In today’s Finshots, we break down India’s biggest labour reform in 75 years, and what it actually means for your job, your salary, and your employer.

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Now on to today’s story.

The Story

For decades, India’s labour laws mostly resembled a messy drawer, 29 separate Acts written across different eras, each with its own definitions, authorities, thresholds, and exemptions. Too many registrations, too many inspectors, too many grey areas. Companies struggled to comply, workers struggled to access benefits, and everyone struggled to know which rule applied when.

So the government consolidated those 29 laws into four primary labour codes:

1. The Code on Wages,
2. The Industrial Relations Code,
3. The Code on Social Security, and
4. The Occupational Safety, Health and Working Conditions (OSH) Code.

The idea wasn’t to reinvent the wheel. But to take a century’s worth of scattered legislation, strip out contradictions, unify definitions, reduce compliance, and extend coverage to the millions of workers who exist outside formal frameworks. The Second National Commission on Labour had suggested this years ago, and it’s finally becoming a reality because most states have finished drafting their rules.

These codes touch almost every working Indian, full-time employees, factory workers, gig workers, platform workers, contract staff, and even tiny shops with a couple of assistants. They decide how your salary is structured, whether your take-home rises or falls, how your PF (Provident Fund or a mandatory retirement savings fund where you and your employer contribute, typically when the establishment has 20 or more employees) behaves, who qualifies as a “worker”, and what happens if someone loses a job or works in hazardous conditions.

Let’s quickly decode the four codes before getting to the thorny bits.

The Wages Code consolidates laws on minimum wages, payment of wages, bonus rules, and, more importantly, defines the term ‘wages’. This definition becomes the backbone for PF, gratuity (the lump sum your employer gives you as a thank you for long-term service), and social security contributions.

Next, the Industrial Relations Code governs hiring, firing, layoffs, strikes, and dispute resolution. The focus is on improving labour flexibility while retaining safeguards for any disputes.

The Social Security Code tries to stitch together PF, ESIC (a government-run health insurance scheme for salaried workers earning up to ₹21,000 a month), maternity benefits, gratuity, gig worker welfare, and more under one umbrella. It formally recognises gig and platform workers for the very first time.

And finally, the OSH Code merges laws on safety, working conditions, contract labour, holidays, and health standards into a single playbook across industries.

So, is this simplification a win for everyone?

Not quite. 

And that’s where the tension begins.

For employers, the new codes are supposed to make compliance cheaper and more predictable. The headline change is in the Industrial Relations Code: firms with up to 300 workers (up from 100 previously) can now lay off, retrench, or close operations without seeking prior government approval. This is meant to boost manufacturing appetite, help firms scale faster, and reduce the fear of adding permanent headcount. But unions see the exact change as a weakening of job security and a shift of bargaining power away from workers, and toward companies.

Apart from this, another change is that gig and platform workers are finally included in India’s legal framework through the Social Security Code. On paper, this is historic. Aggregators must contribute a portion of revenue towards gig-worker welfare funds. But timelines, contribution formulas, and enforcement mechanisms remain fuzzy.

And then comes the salary question, the one employees care about most.

The most significant shift comes from the new definition of wages (or salary). The simple change is that allowances cannot exceed 50% of total compensation. So your basic pay now has to form at least half of your salary structure. Since PF and gratuity are calculated on basic pay, a higher basic means higher PF contributions.

That’s good news for your retirement fund. But it may reduce your monthly take-home.

Let’s say your CTC today is ₹1,00,000. Under the old structure, companies often kept basic pay at 30–40%, with the rest as allowances to reduce PF outgo. Here’s how it would look under the old and new regulations:

Old structure:
Basic: ₹35,000
Allowances: ₹65,000
PF (12% of basic): ₹4,200
Take-home: higher, because PF outgo is small.

New structure (under 50% rule):
Basic has to be at least ₹50,000
Allowances: ₹50,000
PF (12% of basic): ₹6,000
Take-home: lower, because PF contribution rises.

Now, you may benefit in the long term, with a higher retirement fund. However, your take-home pay ultimately reduces.

Employees gain in other areas too. Fixed-term workers can now receive gratuity after just one year of service, instead of having to wait five years earlier.

The codes streamline inter-state migration by allowing easier portability of benefits, which is important in peak seasons when workers move states for jobs. 

Women can now also work night shifts, provided safety measures are in place, and grievance committees include female representation. 

Hazardous-work regulations are now stricter. The “one-worker rule” means even micro units with just one person on the payroll must follow safety rules. It prevents companies from sidestepping safety norms by staying small on paper. In practice, it means small workshops, contractors, and micro-factories must provide protective gear, follow basic procedures, and take responsibility for worker safety just like bigger firms.

IT and IT-enabled services must pay their employees’ salaries within the first week of every month.

But not every change will land the same way everywhere. Once the central government sets a national floor wage, states will have to adjust their own minimum wages accordingly. Some states may need to raise wages sharply, increasing costs for employers in low-income regions.

Underpinning all this is the larger philosophical tension. The labour codes try to do two opposite things at once: modernise India’s labour market for a global, digital economy and protect workers from insecurity. 

More flexibility for businesses usually means less rigidity for labour. More portability and benefits for workers usually mean higher administrative overhead for employers. 

Somewhere in the middle lies the balance everyone is arguing about.

So where does that leave us?

India’s new labour codes promise a cleaner, more modern labour framework. If implemented well, employers could get more straightforward rules, workers could get stronger safety nets, and gig workers could finally get formal rights. 

But the trade-offs are real — lower take-home pay for many salaried employees, reduced job protection in some sectors, and uncertainty until every state actually enacts these codes.

Think of these reforms not as a magic fix, but as an attempt to reboot a century-old system for a new economy. Whether they become a milestone or a missed opportunity depends entirely on execution. 

Until then… Everyone, employers, workers, and gig platforms, will be watching the fine print closely.

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