Implementing the labour codes will prove to be the most important economic reform since 1991, when a market economy was ushered in by Narasimha Rao’s government. It will mark a turning point in the economic history of our country.
“Finest hour” refers to a moment of great achievement or an admirable action. The phrase was popularised by Winston Churchill in his 1940 speech during World War II, when the British Air Force decisively repelled German air attacks over the English Channel before they could cross over to the British Isles. This battle is famously known as the Battle of Britain. For our present government, its finest hour will be the implementation of the four labour codes, which we have keenly awaited for the past four years.
The four Labour Codes, made effective from 21 November 2025, have far-reaching economic effects — not just on the rate of economic growth, but also on the eradication of poverty in the country. These labour codes subsume 29 existing labour laws, simplifying procedures and compliance requirements.
The codes change the basic structure of wages in such a way that salaried employees will see a marked improvement in their rate of savings, meaning they will be better provided for in their post-retirement years. In the process, the country will also benefit from greatly improved Gross Domestic Savings, helping to accelerate the investment rate. The pace of improvement will largely depend upon the Central Advisory Board tasked with determining floor wages from time to time for casual, gig, and platform workers.
In implementing these reforms, states are left with only one option: to pay wages higher than those notified by the Centre. Under no circumstances can wages be lower than the centrally specified floor wage.
Code on Wages
The first code, the Code on Wages passed by Parliament in 2019, redefines the scope and definition of what is counted as “wages.” It lists in detail the exclusions such as house rent allowance, conveyance allowance, overtime payments, employer contributions towards provident fund, leave encashment, etc. These are not considered part of wages.
Any component of total remuneration not included in the exclusions list will be counted as wages. Further, if the aggregate amount of exclusions exceeds 50% of total remuneration, the excess over 50% will be added back to wages. Since contributions towards provident fund, gratuity, and leave encashment will now be linked to this new definition of wages, the composition of total remuneration becomes very important.
The code applies to all employees of an establishment, irrespective of gender, and covers casual workers, gig and platform workers, permanently employed workers, and those in supervisory, managerial, and administrative roles, including farmers and casual workers employed by them.
What does this mean for salaried employees and the country as a whole?
A) All salaried employees in the country — numbering over 450 million — will see a dramatic increase in their savings. In many cases, their savings could more than double. With average life expectancy having risen to around 71 years, this additional saving has become essential. While there may be a short-term reduction in take-home salary for some employees due to higher provident fund contributions, employers are likely to adjust compensation over time.
B) The country will witness a significant improvement in Gross Domestic Savings (GDS), thereby strengthening private investment capacity — an area of concern in recent years.
C) Most importantly, the reforms will increase money in the hands of casually employed workers (numbering close to 300 million), who so far have had limited purchasing power. This group has long been cash-starved, and any increase in income is likely to be spent immediately on essential needs. This will directly translate into higher demand, energising the economic cycle. Over time, we will see a continuous expansion in demand as more of these workers move into the middle class.
The pace of growth in GDP, the expansion of the middle class, higher consumption, and increased post-retirement savings will depend largely on the Central Advisory Board responsible for recommending floor wages. It is hoped that this body will be progressive and forward-looking. Floor wages should be determined not only to offset inflation but also to reflect productivity growth — as practised in countries like Chile. Linking wages to productivity ensures that workers share in the nation’s economic progress and remain motivated.
Industrial Relations Code
The second code relates to Industrial Relations (IR Code). It streamlines laws governing industrial disputes and trade unions, replacing three existing laws: the Trade Unions Act, 1926; the Industrial Employment (Standing Orders) Act, 1946; and the Industrial Disputes Act, 1947.
Under this code, the threshold for obtaining prior government permission for retrenchment, layoffs, and closure of factories, mines, or plantations has been raised to establishments employing 300 or more workers, up from the earlier threshold of 100. This provides greater flexibility to businesses facing commercial difficulties.
The code also modifies procedures for strikes. Workers cannot go on strike without giving 60 days’ notice. Strikes are prohibited during the pendency of conciliation or arbitration proceedings and for seven days after their conclusion. Similar provisions apply to employers in the case of lockouts.
Occupational Safety, Health and Working Conditions Code
The third code relates to Occupational Safety, Health and Working Conditions (OSH Code). It consolidates thirteen labour laws concerning workplace safety and aims to regulate the safety, health, and working conditions of employees.
The code widens its applicability to include inter-state migrant workers, sales promotion employees, and audio-visual workers. It promotes gender equality by allowing women to work night shifts with their consent and subject to safety safeguards. It also allows inter-state migrant workers to access public distribution system benefits either in their home state or the state of employment. Importantly, the code simplifies registration and licensing systems, in line with the objective of improving ease of doing business.
Social Security Code
The fourth and final code, the Social Security Code, is especially significant for workers in the unorganised sector, including casual, gig, and platform workers. It applies to establishments employing 20 or more workers.
All establishments with 10 or more employees will be covered under the Employees’ State Insurance (ESI) scheme. Even establishments with a single employee will be covered if they deal with hazardous materials.
Gratuity provisions will apply to employees in factories, mines, oilfields, plantations, ports, and also to shops and establishments employing 10 or more persons on any day in the preceding 12 months. Such establishments will also be required to provide maternity benefits.
Establishments engaged in building and construction work will contribute to social security funds through a welfare cess.
The code also emphasises parity in wages, working hours, allowances, and other benefits for workers performing the same or similar work as permanent employees.
We all look forward to witnessing a faster pace of economic growth and a steady reduction in poverty in our country.
B. R. Taneja is a Pune based industrialist.
