Labour Codes in India – Four Codes, Reforms and UPSC Notes

Labour is a concurrent subject in India. Until 2020, there were 29 central labour laws and over 100 state laws – a maze that raised compliance costs, protected the 10 per cent of formal workers while leaving 90 per cent informal workers exposed, and discouraged firms from growing beyond legal thresholds. The 2019-20 consolidation into four labour codes is India's most ambitious labour-market reform in decades. For UPSC GS-III, labour codes are central to jobless growth, manufacturing competitiveness and social security.

Why reform was needed

• Low employment elasticity. Every 1 per cent of GDP growth produced only 0.1-0.2 per cent more jobs.
• Archaic laws. Most Acts dated from the 1930s-1950s, designed for a factory economy, not services and gig work.
• Multiplicity. Multiple laws with overlapping provisions raised compliance costs and bred corruption.
• Poor coverage. Formal labour law protected about 10 per cent of workers; the rest had no statutory floor.
• Missing middle. Compliance thresholds (10, 50, 100 workers) encouraged firms to stay small, fragmenting manufacturing.
• Inflexibility. The Industrial Disputes Act required firms with 100+ workers to seek government permission for retrenchment – discouraging hiring and scaling.
• Human capital gap. Firms hired contract labour to avoid regulation, eliminating incentive to train and upskill.
• Global competitiveness. Labour-intensive sectors stayed informal, failing to match Bangladesh or Vietnam at global scale.

The four labour codes

Code on Wages, 2019

Subsumes four Acts – Payment of Wages Act 1936, Minimum Wages Act 1948, Payment of Bonus Act 1965, Equal Remuneration Act 1976.

• Coverage. All employees, formal and informal.
• Floor wage. Central government fixes a floor wage, which state minimum wages cannot fall below. Different floor wages may apply for different geographies.
• Fixing minimum wages. State or Centre set minimum wages based on skill, difficulty of work.
• Equal remuneration. Addresses gender pay disparity.
• Web-based inspection reduces inspector discretion.

Concerns. Lacks explicit methodology for adequate minimum wages (ILC formula or Raptakos Brett case have been ignored). Anoop Satpathy Committee (2019) recommended Rs 375 per day; current floor remains far lower. Race-to-bottom risk as states compete on wages to attract investment.

Industrial Relations (IR) Code, 2020

Subsumes Industrial Disputes Act 1947, Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946.

• Fixed Term Employment (FTE). Workers hired for a fixed duration under a written contract – no contractor. FTE workers entitled to the same benefits as permanent employees pro-rata.
• Standing orders. Required for establishments with 300+ workers (up from 100 earlier).
• Closure and lay-off. Threshold for prior government permission raised from 100 to 300 workers.
• Strikes and lock-outs. Prior notice of 14 days required for all establishments.
• Exemption power. Government can exempt new establishments in public interest with no time limit.
• Trade union recognition. Provisions for negotiating unions where multiple exist.

Concerns. FTE can lead to job insecurity without minimum tenure or renewal limits. The 300-worker threshold allows significant firms to escape oversight. Strike notice reduces worker leverage. Unlimited exemption period is a concern compared to Factories Act's three-month cap.

Code on Social Security, 2020

Subsumes 9 Acts including EPF, ESI, Maternity Benefit, Gratuity, Employee Compensation.

• Universal coverage. Extends provisions to unorganised workers, gig workers and platform workers.
• Gig and platform workers. Explicit recognition for the first time. Social security schemes to be funded via aggregator contributions (1-2 per cent of turnover).
• National Social Security Board for unorganised workers.
• Aadhaar-based registration for workers.

Concerns. Gig worker schemes still to be notified at scale. Aggregator contribution rate is contested by platform companies.

OSH Code (Occupational Safety, Health and Working Conditions), 2020

Subsumes 13 Acts including Factories Act, Contract Labour Act.

• Single registration and licence for establishments.
• Female employment in all shifts (with consent and safeguards).
• Inter-state migrant workers – journey allowance, portability of rations.
• Annual health check-up and welfare provisions.

Concerns. Contract labour still permitted in core activities under conditions – dilutes the original intent.

Fixed term employment – the debate

Why FTE

• Flexibility for employers to hire for seasonal or project work.
• Reduces middleman's role compared to contract labour.
• Entitles workers to pro-rata benefits like permanent staff.

Why contract labour persists despite FTE

• Lower cost than FTE (contract labour typically doesn't get full social security).
• Regulatory burden on the principal employer is lower under contract arrangements.
• Staffing-company growth incentivises the contract-labour model.

How FTE can be improved

• Minimum tenure – Second NCL (2002) recommended two years.
• Renewal limits – Vietnam, Brazil, China limit fixed-term renewals.
• Duration caps – Philippines limits FTE to one year.
• Proportion caps – limit share of FTE in total workforce.

Latest developments (2024-26)

• All 28 states and UTs notified rules by 2024-25, but implementation remains uneven.
• Effective date for codes has been repeatedly pushed. As of early 2025, the central government has signalled phased rollout with aligned state rules as the trigger.
• E-Shram portal registrations crossed 30 crore by 2024, feeding unorganised worker databases.
• PM Internship Scheme (Budget 2024-25) – 1 crore internships in top 500 firms, Rs 5,000 monthly stipend.
• Employment Linked Incentive (ELI) scheme (Budget 2024-25). Wage subsidies for first-time EPFO entrants (Scheme A), additional employment in manufacturing (Scheme B), and employer support (Scheme C).
• Gig worker schemes. Rajasthan and Karnataka operationalised state-level registration and welfare boards in 2023-24.
• Draft rules for aggregator cess on gig platforms under consultation.
• Women in night shifts – OSH Code provisions being invoked by states; Tamil Nadu and Karnataka leading.

The strengths

• Consolidates 29 laws into four – reducing compliance burden.
• Universalises minimum wages and social security in principle.
• Gives statutory recognition to gig and platform workers for the first time.
• Introduces FTE to replace exploitative contract labour.
• Raises 300-worker threshold giving mid-sized firms more flexibility.
• Web-based inspection reduces inspector discretion and corruption.

The weaknesses

• Effective date keeps slipping; on-ground reality unchanged in many states.
• Floor wage still far below living wage standards.
• Employer friendly penalties are low – grievance access to courts reduced.
• FTE lacks guardrails (tenure, renewal, proportion).
• Exemption powers for government are too wide.
• Gig worker contribution mechanism yet to operationalise.

UPSC Relevance

For GS-III (Indian economy; labour reforms; employment):

• Codes explained: four codes and which Acts each subsumes.
• Key provisions: floor wage, FTE, 300-worker threshold, gig worker recognition.
• Critical: delays, floor wage inadequacy, FTE guardrails, grievance dilution.
• Current: ELI scheme, PM Internship, state implementation, gig worker notifications.

A strong mains answer maps the four codes, identifies the four-five most consequential provisions, and closes with what is needed for implementation (minimum wage methodology, FTE guardrails, gig worker rollout, state rule alignment).

Conclusion

The labour codes represent genuinely transformative potential – the first serious attempt to rationalise Indian labour law in 70 years. But reform on paper is not reform on the ground. Unless the Centre and states coordinate rollout, set a meaningful floor wage, operationalise the gig worker framework and embed FTE guardrails, the codes risk becoming yet another half-done reform. The 2024-25 budget measures (ELI, PM Internship) hint that implementation is now the binding constraint.

PDF