A 29-Law Shake-Up: How India’s Labour Codes Will Transform HR, Payroll, And Platform Work

The Government of India’s implementation of the four comprehensive labour codes—the Code on Wages (2019), the Occupational Safety, Health and Working Conditions Code (2020), the Code on Social Security

(2020), and the Industrial Relations Code (2020)—marks the biggest overhaul of the nation’s employment laws in decades. Consolidating twenty-nine fragmented laws, this reform aims to simplify compliance for businesses while extending social security and fair wages to India’s over 500-million-strong workforce, including the previously excluded gig and platform workers. The impact on corporate HR and payroll policies will be immediate and profound.

Major Impact on HR and Payroll Policies: The CTC Shift

The codes’ most significant financial implication lies in the unified definition of “wages” under the Code on Wages. This new definition mandates that the excluded components of compensation—such as House Rent Allowance (HRA), conveyance, overtime, and bonuses—cannot exceed 50% of the employee’s total remuneration (CTC). If they do, the excess amount must be added back into the statutory definition of “wages”.

Calculation of Gratuity and PF

This change directly impacts the calculation of Provident Fund (PF) and Gratuity, as both benefits are calculated based on the defined “wages”.

PF Contribution: Since the statutory “wage” base is likely to increase for employees who previously had a small Basic Pay component, the employer’s and employee’s mandatory contribution to PF will also rise. This means a higher payout for both and a shift in the overall CTC structure.

Gratuity Eligibility: Under the Code on Social Security, gratuity eligibility is drastically reduced for Fixed-Term Employees (FTEs) from five years of continuous service to just one year. Furthermore, a higher ‘Wage’ base means the final gratuity payout upon separation will be significantly higher for a large section of the formal workforce.

The New Role of Fixed-Term Employment (FTE)

The Industrial Relations Code formally introduces Fixed-Term Employment (FTE), placing these workers on par with permanent employees in terms of wages, benefits, working hours, and social security.

Contract Changes: The new provision incentivises companies to formalise contract work through direct FTE contracts rather than outsourcing through third-party contractors, as it offers employers better cost efficiency and flexibility. FTE contracts will now explicitly outline the full suite of benefits, including the accelerated gratuity and equal wages, leading to more comprehensive and legally secure contracts.

Core vs Non-Core Jobs: While the previous legal framework placed restrictions on engaging contract workers for core or perennial jobs, the new codes offer greater flexibility, especially with the introduction of FTE. However, the legal ease or difficulty in utilising contract workers for core jobs will be defined more explicitly in the forthcoming State Rules, though the overall trend appears to be one of increased flexibility for employers, provided parity of benefits is maintained.

The Gig Economy: Swiggy and Zomato’s Cost Realities

The Code on Social Security is revolutionary, as it legally defines and acknowledges gig workers and platform workers for the first time. The code mandates that aggregators like Swiggy, Zomato, Ola, and Uber must contribute 1–2% of their annual turnover (capped at 5% of payments made to these workers) to a dedicated Social Security Fund.

Cost and Profitability: This contribution will lead to a guaranteed increase in the operating costs for these digital platforms. While the precise impact on profitability and cost of services will vary, the additional liability is almost certain to be passed on, at least partially, to consumers through higher delivery fees or service charges.

Implementation: The implementation will be a complex but highly significant exercise, relying on a unified, Aadhaar-linked Universal Account Number (UAN) for gig workers to ensure their social security benefits are portable across states and platforms.

Layoffs, Retrenchments, and Deregulation

The Industrial Relations Code introduces significant changes to regulations concerning termination and industrial disputes.

Layoffs and Retrenchment: The threshold for industrial establishments that require prior government approval for layoffs, retrenchments, or closures has been raised from 100 to 300 workers. This is a major deregulation designed to provide smaller firms with greater operational flexibility and improve the “Ease of Doing Business” score, though it is strongly opposed by trade unions who fear job insecurity. The Code also mandates the creation of a Reskilling Fund for retrenched workers, funded by employer contributions.

Decriminalisation: Across all four codes, the government has focused on deregulation and decriminalisation. This involves replacing imprisonment with monetary fines for certain compliance defaults, making the penalty system less punitive for first-time or minor administrative offences. This shift towards an “Inspector-cum-Facilitator” system aims to reduce bureaucratic harassment and streamline the compliance process through technology and self-assessment, fostering a less adversarial environment for businesses.

The successful implementation of these codes across all states, and the subsequent digestion of the changes by India Inc, legal and HR consulting firms like TeamLease and Quess, and trade unions, will determine the true long-term trajectory of India’s labour market.