A month back, India made a new tryst with its labour laws. This endeavor of formulating new labour codes is not a routine compliance update; these represent a comprehensive 100‑day stress test of how seriously the policy-makers takes workforce strategy, risk and governance. This article explores the many changes and what employers should keep in mind while implementing to the new laws.
Importantly, while the four labour codes have already been enacted, the Central Government issued draft rules for public consultation on 30 December 2025, signalling renewed momentum toward operationalisation. These draft rules provide much-needed clarity on procedural aspects such as registrations, returns, inspections and compliance mechanisms, while also inviting stakeholder feedback.
What has actually changed?
The biggest takeaway from these labour reforms is consolidation. As many as 29 central labour laws have been consolidated into four codes on Wages, Social Security, Industrial Relations and Occupational Safety, Health and Working Conditions.
Refreshingly, a single, uniform definition of ‘wages’ now drives Provident Fund, gratuity, bonus, leave encashment, retrenchment compensation and overtime, with excluded allowances effectively capped at 50% of total remuneration – potentially inflating statutory costs up to double digit figures in allowance-heavy structures.
Some of the key beneficiaries of these initiatives include women, who can now work night shifts across sectors with strict safeguards such as consent, GPS-tracked transport, and security. Other beneficiaries are gig and platform workers, who are recognised for social security via 1-2% aggregator contributions, capped at 5% of annual turnover. Moreover, fixed‑term employment is legitimised with near‑parity of benefits vis-à-vis permanent staff, including gratuity after one year.
“The new wage definition is no longer a payroll technicality — it is a structural reset that will permanently alter statutory cost economics for Indian employers.”
Why cannot HR treat this as ‘only compliance’?
Although, this legislative change is being welcomed by industry as modern and progressive, it does come at an enhanced cost to them. Employers ought to take note of the fact that for many such companies, statutory cost will rise as wage definition will certainly lift the base for Provident Funds, gratuity and other payouts, forcing organisation-specific salary redesign. Early adopters anticipate 10-15% compliance savings through digital tools, but unions have raised concerns about potential wage dilution in negotiations.
The new labour codes have restricted contract labour to ‘core activities’ requiring a rethink of workforce mix, vendor contracts and the shift of some roles into fixed‑term or direct employment – balancing flexibility with worker protections amid union calls for stricter enforcement.
Notably, standing orders and lay-off permission thresholds have now been moved to 300 workers in qualifying establishments, changing how industrial relations, restructuring and plant‑level decisions are planned, while addressing union worries over easier retrenchments.
“Every allowance-heavy salary structure in India is now sitting on a hidden cost bomb — and the fuse has already been lit.”
The hidden risk: First 100 days
As with many other wonderful things, there are associated hidden risks with these new reforms. Penalties are now sharper and more structured, with heavier fines – up to 13x higher, e.g., INR 3 lakh for repeat offenders and clearer categories of serious offences around safety and social security defaults, though first-time slip-ups are often compoundable at reduced rates.
Employers should also note that while central codes are in force, state-level rules on inspections, registers, overtime, leave, and health checks are still being rolled out, creating a compliance without full clarity window that will potentially lead to disputes.
The biggest traps are technical: misreading the new wage definition, misclassifying workers, under-investing in digital registers, documentation and audit trails, all issues flagged in recent expert webinars as common pitfalls.
“The greatest risk today is not violation — it is misinterpretation.”
Key immediate actions for HR
Lockton’s own study recommends HR teams should seriously look at conducting the five following exercises in the coming weeks.
First, run a structured legal and HR audit. This would necessitate mapping every policy, contract, wage structure and contractor arrangement to the four codes as well as flagging gaps and conflicts. This process should also include identification of ‘core activity’ roles, which are currently on contract. Ideally, a migration plan, including direct hire, fixed-term, or redesigned engagement models, should be put in place as a replacement.
The next aspect involves reviewing and redesigning compensation and model impact. This includes rebuilding salary structures around the new wage definition, simulating PF, gratuity, leave encashment and retrenchment costs by band and location, all aimed at absorbing uplifts without eroding competitiveness. The process should also involve aligning offer letters, CTC breakups and internal communication with statutory wage constructs to avoid future disputes.
The third issue that HR teams should take up is upgrading systems and documentation. It is critical that HR ensures HRMS/payroll generates digital registers, real-time attendance and overtime records, appointment letters for all workers and state-wise rule variants. Also, HR ought to work on standardising documentation for disciplinary inquiries (90-day expectation), grievance redressal and industrial relations processes.
The next factor involves strengthening safety, dignity and governance. HR teams should immediately start work on implementing the full safeguard stack for women’s night shifts, including consent protocols, transport, security, CCTV, POSH compliance and a functional Internal compliance committee. In parallel, HR should constitute or refresh Grievance Redressal Committees where required especially including women’s representation, and formalise escalation and closure timelines.
The fifth and final dos for HR is setting up a cross-functional ‘Labour code war room’. This would necessitate bringing HR, Legal, Finance and Operations together with a 100-day roadmap, weekly risk reviews and a clear owner for each action item. Alongside, HR team members should track state notifications, clarify ambiguities with counsel and close high-risk gaps before inspectors, unions, or employees surface any of such issues.
“HR must move from passive compliance to active labour-code architecture.”
The bigger opportunity
Managed well, the labour codes have the potential to move organisations from fragmented, paper-heavy compliance to a more digital, predictable and worker‑protective regime, potentially yielding 10-15% efficiency gains as seen in Lockton’s simulations.
On the contrary, handled casually/callously, the new laws will expose employers to avoidable penalties, disputes and reputational risk, despite the ‘good intent’ of such employers, especially amid union pushback for full protections.
Thus, in conclusion, we aver: For HR and business leaders, the real question is no longer “Are the labour codes real?” but “Will we use them to modernise our people model, or let the first notice from an inspector write our transformation agenda for us?” The choice is ours. So, do choose wisely!
“The first inspection notice should not be the document that writes your HR transformation roadmap.”
