Introduction: The Need for Labour Law Reform
India’s labour law landscape has historically been shaped by a maze of 29 different, sometimesoutdated, central laws. This fragmented system created confusion, compliance burdens, andinconsistent enforcement, making it challenging for foreign employers to reliably structureoperations or manage workforces in India. In 2025, the government implemented four unified labour codes, a transformative step towards a modern, business-friendly India.
The Four New Labour Codes: An Overview
Code on Wages, 2019
Replaces four previous acts to set a uniform minimum wage and ensure timely, equalpayment for all sectors and regions.
Code on Social Security, 2020
Merges nine social security laws, expanding access to provident fund, gratuity, maternity benefits, and insurance—including for gig and platform workers.
Industrial Relations Code, 2020
Reforms dispute resolution, hiring, layoffs, and collective bargaining, bringing transparency, flexibility, and structure to workplace relationships.
Occupational Safety, Health & Working Conditions Code, 2020
Standardizes workplace safety, health, working hours, leave, and compliance for all industries—crucial for foreign firms concerned about global standards.
Key Reforms Impacting Foreign Employers
Simplified Compliance and Documentation
The new codes consolidate registration, licensing, and reporting, enabling “one license, one registration,” which reduces bureaucratic hassles for foreign investors.
Uniform rules minimize state-by-state regulatory variance, easing multi-site and pan-India operations.
Wage Structure and Payroll
Basic wages must form at least 50% of total cost-to-company (CTC), raising employercontributions to provident fund (PF), gratuity, and bonus—and potentially reducing net take-home pay but increasing long-term employee security.
New overtime and working hour rules allow a four-day workweek (up to 12 hours per day, still capped at 48 hours per week), offering scheduling flexibility but demanding rigorous timekeeping and overtime payment compliance.
Social Security for All: Including Gig and Platform Workers
Foreign employers, especially in IT, logistics, and the gig economy, must provide socialsecurity contributions for full-time, contract, gig, and platform workers, expanding both the scope of protection and the compliance sphere.
Aggregators and app-based service firms are now required to contribute a percentage of revenue to dedicated social security funds for gig workers.
Leave, Overtime, and Workplace Conditions
Mandated leave: All employees now earn one paid day off for every 20 days worked, with streamlined carry-forward and encashment rules.
Uniform safety standards and workplace health rules ensure global best practices—minimizing risk and aligning with international investor expectations.
Benefits for Foreign Employers
Easier Market Entry: Streamlined compliance makes India a more attractive, low-frictionmarket to enter and scale.
Talent Attraction & Retention: Clear standards, stronger social security, and modern workplace norms help foreign companies compete for Indian talent.
Lower Legal Risk: Fewer laws and clearer documentation limit inconsistencies, reducinglitigation risk for employers unfamiliar with India’s legal evolutions.
New Challenges and Responsibilities
Documentation & Record-Keeping: Digitized records and timely filings become even more critical. Audits will check for compliance on wages, leave, and social security.
Payroll Restructuring: Global companies may need to revise compensation structures tocomply with the new wage definition and regulatory caps.
Ongoing Policy Monitoring: As final implementation depends on state-level harmonization (targeted for March 2025), multinational firms must track updates across states for nuancedcompliance.
Best Practices for Adapting
Carry out a compliance review and update all payroll, HR, and benefit processes to the new standards.
Invest in digital HRMS and documentation systems to handle streamlined registrations, wage calculations, leaves, and social security reporting.
Engage local legal and HR advisors who understand the codes and evolving state-level rules.
Train managers and HR on new working hour norms, recordkeeping, and the expanded scopeof social security.
Conclusion: Embracing Opportunity
India’s labour code reforms are transforming the business landscape—streamlining rules andbolstering social protections while making the market more employer-friendly. For foreign employers, adapting proactively ensures compliance, reduces risk, and positions companies totap India’s dynamic, globalized workforce for years to come.