The labour codes establish distinct definitions for ’employee’ and ‘worker,’ with specific benefits and provisions applicable only to ‘workers.’ The definition of ‘worker’ closely aligns with the term ‘workman’ under the Industrial Disputes Act, 1947, encompassing individuals engaged in manual,unskilled, skilled, technical, operational, clerical, or supervisory work, while excluding employees in ‘supervisory,’ ‘managerial,’ or ‘administrative’ roles
In a landmark development for the Indian labour law landscape, the Government of India has announced the implementation of the four labour codes, which will replace 29 existing labour laws, effective November 21,
The four labour codes are: The Code on Wages, 2019, The Code on Social Security, 2020, The Occupational Safety, Health and Working Conditions Code, 2020, The Industrial Relations Code, 2020
Although all the labour codes were notified by 2020,their implementation was awaited. On 21 November 2025, the Government issued a press release1 and four separate notifications in the Official Gazette to announce the implementation of all the codes.
The notifications for implementation of the final rules under the labour codes by the Central and State Governments is still awaited, but is expected to follow shortly.
The labour codes simplify and consolidate existing labour laws, promoting transparency and digitization in compliance and workforce models, enhancing worker welfare and ease of doing business.
The press release issued by the Government clarifies that they would engage with the public and stakeholders in the development of rules, regulations, and schemes under the new codes.
Additionally, to ease the transition, the release confirms that the relevant provisions of existing labour laws will remain in force during the transition period.
Key impact areas for employers and employees
The key impact areas for employers and employees under the labour codes are summarized below:
Definition of worker
The labour codes establish distinct definitions for ’employee’ and ‘worker,’ with specific benefits and provisions applicable only to ‘workers.’ The definition of ‘worker’ closely aligns with the term ‘workman’ under the Industrial Disputes Act, 1947, encompassing individuals engaged in manual,unskilled, skilled, technical, operational, clerical, or supervisory work, while excluding employees in ‘supervisory,’ ‘managerial,’ or ‘administrative’ roles.
While the definition under the existing law had limited applicability—primarily focussed on industrial disputes and retrenchment—the definition of under the labour codes has a significantly broader scope.
Workers will be entitled to various benefits, including overtime pay and leave encashment, as stipulated in the Occupational Safety, Health and Working Conditions Code, 2020. Specific provisions related to working hours, annual leave, and standing orders apply exclusively to ‘workers’.
Uniform definition of wages and its financial impact for employers
The labour codes introduce a standardized definition of ‘wages’ applicable across all four codes. Currently, varying definitions of ‘wages’ and ‘salary’ complicate the calculation of benefits,leading to inconsistencies, multiple interpretations,and frequent litigation,
To address these challenges, a uniform definition of ‘wages’ has been introduced for calculating benefits related to Gratuity, Employees’ State Insurance,Leave Encashment, Overtime, Statutory Bonus, etc.
This new definition aims to enhance compliance by providing clarity and consistency. However, it may also result in increased costs for organizations due to wider scope of the definition of wages. There are still ambiguities regarding coverage of different components of salary within the definition of wages (such as coverage of performance bonuses / oneoff payments, etc.).
Workforce models
The labour codes explicitly prohibit the use of contract labour for the ‘core activities’ of an organisation, except in certain exceptional circumstances. Core activity means any activity for which the establishment is set up and includes any activity which is essential or necessary to such activity.
Furthermore, fixed-term employment has been officially recognised as a valid employment model, subject to specific conditions and compliance requirements.
For instance, such worker would be entitled to gratuity after one year of service on termination and all other statutory benefits
available to a permanent workman, proportionately according to the period of service rendered by him/her.
The labour codes also empower States to implement flexible work arrangements. Some States, such as Haryana and Odisha, have included flexible working options in their draft rules, allowing organisations to adopt a four-day work week.
HR and Payroll policies
The labour codes significantly affect various aspects of HR and payroll policies. Certain provisions overlap with existing state-specific Shops and Establishments laws, which are not superseded by the labour codes, potentially leading to conflicts,
especially concerning working hours, leave, and related issues.
Organizations operating in multiple states may have to ensure compliance with both sets of laws in each jurisdiction. Additionally, since specific provisions apply only to ‘workers,’ organizations may need to implement different policies for various employee categories.
Social security for gig workers and unorganized sector
The labour codes empower the Central and State governments to implement welfare schemes for gig workers, platform workers, and other individuals in the unorganized sector. The schemes may include life and disability coverage, health and maternity benefits, old-age protection and other relevant benefits.
For gig workers social security scheme, the aggregators will be required to contribute 1 to 2% of their annual turnover, subject to 5% of amount paid or payable by an aggregator to gig workers, to the social security fund.
Lay-off and retrenchment
Labour codes allow organisations with less than 300 workers to be laid-off and retrenched without obtaining prior approval from the Government. Under the Industrial Disputes Act, 1947, this threshold was fixed at 100 workmen. This change will provide organisations the flexibility to scale their workforce as per changing business needs.
Labour codes have also introduced the concept of ‘re-skilling’ fund to assist the retrenched workers in learning new skills. For every retrenched worker, the employer is required to contribute 15 days’ last drawn wages (or any other amount notified by the central government) to a fund to be called the worker re-skilling fund.
Comments
The implementation of the labour codes is a significant and long-awaited initiative by the government. These codes are poised to impact nearly every function within organizations, given the extensive changes they introduce.
It is essential for organizations to thoroughly assess the implications of these changes and prepare for a smooth transition to ensure compliance and operational efficiency.
Way forward for organisations:
-Evaluate employment roles: Identify the employees who would qualify as ‘workers’ basis their substantial
nature of work.
-Assess the impact of definition of ‘wages’ on employees’ salary structure: Review salary structure and benefits framework to comply with the new definition of ‘wages.’
-Analyze cost implications: Assess the financial impact of enhanced employee benefits on the organization.
-Reassess hiring models: Consider alternate hiring models in light of the provisions related to contract labour and fixed-term employment.
-Align HR and Payroll policies: Ensure that HR and payroll processes comply with the labour codes and relevant state-specific regulations Establish a robust compliance framework:Implement strong internal controls, conduct periodic diagnostic reviews, and ensure effective governance.
-Establish a robust compliance framework: Implement strong internal controls, conduct periodic diagnostic reviews, and ensure effective governance.
Source-E&Y