How Four New Labour Codes Will Reshape Salaries and Hiring
The operationalization of India’s four comprehensive Labour Codes—the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code—is set to fundamentally transform the country’s employment landscape.
Consolidating 29 fragmented and often archaic laws, this legislative overhaul aims to simplify the regulatory framework, enhance workers’ welfare, and align the labour ecosystem with the realities of the modern economy.
The changes are poised to reshape everything, from employee compensation to contemporary hiring models.
Redefining Compensation and Retirement Security
One of the most immediate and impactful changes lies in the uniform and expanded definition of ‘Wages’.
The new codes mandate that basic pay and Dearness Allowance (DA) must constitute at least 50% of the total remuneration (Cost-to-Company or CTC).
This strategic move prevents companies from minimizing statutory contributions by structuring salaries heavily around allowances.
Since contributions to Provident Fund (PF) and calculations for Gratuity are linked directly to an employee’s basic pay, this standardization is expected to lead to higher statutory deductions and, consequently, greater long-term retirement savings for employees.
While this may result in a marginal reduction in the monthly take-home salary for some, it significantly reinforces the worker’s financial security.
The government has retained the maximum tax-free gratuity ceiling at ₹20 lakh.
Labour Codes Formalizing Flexible and Short-Term Employment
The new Labour Codes framework makes significant strides in recognizing the modern, flexible workforce.
It formally introduces and legitimizes Fixed-Term Employment (FTE).
This ensures these workers receive benefits—including equivalent wages, leave, and medical cover—on par with permanent employees.
A key reform here is the drastic reduction in the gratuity eligibility period for FTEs. The new law reduces it from the previous five years to just one year of continuous service.
This is a major win for workers in project-driven or short-tenure roles who previously forfeited the benefit upon contract expiration. It provides a crucial financial safety net.
Furthermore, for the first time, Gig and Platform Workers are brought under the social security ambit, with provisions requiring aggregators to contribute 1–2% of their annual turnover (capped at 5% of payments to workers) to a dedicated welfare fund, extending critical benefits like insurance and provident fund schemes.
Simplified Compliance and Benefit Portability
For the industry, the codes bring much-needed ease of business by streamlining the compliance process.
The merger of dozens of existing laws simplifies the regulatory burden.
The introduction of a unified system for registration, licensing, and return-filing across states achieves this.
The government is also moving away from a punitive approach by replacing the traditional “Inspector” with an “Inspector-cum-Facilitator” role.
This new role emphasizes guidance and improved adherence.
For workers, especially migrant labour, the creation of a National Database and the issuance of Unique Identification Numbers to unorganized workers ensures the portability of social security benefits.
These benefits are portable across different states and employers.
This holistic set of reforms aims to create a transparent, secure, and efficient labour market.
It strikes a balance between protecting workers’ rights and promoting industrial growth.
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