Labour laws and the four labour codes

Detail

1. What labour laws do

• Labour laws are rules that cover five areas:
• wages: how much workers are paid, and when;
• working conditions: hours, leave and rest;
• industrial relations: how employers, workers and unions deal with each other, including disputes and strikes;
• safety: health and protection at the workplace;

• social security: support in old age, sickness, accident or maternity.

• Class 11 view:

• Labour laws mainly help a small regular workforce in the formal sector. These workers can protect their rights, form trade unions and bargain with employers for better pay and conditions.
• Informal workers (casual, self-employed and unorganised workers with no written contract) remain weakly covered.
• So labour law is one reason for the gap between the organised and unorganised sectors (Class 10).

2. Constitutional basis

• Labour is on the Concurrent List (List III, Seventh Schedule).
• Both Parliament and state legislatures can make labour laws.
• This is why every labour code needs state rules as well as central rules before it works fully on the ground.

Entry (List III)	Subject
Entry 22	Trade unions; industrial and labour disputes
Entry 23	Social security and social insurance; employment and unemployment
Entry 24	Welfare of labour, including working conditions, provident funds, employers' liability, workmen's compensation, invalidity and old-age pensions, and maternity benefit

• Directive Principles of State Policy (DPSP) are guidelines for the State. Courts cannot enforce them.
• Art. 39(a): men and women equally have the right to an adequate means of livelihood.
• Art. 41: right to work, to education and to public help in unemployment, old age, sickness and disablement, within the State's economic capacity.
• Art. 42: just and humane conditions of work and maternity relief.
• Art. 43: a living wage and a decent standard of life for all workers.

• Art. 43A: workers' participation in management of industries. It was added by the 42nd Amendment, 1976.

• Fundamental Rights can be enforced in court.

• Art. 23: bans traffic in human beings, begar (forced unpaid work) and forced labour, including bonded labour.
• Art. 24: bans employing children below 14 in factories, mines or other hazardous work.

3. Tripartism

• Tripartism means three parties set labour standards together: government, employers' organisations and workers' organisations (trade unions).
• In India it works mainly through the Indian Labour Conference (ILC), the top tripartite forum.
• Criticism: trade unions say there was little tripartite consultation before the codes were passed.
• The IR Code and the Social Security Code were passed in September 2020, with little debate in Parliament.
• The ILC did not meet before the codes were passed.

4. The four labour codes: consolidation

• 29 central labour laws were merged into four codes [2].

Code	Year	Main old laws it replaced
Code on Wages	2019	Minimum Wages Act 1948, Payment of Wages Act 1936, Payment of Bonus Act 1965, Equal Remuneration Act 1976
Industrial Relations (IR) Code	2020	Industrial Disputes Act 1947, Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946
Code on Social Security (SS Code)	2020	EPF Act, ESI Act, Maternity Benefit Act, Payment of Gratuity Act, Employees' Compensation Act and others
Occupational Safety, Health and Working Conditions (OSH) Code	2020	Factories Act 1948, Contract Labour Act 1970, Inter-State Migrant Workmen Act 1979, Mines Act and others

• Commencement: all four codes came into force on 21 November 2025 [2].
• Aim: fewer overlapping definitions and authorities, more use of technology, and more open, accountable enforcement [2].
• The government says the codes also protect unorganised workers better [2].

• (Verify how far each state has notified its own rules. Labour is a Concurrent subject, so rollout depends on the states.)

• International response: the ILO and the International Social Security Association (ISSA) welcomed the move. They called it a step towards stronger social protection and minimum wage frameworks [3].

5. Code on Wages, 2019

(a) Universal minimum wage

• The old Minimum Wages Act, 1948 applied only to "scheduled employments", a list of jobs named by the government. Workers outside the list had no legal minimum.
• The Code gives a universal minimum wage to all employees, in both the organised and unorganised sectors.

