Whalesbook
India is set to implement significant changes to its labour laws with the notification of four new Labour Codes: the Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions (OSHWC) Code. These codes, which consolidate 29 existing laws, are scheduled to come into effect from November 21, 2025.
A key provision requires that an employee's basic salary must constitute at least 50% of their total Cost-to-Company (CTC). This move is intended to prevent companies from artificially keeping basic salaries low while inflating allowances, thereby reducing their obligations towards mandatory retirement benefits like Provident Fund (PF) and gratuity. Calculations for both PF and gratuity are based on an employee's basic pay. Therefore, an increase in basic salary will directly lead to higher contributions towards these funds.
While this reform aims to enhance retirement security for workers by ensuring more substantial contributions to PF and gratuity, it is expected to result in a reduction in the immediate take-home pay for many employees. The increased contributions will be drawn from the existing CTC, meaning less money will be available for immediate disbursement.
The definition of 'wages' has also been unified across the codes to include basic pay, dearness allowance, and retaining allowance, with at least 50% of the total remuneration dedicated to these components. Experts suggest that this standardization will lead to better and more consistent social security benefits.
Other notable aspects of the new codes include universal minimum wages, prohibition of gender discrimination, mandatory double pay for overtime, decriminalisation of minor labour offences, an increased threshold for layoffs (from 100 to 300 workers), formal recognition of work-from-home arrangements, and social security contributions for gig and platform workers.
Impact:
This news has a significant impact on the Indian stock market and Indian businesses as it directly affects employee compensation structures, corporate compliance costs, and HR policies. Companies will need to undertake substantial restructuring of their salary frameworks to align with the new regulations, potentially influencing employee morale and operational expenses. The phased implementation allows for adaptation, but the long-term implications for corporate profitability and workforce management are considerable. Rating: 7/10