The central government’s notification of the four Labour Codes marks the most ambitious consolidation of labour law in independent India. The Code on Wages, the Industrial Relations Code, the Social Security Code, and the Occupational Safety, Health & Working Conditions Code together replace 29 separate laws. The stated objectives are clear: simplify compliance, widen social protection, reduce disputes and enable a modern labour market that can support India’s next phase of growth. These intentions are visible in the provisions highlighted in the official releases—universal minimum wages, the expansion of social security to gig and platform workers, fixed-term employment with parity, higher thresholds for lay-offs, and digital systems for registration and filings.
Yet, once the structural promise of these Codes settles, a more nuanced question emerges: Are these reforms designed only for legislative consolidation, or do they also strengthen the operational ecosystem that gives meaning to rights and obligations? When viewed from the standpoint of both employers and workers, several gaps come into focus—gaps that are not part of the mainstream debate, but will determine whether the Codes achieve the outcomes the government has articulated.
1. The challenge of inter-state harmonisation
Although the Codes create national frameworks, they leave significant room for state-specific rules. This flexibility is well-intentioned, but it creates what can be described as the “micro-variance problem”—small but consequential differences in wage categories, record formats, and inspection norms across states. For companies operating in multiple jurisdictions, these variances translate into duplicated payroll structures and compliance teams constantly re-mapping requirements.
A structured solution lies in a Statutory Harmonisation Passport, a digital compliance profile that consolidates all applicable central and state rules for each establishment. This would allow HR and payroll systems to interpret obligations automatically and generate standardised compliance outputs. It is a technically modest but institutionally powerful reform.
2. Ambiguity in the inspector-cum-facilitator role
One of the most positive features of the Codes is the shift from punitive inspections to a more constructive, facilitative model. But merging the two roles—guiding and penalising—within the same officer risks inconsistent outcomes. Some inspectors may emphasise compliance improvement, while others may focus on penalties.
A more balanced approach is to create two clearly demarcated visit types. A facilitation visit should be the default, scheduled with advance notice and designed purely for advisory engagement. Enforcement visits, on the other hand, should only be triggered by data-based red flags (repeat non-compliance, mismatched returns, or employee complaints). Distinguishing the two not only improves predictability but also protects inspectors from accusations of arbitrariness.
3. Fixed-Term Employment without transparency safeguards
The Industrial Relations Code formalises fixed-term employment (FTE), maintaining wage and benefit parity with permanent staff. For industry, this is a useful tool that aligns hiring cycles with business cycles. But without a transparent audit trail, FTE can also become the instrument through which long-serving employees are denied permanency.
A practical and fair safeguard is the introduction of an FTE Renewal Audit Trail, a quarterly, anonymised dataset that firms submit to regulators. If a designation experiences repeated FTE renewals over a defined period, the employer must either convert the role to permanent or provide business justification. This ensures flexibility without eroding long-term job quality.
4. A social security framework for gig workers without operational clarity
The Social Security Code’s inclusion of gig and platform workers is historic and overdue. However, the real challenge is operational—how contributions will be recorded, credited, and reconciled in an ecosystem where millions of workers are attached to multiple platforms, often simultaneously.
A workable approach is a real-time contribution escrow ledger, where platforms deposit micro-contributions linked to each worker’s earnings. Workers should be able to view their contributions instantly on an app, and benefits should be automatically triggered once thresholds are met. This is not an abstract technological idea; the underlying architecture already exists in India’s digital public infrastructure.
5. A reskilling fund disconnected from labour market demand
The reskilling mechanism under the IR Code aims to support workers who lose employment due to retrenchment or closure. But in its current form, the fund operates in a straight line: employer contribution → fund → worker. There is no integrated link with local industry needs or job openings.
If part of the fund were converted into demand-linked reskilling credits, usable only with accredited training providers tied to verified vacancies, the system would become more meaningful. Workers would train for roles the market actually needs, and employers would benefit from a more job-ready talent pipeline.
6. Over-centralisation in the single-return system
The move to a single registration and single return is a major compliance leap. The risk, however, is that a single portal can also become a single point of failure. Downtime, data glitches or disputes can stall an entire industry’s filings.
A more resilient architecture would be a dual-write system, where every submission is simultaneously stored in a neutral backup archive. In case of outages, firms can upload certified offline submissions that auto-sync later. This ensures continuity without undermining the purpose of the single-window system.
7. Missing foundations for labour-market analytics
Once the Codes come into full force, India will generate large volumes of granular labour data. But unless anonymised, structured datasets are made accessible to researchers, industry bodies, and state governments, policy will continue to be reactive.
A National Labour Data Commons—with strict privacy safeguards but broad analytical access—can generate quarterly labour heatmaps, skills forecasts, and wage-distribution insights. This would help both policymakers and businesses plan with far greater accuracy.
8. Weak uptake incentives for small establishments
Although the Social Security Code allows small firms to voluntarily opt into EPF and ESIC, voluntary systems rarely scale without incentives. MSMEs operate with thin margins and may postpone enrolment indefinitely.
A transitional incentive, such as Tiered Transition Vouchers that partially subsidise employer contributions for the first year if the firm adopts digital payroll, can meaningfully increase participation. Over time, the formalisation benefits will outweigh the initial fiscal cost.
9. Outdated collective bargaining structures for modern work
The Codes continue to rely on traditional trade union structures. But digital, remote, and platform-based work models do not lend themselves to old-style bargaining units.
A forward-looking solution is to legally recognise micro-collective bargaining cells, small digital collectives with limited but enforceable bargaining rights around pay rates or dispute-handling mechanisms. This would modernise labour voice without destabilising existing unions.
10. Tribunal performance judged by speed, not fairness or enforcement
The new codes emphasise time-bound dispute resolution. But fast disposal does not guarantee durable settlements. Enforcement of awards remains weak, and repeated litigation is common.
Tribunals should be evaluated on outcome-based metrics—enforcement rates of awards, frequency of re-litigation, and post-award satisfaction surveys. This shifts the focus from clearing dockets to delivering justice.
A reform that needs operational depth
The government’s consolidation of labour laws is undeniably important. But real reform happens not only in the pages of legislation—it happens in payroll systems, inspector offices, digital registries, training centres, tribunal rooms, and workplaces across the country.
The Codes have laid a clean legal foundation. What they need now is operational depth and institutional design that anticipates behaviour, incentives and ground-level complexity.
India is undertaking labour reform at a scale few nations have attempted. Whether it becomes a model for the world will depend on whether we build the invisible systems that make rights real, resolve disputes quickly and fairly, and help businesses and workers grow together.
Authored by Suketu Thanawala, StraCon Business Advisory & Consultancy Firm.