(b) Floor wage

• Floor wage: a base-level wage fixed by the Centre.
• States cannot fix minimum wages below it.
• It may vary by region because living costs differ.
• Purpose: to stop states from competing with each other by keeping wages low.

(c) New definition of "wages": the 50% rule

• Firms often kept basic pay low and paid most of the salary as allowances. Provident fund (PF), gratuity and bonus are calculated on "wages", so this kept workers' benefits low.
• Rule: if allowances and some other payments are more than 50% of total pay (or another share the Centre notifies), the excess is added back to "wages" [8].

• Result: PF, gratuity, maternity benefit and bonus are worked out on a bigger part of pay, so workers get higher future benefits [8].

• Worked example:

• Total monthly pay = ₹40,000. Basic + DA = ₹15,000. Allowances = ₹25,000.
• 50% of total pay = ₹20,000. Allowances go over this by ₹25,000 − ₹20,000 = ₹5,000.
• "Wages" for benefits = ₹15,000 + ₹5,000 = ₹20,000.
• PF at 12%: ₹1,800 (on ₹15,000) → ₹2,400 (on ₹20,000). Take-home pay may fall a little, but savings rise.

(d) The wage ladder (Committee on Fair Wages, 1948; Art. 43)

Level	Meaning
Minimum wage (lowest)	Enough for bare subsistence, plus a little for efficiency
Fair wage (middle)	Between minimum and living wage. Depends on the industry's capacity to pay, productivity and prevailing wages nearby
Living wage (highest)	Enough for a decent life: food, shelter, education, health and some comforts

• Trap: Art. 43 speaks of a living wage, not a minimum wage.

(e) Need-based minimum wage

• A need-based minimum wage is calculated from the needs of a standard working-class family: food, clothing, housing, fuel, education and medical costs.
• 15th Indian Labour Conference (1957) norms:
  • a family of 3 consumption units (the worker, spouse and two children);
  • 2,700 calories a day per adult;
  • 72 yards of cloth a year per family;
  • rent for minimum government housing;
  • fuel, lighting and other items = 20% of the wage.

• Reptakos Brett (1991), Supreme Court: children's education, medical needs, recreation, old age and marriage add another 25%.

• Anoop Satpathy committee (2019) proposed a national minimum wage of about ₹375 a day (July 2018 prices) (verify).

6. Industrial Relations (IR) Code, 2020

(a) Key definitions

• Lay-off: an employer temporarily cannot give work because of a shortage of power or raw materials, a machinery breakdown, piling up of stock or similar reasons. The worker stays on the rolls.
• Retrenchment: the employer ends a worker's service for any reason other than punishment (disciplinary action), retirement, or ill-health. It needs notice and compensation.
• Closure: the workplace shuts down permanently.

(b) Hire and fire: the headline change

• Old rule (Chapter V-B, Industrial Disputes Act, 1947): firms with 100 or more workers needed prior government permission for a lay-off, retrenchment or closure.
• New rule: the limit is now 300 workers [9]. States may raise it further.
• Non-seasonal industrial establishments with at least 300 workers need prior permission from the Centre or state [9].

• For retrenchment, the employer must give three months' notice or pay wages for that period [9].

• Effect: firms with up to 299 workers can cut staff without government permission. This is labour market flexibility.

(c) Standing orders

• Standing orders are a firm's written service rules.
• The threshold rose from 100 to 300 workers [9].
• They must cover [9]:
• classification of workers (permanent, temporary and so on);
• telling workers about hours, holidays, paydays and wage rates;
• termination of employment;
• suspension for misconduct;
• how workers' complaints are handled.

(d) Fixed-term employment (FTE)

• Fixed-term employment: a worker hired on a written contract for a fixed period, e.g. 2 years.
• Wages, hours and benefits are on par with permanent workers doing the same work.
• Gratuity after one year of continuous service, paid in proportion to service. The earlier requirement was five years [7].

• When the contract ends, this is not retrenchment, so no retrenchment compensation is due.

