Are India’s Labour Codes Really Worker-Friendly?

Written by Rohan Yadav, a second-year student at Maharashtra National Law University (MNLU), Mumbai.

Introduction 

The labour landscape in India has undergone a pivotal transformation with the enactment of four new Labour Codes (The Code on Wages 2019, The Industrial Relations Code 2020, The Code on Social Security 2019, and The Occupational Safety, Health and Working Conditions Code 2020. The government has enforced these codes across India on 21st November 2025 by consolidating 29 existing central laws into a streamlined framework. These codes are categorised as revolutionary in nature by aiming to simplify compliance procedures, enhance worker welfare and boost “ease of doing business” in India. The new codes have brought several worker and employee-friendly provisions, such as a national floor wage, recognition of gig and platform workers formally for the first time and extending gratuity for fixed-term employees after one year of employment on a pro rata basis, which are seen as progressive steps toward a modern workforce. However, beneath this veil of progressive reforms lies a concerning reality that the codes frequently and more prominently favour employers. Employee relief is undermined by significant structural gaps and legislative loopholes in these new codes, even when these codes are quoted as more employee-friendly. Notwithstanding the novel legislative intent, it is essential to discuss the several areas where these codes fail to protect employee rights, specifically regarding equitable benefits and wages.

The “Benefits Trap”: Paradoxes in the New Wage Definition

The new codes are highly praised for their consistent definition of “Wages” as per Section 2(y) of the Code of Wages 2019. It now includes only Basic Pay, Dearness Allowance and Retaining Allowance. Many other allowances, such as HRA, conveyance, etc. are not considered under wages and are limited to 50% of the total remuneration of the employee under the Code on Wages, 2019. These other allowances that surpass 50% are added back to the “Basic Wage” in order to compute social security contributions, such as gratuity and Provident Fund. The paradox in this new definition of wages is that while it increases the future savings of a worker, it creates an immediate reduction in take-home salary, and it leads to a catastrophic exclusion trap of certain current benefits for some employees as currently, ESIC and Bonus are statutorily mandated only to workers earning not more than ₹21,000/month. 

The problem arises when, let’s say, an employee’s gross income is ₹46,000 after allowances, but their current “Basic Wage” is ₹15,000. They might have been eligible for ESIC and Bonus in the past but now, in light of the new “50% threshold,” their computed “wage” as per the new definition shall surpass the ₹21,000 threshold.  This leads to the exclusion of the employee from the statutory bonus and ESIC, even when previously he was entitled to and employers may be able to legally avoid paying ESIC contributions without giving their employees a true pay increase. It is crucial to note that the gross income remains constant here. 

The 12-Hour Workday and the 72-Hour Week Loophole

The Occupational Safety, Health, and Working Conditions Code 2020 along with the Press Information Bureau released by the government, mandates the maximum number of hours that can be worked in a day as 8 hours and in a week as 48 hours. Nevertheless, it permits a “4-day work week” by raising the daily working hour cap to 12 hours, and keeping the remaining 3 days as fully paid leaves. The concern lies in this exact maximum limit of work hours per day and per week, as a worker could be forced, especially in unorganised sectors, to work 72 hours/ week (12 × 6) if an employer mandates a 12-hour shift while enforcing a 6-day work week, effectively bypassing the 48-hour statutory cap through unrecorded overtime. This loophole creates an even more exploitative situation for the worker, as the employer can easily take advantage of this inconsistency. Though the government has issued clarifications via PIB stating overtime must be paid, overtime is rarely recorded in the unorganised sector, which constitutes the majority of the labour landscape in India. This statutory approval of a 12-hour work shift now removes the legal and psychological barriers that existed against long shifts and raises significant concerns regarding an increase in worker accidents, safety and fatigue-related issues.  

