As India transitions from the intricate web of 29 legacy labour laws to the streamlined Four Labour Codes (2020/2022), the conversation has shifted from “Why the change?” to “What are the hurdles?“
While the Codes aim to boost the Ease of Doing Business and formalize employment, any reform of this magnitude inevitably faces scrutiny. As a legal consultant, I see these not as flaws, but as compliance challenges and areas for refinement that every HR leader and business owner must understand.
1. The “Take-Home Pay” Paradox
The Code on Wages introduces a universal definition of “wages.” It mandates that allowances (HRA, travel, etc.) cannot exceed 50% of the total remuneration.
- The Intent: To ensure higher Social Security (PF and Gratuity) for workers in the long run.
- The Challenge: Since at least 50% of remuneration must now qualify as “wages,” statutory deductions for PF and Gratuity will rise. For many employees, this means a reduction in their monthly take-home salary. For employers, it results in a higher “cost to company” due to increased gratuity liabilities.
- Latest Update: As per the Central Government notification dated 30 January 2026 (S.O. 454(E)), any person employed in a supervisory capacity and earning above ₹18,000/month is excluded from the definition of “worker” under the Code. This has implications for wage structuring and eligibility for certain protections.
2. Flexibility vs. Security: The 300-Worker Threshold
Under the Industrial Relations (IR) Code, the threshold for companies needing government permission for layoffs, retrenchment, or closure has been raised from 100 to 300 workers.
- The Intent: To provide MSMEs and mid-sized firms the agility to scale or pivot without being trapped in “Inspector Raj” era red tape.
- The Challenge: Critics suggest this might reduce job security for workers in medium-sized establishments. While it encourages hiring by making “firing” less legally daunting, firms must now focus more on internal Reskilling Funds (a new requirement under the Code) to maintain a harmonious workplace.
- Note: States retain discretion to prescribe different thresholds, which may alter compliance obligations regionally.
3. The Complexity of the “Gig” Economy
The Code on Social Security is revolutionary because it legally recognizes “Gig Workers” and “Platform Workers” (think Zomato delivery partners or Uber drivers) for the first time.
- The Intent: To create a Social Security Fund for the unorganized sector funded by aggregators (1–2% of turnover).
- The Challenge: The definitions of “Gig Worker,” “Platform Worker,” and “Unorganized Worker” overlap significantly. This creates a compliance puzzle for startups: Which category does their workforce fall into? While the Code provides for a Social Security Fund, the actual implementation depends on future schemes and precise digital registration frameworks like e-Shram.
4. The “Strike” Notice and Collective Bargaining
The IR Code now requires a 14-day notice before a strike in any industrial establishment. Previously, this was mainly for public utility services.
- The Intent: To prevent sudden work stoppages and encourage conciliation/mediation first.
- The Challenge: Trade unions argue that the expanded notice requirement, combined with prohibitions on striking during tribunal proceedings, significantly narrows the scope for lawful strikes. For businesses, while this ensures continuity, it places a higher burden on HR to resolve grievances through Grievance Redressal Committees before they escalate.
Disclaimer: This content is provided for educational and informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy of the information based on the 2020/2022 Labour Codes and subsequent notifications up to 2026, labour laws are subject to state-specific amendments and judicial interpretations. Implementation timelines and thresholds may vary across states. Readers are advised to consult with a qualified legal professional before making any business or compliance decisions.