• Why it matters: firms can hire for a project without the burden of permanent hiring. Workers still get equal pay and gratuity.

(e) Strikes

• Strike notice rules now cover all industrial establishments, not just public utility services such as water or power.
• A worker cannot strike without giving notice within 60 days before the strike [9].

• A worker cannot strike within 14 days of giving that notice [9].

• Effect: sudden "flash strikes" are now illegal everywhere. Unions say this weakens their bargaining power.

(f) Negotiating union or council

• A negotiating union or negotiating council speaks for the workers in talks with the employer. The employer then knows who to bargain with.

(g) Worker re-skilling fund

• Each retrenched worker's fund money comes from the employer.
• The employer pays 15 days' last-drawn wages per retrenched worker, or another amount the Centre specifies [9].

• The money must be used within 45 days of the retrenchment, as prescribed [9].

• Worked example: last-drawn wage = ₹600 a day and 100 workers are retrenched.

• Per worker: 15 × ₹600 = ₹9,000.
• Total paid into the fund = ₹9,000 × 100 = ₹9 lakh.

7. Labour market flexibility: the debate

• Labour market flexibility means how easily firms can change the number of workers, working hours and wages, for example through temporary, fixed-term or contract hiring.

For flexibility	Against flexibility
Chapter V-B of the old Industrial Disputes Act made firms afraid to grow past 100 workers, so India has too many small firms (the "missing middle")	Job security becomes weaker
Firms used contract labour to avoid the permanent-staff rules	Bargaining power of unions falls, especially with the strike-notice rules
Firms chose machines over workers (capital intensity) even though India has plenty of labour	Labour standards may fall, a "race to the bottom" where states compete by offering weaker protection
Flexibility may lead to more formal jobs and more labour-intensive manufacturing	Only a small share of the workforce was covered by these rules anyway, so few workers gain and some lose protection

• For globalisation's demand for flexible labour, see globalisation-mnc.

8. Compliance: from inspector raj to facilitator

• Inspector raj means too many inspections, with officials deciding on their own when and how to inspect.

• Result: harassment, bribe-taking (rent-seeking) and high compliance costs, especially for small firms.

• Under the codes:

• Inspector-cum-facilitator: the inspector's role is partly advisory. Enforcement now focuses on guidance, awareness and help with compliance rather than punishment [7].
• Inspections are randomised and web-based, through the Shram Suvidha portal. A computer picks which firms to inspect, which cuts down officials' personal choice.
• Registration, licence and returns are unified: one registration and one return replace many separate filings.

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

• "Factory" threshold raised:
• with power: 10 → 20 workers;
• without power: 20 → 40 workers.

• Units below these limits are not "factories" under the law, so fewer small units have to follow factory rules.

• Women at work:

• Women may work night shifts, and in all types of work, including underground mining and heavy machinery [7].

• This needs their consent and required safety measures [7].

• Inter-state migrant workers are covered, including their definition and entitlements.

• Contract labour rules now apply only where 50 or more contract workers are engaged. The old limit was 20.

10. Code on Social Security, 2020: gig and platform workers

• For the first time, the law recognises new forms of work [4][5]:
• Aggregator: a digital intermediary or marketplace that connects buyers with service providers, e.g. food-delivery and cab apps.
• Gig worker: a person who earns from work outside a traditional employer–employee relationship.

• Platform worker: a person engaged in platform work, i.e. work arranged through an online platform.

• Schemes may be framed for them covering life and disability cover, accident insurance, health and maternity benefits and old-age protection [6].

• Funding: aggregators pay 1–2% of their annual turnover into a Social Security Fund. The payment is capped at 5% of the amount paid or payable to gig and platform workers [4].
• Worked example: an aggregator's turnover is ₹1,000 crore. It pays gig workers ₹300 crore.
  • 1–2% of turnover = ₹10–20 crore.
  • Cap = 5% × ₹300 crore = ₹15 crore.
  • So the actual payment is ₹10–15 crore.

