Labour codes: Focus on empathy and not just efficiency

The consolidation of 29 archaic labour laws into four comprehensive new codes—on wages, social security, industrial relations and occupational safety—is among the most significant structural reforms undertaken by India in the post-liberalization era.

- TULSI JAYAKUMAR

is professor, economics and executive director, Centre for Family Business & Entrepreneurship at Bhavan's SPJIMR.

For a nation struggling to formalize a vast and disparate workforce, this move promises simplification, universal coverage and better alignment between employer compliance and worker welfare. It marks a leap towards a predictable, dignity-assuring and future-ready labour ecosystem.

However, the efficacy of any legislation is measured not by its legislative elegance, but by its behavioural implementation. While the codes were designed to formalize informal work and empower the vulnerable—through minimum wages, the inclusion of gig and platform workers under the social security umbrella, etc - their adoption is unlikely to be free of friction. Immediate resistance may arise not from employers faced with a higher compliance burden, but from workers who the law seeks to protect.

At the heart of this challenge lies a shift in the definition of ‘wages’ under the Code on Social Security (2020), which mandates that allowances cannot exceed 50% of total remuneration. Consequently, at least half of an employee's salary must now be classified as basic wages for calculating statutory benefits such as the Employees’ Provident Fund (EPF), Employees’ State Insurance Coverage (ESIC) and gratuity. For millions of organised-sector workers, this may translate into a perceptible reduction in monthly take-home pay. Should an employer’s total cost remain unchanged, the employee will see higher statutory deductions eating into current consumption.