredictability; weak ones increase it.
Companies too bear responsibility. Many have allowed Industrial Relations (IR) and Employee Relations (ER) capabilities to atrophy. Clear ER frameworks—which define rights, responsibilities and predictable processes—are missing in most organisations. The notable exceptions, such as Toyota, Nestle and SKF, show how structured ER systems create stability and trust.
A new social compact requires rebuilding institutional muscles on both sides.
Where the Real Work Begins: Inside Companies
The Codes shift the regulatory frame, but the real work now lies within organisations. Leaders will need to revisit job descriptions and role classifications with far greater care, align compensation structures with the new wage definition, ready their systems for digital compliance, and strengthen internal grievance mechanisms that can handle complexity rather than simply escalate it. They will have to use Fixed Term Contracts with ethical intent rather than convenience, create mobility pathways that help workers move from gig and FTC to core roles where possible, and design workplace arrangements that make it easier for women to participate and return—through safer night shifts, part-time structures where feasible, and clear re-entry pathways. Most crucially, they will need to invest in reskilling and capability-building, because the state’s Reskilling Fund remains symbolic and the burden of transition will fall squarely on employers.
The Codes will not create fairness, capability or trust. Leadership will.
A Framework, Not a Finish Line
The Labour Codes aim to modernise India’s labour architecture by aligning growth with dignity, flexibility with fairness and compliance with transparency. They mark the beginning of a long and uneven transition, not its culmination. Their success will hinge on how states implement them, how companies interpret them, how unions reinvent themselves and how workers navigate an increasingly mobile world of work.
India has changed the law. The harder task now is changing behaviour. Intent matters. But only sustained action—across the state, employers, unions and workers—will turn intent into impact.
The CEO Micro-Playbook for India’s New Labour Codes
India’s Labour Codes will unfold unevenly across states. Gig-worker protections will mature through real-world practice, not instant clarity. CTC structures are shifting, FTCs are resurfacing, and compliance will be digitised in ways that many companies have not yet fully understood. CEOs don’t need a manual; they need a set of practical, anticipatory moves that keep them ahead of ambiguity without locking them into irreversible decisions.
Here's a quick 1-minute snapshot of 7 moves CEOs can make. Or read a more detailed description below.
Seven low-regret moves to stay ahead in a fast-shifting regulatory moment
1. Rebalance Your Workforce Architecture
Revisit the mix of core employees, contract labour, Fixed Term Contracts and gig workers—and rethink it in light of the 300-worker threshold. Ensure that job descriptions match actual duties, because legal classification under the Codes hinges more on the nature of work than on titles. Protect capability by converting strategically critical contract roles into core ones. Use FTCs judiciously: when compliant, they are legally just, but fairness is built through intent. Workers experience insecurity as much through opaque practices as through contract terms.
2. Reset Compensation with Clarity and Foresight
Align wage structures with the 50% definition of gross wages and remove legacy allowances that were designed for a different legal era. Model PF and gratuity impacts over a three- to five-year horizon. Communicate proactively with employees: many will see higher PF and tax deductions and may interpret compliance realignment as a reduction in take-home pay or cost-optimisation. Frame wage restructuring through both lenses—the employer’s balance sheet (long-term benefit liabilities) and the worker’s cash flow (short-term take-home pay). Leaders who acknowledge this duality will communicate more credibly and reorganise more responsibly. Internally, treat this shift as a move towards transparency and long-term worker security rather than a narrow compliance action.
3. Track States, Not Just the Centre
Labour rulemaking under the Codes will be shaped far more by the states than Delhi. Some states will move quickly to attract investment; others will resist or delay. Investors—both Indian and multinational—are already factoring labour governance and inspection behaviour into location decisions, especially in export-linked manufacturing. Set up an internal mechanism that tracks state-level notifications, inspection procedures, gig-welfare rules and overtime laws. This is competitive federalism in action; businesses must adjust accordingly.
4. Prepare for Digital Compliance Before It Becomes Unforgiving
The move to digital registers and randomised inspections is intended to eliminate inspector raj, but culture often outpaces technology. Clean up attendance data, contractor records, payroll systems and compliance logs before states tighten enforcement. Audit contractor preparedness—the Occupational Safety, Health and Working Conditions Code (OSHWC) requirements will stretch many suppliers. Maintain complete digital documentation to minimise discretionary enforcement and avoid a digital replay of old habits.
5. Strengthen Workplace Practices, IR Capability and Gender Inclusion
Build internal grievance mechanisms that can handle complexity without escalating prematurely. Rebuild Industrial Relations and Employee Relations capabilities, which have declined across sectors. Companies that sustain a clear ER framework—like Toyota, Nestle and SKF—experience fewer surprises and better trust. Use the Codes’ flexibility to widen opportunities for women through safer night-shift norms, role redesign for part-time models, and explicit re-entry pathways after career breaks. Create mobility ladders that allow gig and FTC workers to transition into core roles wherever feasible. And invest meaningfully in reskilling; the statutory Reskilling Fund is symbolic, not substantive.
6. Form a Lightweight CEO Transition Cell
Create a small cross-functional group—HR, Legal, Finance, Operations, Public Policy/Government Relations and Compliance—that meets monthly to track emerging rules, anticipate implementation gaps, model workforce scenarios and shape communication. The aim is not firefighting but foresight: understanding how rules evolve on the ground and making calibrated moves before compulsion replaces choice.
7. Treat 2025-27 as a Living Transition
Expect ambiguity: clarity will emerge through the state and central government notifications, early judicial interpretation and practical enforcement patterns. Expect uneven shifts: platforms, contractors and suppliers will adapt at different speeds. Avoid irreversible decisions; prioritise low-regret moves while staying flexible. The earliest signals of change will show up not in the Gazette but on the shopfloor, on platforms, and in HR and IR conversations. Automation and AI will accelerate labour market churn; the Codes will shape how smoothly organisations absorb that disruption.
Leaders who treat the next two years as an adaptive, relational transition—rather than a compliance event—will shape the future of work in their organisations.
Leadership Imperative
The Labour Codes aim to shift India from protecting jobs to formalising work. Their success inside companies will depend on leadership intent, organisational culture and the willingness to build trust through transparency and capability. Compliance is mandatory; confidence is earned.
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