India to implement major employment law reforms [Updated]

In September 2020, the Indian Parliament passed three federal employment law codes on social security, industrial relations, and occupational safety, health and working conditions. Along with the Code on Wages passed in 2019, the new codes consolidate and simplify existing laws and introduce changes to multiple federal labor laws, including those impacting employers’ retirement benefits costs and liabilities toward gratuity.

Update: On 21 November 2025, the Government of India announced the implementation of the four labor codes with effect from the same date. However, employers should note that the implementing regulations required to fully operationalize major provisions in the codes are still being finalized. The Government has indicated that draft rules will be published for stakeholder consultation. During this transition, existing labor laws and rules will continue to remain in force.

Key details

These major employment law reforms aim to extend social security to all employees and workers, whether in the organized or unorganized labor market, and simplify employer obligations and processes.

The Code on Social Security 2020

The new code amends and consolidates nine social security federal laws with the goal to extend social security benefits (old age, life, disability, and accident insurances, as well as health, maternity and childcare benefits) to all workers, including many previously considered “independent contractors.” The main changes include:

Wages

The statutory definition of wages has been standardized across all the four codes. It has been broadened to include any additional compensation if it totals more than 50% of the employee’s remuneration (basic pay, dearness and retaining allowances). Additional compensation may include initially excluded elements of remuneration such as statutory bonus, award, commission, any special expense, pension contribution, as well as overtime, accommodation or travel allowances.

The new wage definition change would increase the reckonable wages that will count towards the calculation of statutory retirement benefits. This may result in increased employer and employee contributions towards social insurance and benefit plans such as defined benefit gratuity schemes (depending on the formula used) and employees’ pension schemes. This change is also likely to increase employers’ administrative burden as monthly tracking and monitoring of the additional compensation might be required as benefits are linked to wages.

Fixed-term employment

Under the code, regardless of statutory vesting, a gratuity payment must be made upon the death, disablement or expiration of the contract of a fixed-term worker. The payment due to fixed-term employees shall be on a pro rata basis at a rate of 15 days’ wages for every year.

Additionally, the vesting period to be eligible for gratuity has decreased from five continuous years of service to one year of continuous service for fixed-term employees.

The Government still needs to provide more clarity on whether service prior to the enactment of the Code on Social Security 2020 would qualify toward such statutory benefits. It is unclear whether the new provision would apply to expatriates employed on a fixed-term basis.

Gig workers and self-employed persons

A new social security fund will be set up to provide social security benefits (maternity, sickness, termination indemnity and occupational injury) to gig workers (non-traditional employees) and self-employed individuals, funded by contributions from the Central and State government and aggregators who are digital intermediaries employing gig workers.

Crèches facilities

Employers with at least 50 employees that are currently mandated to arrange for crèches facilities near the workplace will be allowed to use comingled crèches facilities. A group of employers will be able to pool their resources to set up a common crèche in accordance with the state or government crèches guidelines and as mutually agreed between them.

The Code on Industrial Relations 2020

The new code amends and consolidates three federal labor laws relating to trade unions, industrial employment and industrial disputes. The new code requires employers to recognize a registered union that is being supported by at least 51% of their workers. In the absence of such union, a work council should be created with representatives of each union which has the support of at least 20% of the workers.

In the event of collective dismissals, employers will be required to set up a reskilling fund to pay redundant employees 15 days’ wages within 45 days of termination. In addition, permission to lay off workers will need to be obtained by industrial businesses, such as factories, from the central government when more than 300 workers are being laid off instead of the current level of 100 workers.

The Code on Occupational Safety, Health and Working Conditions 2020

The new code applies to businesses employing at least 10 workers and clarifies and consolidates 13 federal labor laws relating to occupational safety, health and working conditions. The law also simplifies the process in that businesses need only register with one centralized database, rather the current multiple registrations required under separate laws with differing headcount thresholds. The main changes impacting employee benefits include:

• The obligation for all employers to provide a free mandatory annual checkup to certain classes of employees (still yet to be determined)

• Employers with at least 100 (instead of the current 250) employees will be required to provide on-site cafeterias

• Interstate workers will be entitled to receive statutory benefits and an annual journey allowance

In addition, women will be allowed to work in all establishments for all types of work before 6 a.m. and beyond 7 p.m., so long as they consent to it and that the conditions relating to safety, holiday and working hours are met.

Code on Wages 2019

The new code passed in 2019 amends and consolidates four federal labor laws relating to wages and bonuses. The Code on Wages 2019 mainly creates a minimum wage for all workers and broadens the term wages to be in alignment with that in the new Code on Social Security 2020 as stated above. The minimum wage is yet to be determined by the federal government and higher wages may be set at the state or regional level. In addition, wage payment periods may no longer exceed one month and therefore may be daily, weekly or monthly.

Employer action: ACT

These reforms mark a major shift in the regulatory landscape and are expected to affect a large proportion of the workforce, as well as various HR processes and policies. It is therefore critical for organizations to evaluate the implications comprehensively and prepare for a seamless transition to maintain compliance and operational efficiency.

Pending the release of implementing regulations, employers with operations in India should work with their advisors and use this window to prepare. Key areas requiring attention include wage structure review (basic pay must now constitute at least 50% of total remuneration), fixed-term employment policies (gratuity eligibility will be reduced from five years to one year), contract labor arrangements, and updated employment documentation including mandatory appointment letters.

Employers should initiate labor compliance assessments, model the impact of wage restructuring on payroll costs, and review contingent workforce arrangements. The codes introduce unified definitions, streamlined compliance processes, and enhanced penalties for violations, making early preparation advisable even as the detailed rules are awaited.

Lockton India is fully equipped to guide employers through every stage of this transition. If you are seeking a trusted partner to help you navigate these changes seamlessly, please reach out to us at:

Arvind Usretay

Head of Human Capital Consulting | People Solutions - Asia

Lockton Companies (Hong Kong) Ltd.

Email: arvind.usretay@lockton.com | Mobile +852 68975425

Saanya Bawa

Executive Vice President | People Solutions - India

Lockton Services India Pvt. Ltd.

Email: saanya.bawa@lockton.com | Mobile +91 9811820590

Further Information

Lockton's team in India has prepared a detailed report, available now for download (opens a new window).

More information can be found at the below links:

Navigating India's New Labour Codes | Lockton (opens a new window)

Labour Codes | Ministry of Labour & Employment - Government of India (opens a new window)

Written in collaboration with Gagan Verma of Kochhar & Co., India