- Labour codes face uneven state implementation, causing uncertainty for businesses nationwide
- States like Arunachal Pradesh and Gujarat have fully notified rules, many others lag behind
- Companies must navigate multiple compliance frameworks due to state-specific labour rules
India's ambitious labour law overhaul was meant to simplify compliance, reduce red tape and create a more business-friendly environment. But months after the four labour codes came into force, companies are discovering that the biggest challenge is not the law itself. It is the way different states are implementing it.
The result is a growing divide between states that have moved quickly to provide clarity and those where businesses are still waiting for answers.
According to Priti Suri, Founder and Managing Partner at PSA, the labour codes have introduced both opportunities and complications for employers and employees.
"The reform is significant, but the implementation challenge cannot be over-emphasised," Suri said.
For employers, the new framework promises a more streamlined compliance regime. In practice, however, businesses have had to revisit wage structures, working hours, social security coverage, contractor arrangements, standing orders and retrenchment thresholds. For employees, the reforms bring broader protections related to wages, social security, occupational safety and workplace safeguards.
New Labour Code: Uneven Rollout Across States
The biggest obstacle remains the uneven rollout across states.
Because labour is a concurrent subject, both the Centre and state governments must notify rules before the codes can be fully operational. While a handful of states, including Arunachal Pradesh, Gujarat, Bihar and Meghalaya, have notified rules under all four codes, many others remain at different stages of implementation.
Suri said this patchwork approach has created uncertainty, particularly for companies with operations spread across multiple states.
"The lack of clarity around state-specific rules has been one of the biggest sources of uncertainty," she noted.
Businesses are facing different compliance timelines, wage definitions and procedural requirements depending on where they operate. A company running factories, warehouses or large workforce operations across India may have to manage multiple compliance frameworks simultaneously.
What was intended as a simplification exercise at the national level is often turning into an operational challenge on the ground.
Amrita Tonk, Partner at CMS INDUSLAW, echoed this concern. She said the labour codes introduce meaningful benefits for workers, including universal minimum wages, timely payment of wages, equal remuneration provisions, gratuity eligibility for fixed-term employees and formal recognition of gig and platform workers.
For employers, the promise of simplified compliance through fewer registrations, unified returns and rationalised definitions remains attractive. However, she pointed out that many of these benefits have yet to materialise because most states are still finalising their rules.
"The transitional phase, where legacy obligations under the old rules and new requirements coexist, itself creates an uncertainty," Tonk said.
For companies operating across several states, the challenge is even bigger. Labour codes delegate substantial rule-making authority to state governments, creating what Tonk described as a complex compliance matrix. Businesses are now required to track and interpret varying requirements across multiple jurisdictions, placing significant pressure on compliance teams and resources.
New Labour Code: Investors Watching Closely
The uneven rollout is also beginning to influence how investors assess potential locations for new projects.
Suri believes it may be too early to declare clear winners because only a few months have passed since implementation began. However, she said states that move quickly to publish final rules and establish predictable enforcement systems are likely to be viewed more favourably by investors.
"States that act early in publishing final rules will be viewed as reform-oriented investment destinations," she said.
But notification alone is not enough.
Investors are also evaluating whether digital compliance systems work efficiently, whether labour administrations are responsive and whether enforcement practices are predictable. In many cases, implementation quality matters as much as the rules themselves.
Tonk identified states such as Uttar Pradesh, Bihar and Rajasthan among those that have moved more decisively. States that have published clearer and more harmonised rules aligned with the Centre's framework are likely to offer investors greater confidence, particularly in sectors that require long-term commitments.
The stakes are especially high for labour-intensive industries such as manufacturing, logistics, retail and platform-based businesses. Hiring practices, contract labour norms, social security obligations and exit procedures directly influence costs and expansion plans.
That is why regulatory certainty is increasingly becoming a boardroom issue rather than merely a compliance concern.
"Domestic and foreign investors can live with strict rules, but they cannot stomach fragmentation, delayed notifications, and unpredictable enforcement," Suri said.
She argued that clarity and predictability have become central to the ease-of-doing-business equation and will increasingly determine where capital flows and where jobs are created.
Tonk agreed. Labour regulations, she said, now feature prominently in due diligence exercises alongside taxation, land acquisition and environmental approvals.
"Predictability is what matters to investors," she said.