Removal of the Government’s approval for the layoff and Retrenchment of establishments having less than 300-Worker Threshold

Earlier, under Section 25L and Section 25M of the Industrial Disputes Act, 1947, industrial establishments with 100 or more workers had to seek appropriate government permission before closing down the establishment or retrenching workers. However, the new Industrial Relations (IR) Code 2020  raises this threshold to 300 workers. This is a massive concession to employers and a major blow to employees, as a major chunk of India’s registered factories have fewer than 300 workers. This change essentially means that employers can hire and fire workers at their own discretion, without appropriate government approval now for the vast majority of Indian establishments. This directly hampers the job security and bargaining power of the workers as now workers can be legally retrenched under the guise of economic necessity without the employer needing to justify it to the government for establishments under 300 workers. 

Moreover, this change potentially infringes upon the Right to Livelihood as enshrined under Article 21 of the Indian Constitution along with Article 14. The Fundamental Right to Livelihood of workers, as held by Bandhua Mukti Morcha v. Union of India and Olga Tellis v. Bombay Municipal Corporation and there exists no rational criteria for increasing the limit from 100 to 300 and is thus discriminatory in nature by violating equality under law. 

Curbing the rights of Smaller trade unions with the “51%” Monopoly rule 

The Industrial Relations Code 2020 introduces the concept of a “Sole Negotiating Agent.” If multiple trade unions are operating in an establishment, the union having 51% or more of the workers’ subscriptions as members gets the sole right to negotiate with the employer. If this  51% subscription is not achieved, then councils shall be formed with each union having at least 20% subscription as its members. Section 14 of the Industrial Relations Code 2020 provision effectively gives the free hand to the sole negotiating agent (51%), which can lead to the concerns of the smaller unions being ignored or silenced. This effectively violates Article 19(1)(c) as this section effectively marginalises smaller trade unions by depriving them of meaningful collective bargaining power.

The Compliance Blind Spot: Mandating Double Pay Without Monitoring Overtime hours

The Code on Wages 2019 mandates under Section 14 that overtime wages shall be provided at least twice the rate of regular wages, but the code doesn’t mention anything related to how the government plans to ensure compliance with the tracking of these overtime hours worked.  

The Gig Workers: Recognition Without Substantive Rights

The Code on Social Security 2020 formally recognises “Gig and Platform Workers” for the first time and proposes a social security fund financed by aggregators, which is to be 1-2% of the turnover of aggregators. But the Code stops short of giving the title of employees to gig workers. This has significant implications as gig workers are not covered under Minimum wages, overtime pay, provident fund or gratuity. Moreover, the code does not provide a concrete guarantee of what exactly constitutes a social security scheme that benefits gig workers. There is too much discretion left to the government to frame such social security benefits. 

Suggestions and way forward to ensure equitable benefits

A. The government must simultaneously notify a revised and higher threshold for ESIC and Bonus eligibility to account for the inflation in the “legal definition” of wages by linking it to the Consumer Price Index or the National Floor Level Minimum Wage.

B. The use of biometric systems linked to the Shram Suvidha Portal or proper attendance logs should be maintained which note the check-in and check-out time of the employees, should be mandated for any establishment that is enforcing the 12-hour rule. Moreover, Labour inspectors should conduct periodic investigations to ensure that employers are complying with the regulations. 

C. Mandating the creation of a re-skilling fund for all the establishments to contribute to it, which shall give increased security and a better alternative to workers if they are fired from employment. These funds should also be directed towards creating a platform for networking and seeking new employment that matches the skills of the workers.

D. Critical decisions related to wages, shift changes and safety protocols should require a higher number of ratifications among workers (e.g., 2/3rd or 3/4th). This shall ensure that concerns of smaller trade unions are not overlooked, especially in critical decision-making. 

E. Basic floor earnings, similar to minimum wages, should be statutorily mandated for every hour worked by the gig workers. 

Conclusion  

The true success of the four new labour codes depends on closing the critical gaps between legislative intent and practical enforcement in order to ensure that workers get equitable benefits and wages. Ultimately, India can truly achieve a just, fair and future-ready industrial ecosystem only by balancing the “ease of doing business” with the “ease of living” for workers.