On November 21, 2025, India implemented a landmark reform in its labour laws by introducing four consolidated Labour Codes, replacing 29 outdated legislations that had long governed the country’s workforce. This reform marks one of the most significant overhauls in India’s labour framework since independence, aimed at modernizing worker protections, simplifying compliance, and promoting equitable treatment across diverse employment categories.
Background: The Need for Labour Law Reform in India
India’s labour laws were historically fragmented and rooted in pre-independence and early post-independence statutes. These laws, often overlapping and inconsistent, posed challenges for both employers and employees. The complex tapestry of 29 central labour laws created compliance difficulties for businesses and left many workers, especially those in informal or contractual roles, inadequately protected.
Recognizing these limitations, the Indian government undertook the task of consolidating these laws into a simplified and coherent framework, aligned with contemporary economic realities and international labour standards.
Overview of the Four New Labour Codes
The four new labour codes implemented are:
- The Code on Wages, 2019: Governs minimum wages, timely payment of wages, and equal remuneration.
- The Industrial Relations Code, 2020: Regulates trade unions, industrial disputes, and conditions for layoffs and retrenchments.
- The Occupational Safety, Health and Working Conditions Code, 2020: Ensures workplace safety, health standards, and working conditions.
- The Social Security Code, 2020: Provides social security benefits including provident fund, gratuity, and employee state insurance.
Although these codes were passed earlier, their effective implementation date was November 21, 2025, thereby officially replacing the older labour laws with a unified, streamlined legal framework[2][3].
Key Changes and Features of the New Labour Code 2025
1. Gratuity Eligibility Reduced to One Year
One of the most significant changes under the new Social Security Code is the reduction of the minimum service period required for fixed-term employees to qualify for gratuity from five years to just one year. Previously, fixed-term employees—those hired for a fixed duration—were excluded from gratuity benefits unless they completed five continuous years of service.
This change is a major step towards ensuring parity between fixed-term and permanent employees, granting fixed-term workers the same salary structure, leave entitlements, medical benefits, and social security coverage as regular staff. The government expects that this will promote direct hiring and reduce excessive contractualization, providing better financial stability for workers, especially during job transitions[1].
2. Simplified Compliance and Unified Framework
The consolidation of 29 laws into four codes significantly reduces the compliance burden for employers. This streamlining means fewer procedural complexities and clearer regulations, which can boost ease of doing business and encourage formalization of employment.
3. Broader Coverage of Workers, Including Gig and Platform Workers
The new codes explicitly recognize gig and platform workers for the first time, extending social security benefits and protections to this rapidly growing segment of the workforce. This inclusion reflects the evolving nature of work and the government’s intent to protect all categories of workers in the digital economy[3].
4. Enhanced Worker Rights and Dispute Resolution
The Industrial Relations Code streamlines dispute resolution mechanisms and clarifies conditions for layoffs, retrenchments, and closures. It also sets clear guidelines for trade union registration and functioning, aiming to balance industrial peace with workers’ rights.
5. Uniform Working Hours and Leave Policies
The Occupational Safety, Health and Working Conditions Code standardizes working hours, rest intervals, and leave entitlements across sectors, ensuring consistent worker welfare standards. This includes provisions for maternity benefits, annual leave, and night shift work conditions.
Impact on Employers and Employees
For Employers
- Reduced Legal Complexity: Simplified laws mean easier compliance and reduced risk of litigation.
- Increased Accountability: Employers must now provide equal benefits to fixed-term and permanent employees, increasing the cost of contractual hiring.
- Encouragement of Formal Employment: Clearer rules and social security mandates incentivize formal hiring practices.
For Employees
- Greater Security: Fixed-term and gig workers gain access to benefits like gratuity and social security.
- Financial Stability: Reduced minimum service periods for gratuity enhance financial protection during job changes.
- Improved Working Conditions: Uniform standards in working hours, leave, and safety improve overall job quality.
Examples Illustrating the New Labour Code in Practice
Consider Ravi, a fixed-term employee at a manufacturing firm who joined in January 2025. Under the old rules, Ravi would have had to complete five years to qualify for gratuity, which meant no such benefit if he left earlier. With the new code effective November 2025, Ravi becomes eligible for gratuity after completing just one year, providing him with financial security if he chooses to change jobs after 12 months[1].
Similarly, Neha, a delivery partner working on a gig platform, now falls under the ambit of social security benefits. She can access provident fund schemes and insurance benefits, which were previously unavailable to gig workers, securing her against income volatility and health risks[3].
Data and Trends Supporting the Reform
India’s workforce is evolving rapidly, with over 60% employed in informal or contractual roles. The International Labour Organization (ILO) estimates that nearly 70% of India’s workers lack formal social security coverage. By extending benefits to fixed-term and gig workers, the new labour codes aim to bridge this gap.
Early government estimates suggest that the new gratuity rules alone could benefit millions of fixed-term employees nationwide, enhancing their retirement savings and social security net[1][3].
Challenges and Criticisms
Despite the progressive nature of the reforms, some critics argue that the codes may increase compliance costs for small and medium enterprises (SMEs), potentially discouraging hiring. Others point out that enforcement remains a challenge in a country with a large informal sector.
Moreover, the real impact depends on effective implementation, awareness among workers and employers, and the capacity of labour departments to monitor and enforce the new provisions.
Looking Ahead: The Future of Labour Relations in India
The new Labour Code 2025 represents a foundational shift towards a modern, inclusive labour market in India. Its success will depend on how well stakeholders adapt to the new framework and how the government addresses challenges in enforcement and outreach.
With increased protections for vulnerable workers and simplified rules for employers, the codes are poised to promote a more equitable and productive workforce aligned with global standards.
Conclusion
The introduction of India’s new Labour Code 2025 is a transformative step in labour law reform, addressing long-standing issues of fragmentation and inadequate worker protection. By consolidating laws and extending benefits such as gratuity to fixed-term and gig workers, the reform fosters greater equity and financial security across the workforce. While challenges remain in implementation, the codes lay the groundwork for a more balanced and modern labour ecosystem in India.