Explained: Salary, Benefits And Working Hours Under New Labour Codes

From better salaries and retirement benefits to encouraging women's participation in the workforce, the new Labour Codes which were notified last week will bring a generational change in how India treats its workforce.

The new Labour Codes merged 29 laws into four simplified codes, promising stronger worker protection, better compliance, and greater flexibility for businesses.

We decode the new Labour Codes and see what are the benefits:

Health Checkups

A significant addition in workforce rules is the mandate for annual health checkups for all employees who are 40 and above.

Labour Code And Women

The codes banned gender discrimination and made it mandatory to have equal pay for men and women. They opened the doors to women to work across all sectors, including underground mining and operating heavy machinery. They can also do night shifts depending on the safety situation and their consent. The codes suggested flexible provisions such as work-from-home for women which can boost their participation in the labour force.

Salary Change

A new definition of wages has been created, which limits allowances to 50 per cent of total pay. What this means is basic pay will rise, increasing provident fund (PF) and gratuity contributions which will in turn increase retirement benefits significantly. But take-home salary may fall slightly.

What's The Catch

Currently, a large number of employers offer split allowances to reduce tax and other liabilities. Experts said the new policy will not only reduce the take-home pay of employees but also increase compliance burden and costs for employers.

CTCs May Have To Be Reworked

Since there would be higher employer contributions to PF and gratuity, employers may have to rework the cost to company (CTC) of employees to ensure compliance with the new Labour Codes. These are the direct results of the allowances being capped at 50 per cent of total gross pay.

Basic Wage Level

Calculations using the new Labour Codes' guidelines showed that 50 per cent of gross pay would be basic wages on which social security benefits and contributions like gratuity and provident fund are calculated. In any case, the definition of wages came into effect on November 21 after the government notified the Code on Wages, 2019.

Job Security

All fixed-term employees will get the same statutory benefits as permanent employees, including gratuity if the tenure conditions are met. There are also clearer dispute-resolution mechanisms to improve job security and reduce arbitrary actions.

Less Liabilities For Employers

Employers can hire people on fixed-term contracts without long-term liabilities, and the threshold for layoffs and closures has been raised to 300 workers, giving them more flexibility in workforce planning.

Working Hours

The standardisation of working hours capped to 48 hours per week improves predictability. The Labour Codes also have clearer overtime and leave provisions which are more enforceable.

Gig Workers

One of the most significant developments in the new Labour Codes is the formal recognition of gig, platform and unorganised workers. They now get access to employees provident fund, employees state insurance, and maternity benefits. The compensation for workplace injury has been enhanced too. All platforms that employ gig workers may have to contribute to a dedicated social security fund for gig workers.

Easy To Track Benefits

The simplified rules mean benefits and rights of workers are easier to track and enforce by employers. Normally, employers have been splitting wages into numerous allowances to reduce employees' tax as well as their outgo towards various social security schemes and benefits such as PF, ESIC, and gratuity. However, since the threshold of basic wage for contribution into the Employees' Pension Scheme 1995 is Rs 15,000 per month, employers will continue to contribute 8.33 per cent of this amount into the scheme. But the remaining balance contribution will go into the Employees' Provident Fund, which will increase EPF benefit. The Employees Provident Fund Organisation had in the past cautioned firms to adhere to the norm of keeping 50 per cent of the gross pay as basic wage for the purpose of calculating social security contributions.

Summary

With these landmark Labour Codes, India is visibly signalling its commitment to building a modern, gender-equal workforce poised to power the next phase of the country's economic progress. "The 2025 labour reforms are a watershed moment focused on achieving parity for women at workplace and overhauls India's labour economy for a futuristic workforce," the Ministry of Finance said. By modernising labour regulations, enhancing workers' welfare, and aligning the labour ecosystem with the evolving world of work, this landmark move lays the foundation for a future-ready workforce and stronger, resilient industries, the government had asserted, driving labour reforms for Aatmanirbhar Bharat, the government said.

"The world acknowledges India's rise as a trusted global partner. The new labour reforms by the government reflect the commitment to a future-ready economy, simplifying compliance, empowering women workers and strengthening Bharat's position in the global value chain!" Prime Minister Narendra Modi posted on X.

With inputs from agencies