Are employers ready for India’s labour code overhaul?

Every sturdy building depends on a strong foundation. When the ground beneath shifts, cracks emerge, revealing vulnerabilities once hidden from view. For decades, India’s blue- collar workforce has rested on informal arrangements like verbal agreements and cash payments. Driven by the intent to end the exploitation of the most vulnerable, entry-level, semi-skilled, and unskilled workers, the new labour codes signal a much-needed reinforcement of these foundations. It is a much-needed initiative to bring them into the formal fold, ensure their wages meet prescribed norms, and, more importantly, provide them with social security and healthcare benefits. What was once considered workable will soon need to meet higher standards of compliance. These codes are more than a legislative update. They signal a nationwide effort to retrofit the very architecture of employment, making it more transparent, equitable, and enforceable. As formalisation comes into focus, employers must assess whether their current structures can hold up under the weight of new compliance expectations.

The new codes are extending the minimum wage coverage to all categories of workers. This includes gig workers, contractual staff, and daily-wage earners, who were previously outside the purview of standardised wage protections. For many businesses operating with fragmented payment systems or cash-based disbursals, this change requires a complete overhaul of compensation processes. Employers are now required to provide wage slips, ensure timely payments, and carry out regular wage reviews.

The requirement that basic pay make up at least 50% of total compensation carries direct financial implications. As a result, statutory contributions to the provident fund and gratuity are set to increase. This will particularly affect sectors like logistics, warehousing, retail, facility management, and security services, where margins are tight and employee volumes are high. This change limits the flexibility employers once had to structure compensation and could add extra financial pressure on those already managing tight budgets.

The formalisation of employment relationships is further reinforced by the requirement to issue appointment letters to all workers, including seasonal and daily-wage staff. Many organisations, especially those with decentralised operations or a dependence on third- party contractors, will need to revisit their hiring processes. Previously, verbal agreements or informal hiring practices were commonplace. However, the new codes have altered the scenario.

The lack of formal documentation and verified employment contracts could expose businesses to legal risk and compliance penalties. This move is designed to improve accountability and worker protections. However, employers who have historically relied coverage to previously excluded categories, notably gig workers.

The number of gig workers, which was 7.7 million in FY21, is expected to reach 23.5 million by FY30. However, many of these workers were previously not captured in formal employment records. The new labour codes now bring these gig workers within the ambit of the social security framework. This marks an important step in providing a safety net to a rapidly growing segment of the workforce. For employers, however, it introduces fresh administrative and financial obligations. Payroll systems now need to support these workers by tracking their work and managing contributions. Not just this, blue-collar workers are also eligible for other financial incentives and benefits.

New labour laws also impact fixed-term employment arrangements. Under the new provisions, fixed-term contract workers are now eligible for gratuity without any minimum tenure. This change affects the cost advantage of short-term or seasonal roles, which didn’t previously require gratuity for contracts under five years.

Also, employers are now required to provide travel benefits to interstate workers. For industries that rely heavily on migrant labour to meet seasonal demand, this provision increases both cost and logistical complexity. Therefore, employers may need to reassess their workforce planning models to ensure compliance without compromising operational efficiency. These planning considerations extend beyond hiring and compensation to include time-off policies as well.

Leave entitlements have also been redefined under the new codes. The eligibility threshold has been lowered, and guidelines for leave encashment have been made clear. While these changes bring greater consistency and reduce ambiguity in managing employee benefits, they also result in a larger segment of the workforce qualifying for paid leave.

This development calls for more robust planning to maintain productivity levels. Employers must ensure that staffing levels remain adequate, even with a rise in eligible absenteeism. In this case, transparent leave policies and better tracking systems can help manage this transition while promoting a more equitable workplace environment.

For most organisations, adapting to the new labour codes requires more than legal adjustments. It requires a new approach to how the workforce is viewed and managed. The codes emphasise structure, benefits, and long-term welfare—areas that may not have received due attention under previous regimes. While some companies may be equipped to handle this transition with existing systems, others, particularly small and medium enterprises, may face considerable hurdles.

Translating this mindset into action requires tangible changes—not just within individual organisations, but across the entire industry. Fortunately, there’s a clear framework to bridge these gaps—quite literally called the GAPS framework.

G stands for ghost employees, A for attrition control, P for productivity, and S for social security.

The GAPS framework provides a structured approach to tackling critical workforce challenges. It focuses on eliminating ghost employees who inflate payrolls without contributing to operations, curbing attrition through job security and social benefits, leveraging technology to drive transparency and productivity, and embedding statutory compliance into everyday processes.

In parallel, empowering HR and compliance teams through targeted training will be essential to navigate the evolving regulatory environment. Ignoring these areas not only risks legal repercussions but also exposes organisations to serious reputational and operational setbacks.

The new labour codes mark a pivotal step in the journey to formalise India’s workforce— especially within the blue-collar segment. By bringing greater clarity to wage structures, extending protections to gig and fixed-term workers, and mandating documented employer–employee relationships, these reforms lay the foundation for a more equitable and transparent labour ecosystem.

While the transition introduces near-term compliance and operational challenges, it also presents a valuable opportunity to build stronger, more resilient organisations. Ultimately, embracing this shift is not just about meeting legal mandates. It’s about unlocking long-term growth, workforce stability, and improved worker welfare. As India enters its next phase of economic development, aligning with the new labour framework will be key to ensuring both regulatory readiness and sustainable workforce transformation.

This article was first published on Hindustan Times