• The fund can also receive money from the government and CSR (corporate social responsibility) [4].

• Before the Code, these workers carried all risks themselves, and aggregators had no duty to contribute [4].

• Appointment letters: for the first time, the law says every employee must get an appointment letter. This formalises the job contract [7].

11. Workers' rights as a business responsibility

• A responsible business gives workers:
• fair pay and safe working conditions;
• non-discrimination by gender, caste or religion;
• training;
• health care and paid leave.

12. Child labour

• Child labour is work that takes away a child's childhood, schooling and health.
• The Child and Adolescent Labour (Prohibition and Regulation) Act, 1986, as amended in 2016:
• bans employing children under 14 in any occupation;
• Exception: a child may help a family enterprise (not in hazardous work) after school hours or in vacations;

• bars adolescents aged 14–18 from hazardous occupations and processes.

• Class 10 data:

• About 60% of India's population is aged 5–29.
• Only about 51% of them are in school or college.
• Many of the rest, especially those under 18, may be child labourers.

13. Bonded labour

• Bonded labour is forced work to repay a loan or advance.
• The debt often passes from parents to children.

• The worker is not free to leave or to work for someone else.

• It was abolished by the Bonded Labour System (Abolition) Act, 1976, which backs up Art. 23.

• Debt bondage still exists, especially in brick kilns and agriculture.

Prelims Hooks

• Labour is on the Concurrent List: Entry 22 covers trade unions and disputes, Entry 23 social security and employment, Entry 24 labour welfare and maternity benefit. It is not on the Union List.
• Art. 43 = living wage. Art. 43A = workers' participation in management (42nd Amendment, 1976). Art. 42 = humane conditions and maternity relief. Art. 41 = right to work (a DPSP, not a Fundamental Right).
• Art. 23 bans forced and bonded labour. Art. 24 bans child labour below 14 in factories, mines and hazardous work. Both are Fundamental Rights.
• 29 central laws → 4 codes. All came into force on 21 November 2025 [2]. The Code on Wages dates from 2019. The other three date from 2020.
• IR Code: the limit for government permission before lay-off, retrenchment or closure, and for standing orders, is 300 workers (up from 100) [9].
• Strike notice: now required in all industrial establishments. Notice must come within 60 days before a strike, and there is no strike within 14 days of notice [9].
• Fixed-term employees: gratuity after 1 year, down from 5 [7]. The end of the term is not retrenchment.
• Re-skilling fund: 15 days' wages per retrenched worker, to be used within 45 days [9].
• Gig workers: aggregators pay 1–2% of turnover, capped at 5% of payouts to gig and platform workers [4].
• Wage ladder: minimum < fair < living (Committee on Fair Wages, 1948). Need-based norms come from the 15th ILC (1957) plus Reptakos Brett (1991).

Mains Points

• Flexibility vs security (GS-III):
• The 300-worker limit and fixed-term employment may help firms grow past the "missing middle" and hire more workers for labour-intensive manufacturing.

• The risks are weaker job security, weaker unions (strike-notice rules for all establishments) and a race to the bottom among states, which can raise the limits further.

• Formalisation of the informal workforce:

• Tools include a universal minimum wage, a floor wage, the 50% wage rule, appointment letters and social security for gig workers backed by aggregator payments [4][7][8].

• But these rules mean little for most informal workers without registration (e.g. e-Shram), portable benefits and state-level enforcement.

• Cooperative federalism and tripartism (GS-II):

• Labour is a Concurrent subject, so the codes succeed only when states notify their rules.

• The lack of ILC consultation shows a gap in social dialogue, which the ILO stresses even as it welcomed the codes [3].

• Ease of doing business vs worker protection:

• Randomised web-based inspections (Shram Suvidha) and an inspector-cum-facilitator cut rent-seeking [7].
• Higher factory and contract-labour limits (20/40 and 50) take more small units out of safety law. That can hurt workers' safety in the MSME sector.