How New Labor Codes in India Will Reshape Total Rewards Strategies

On Friday, Nov. 21, the Indian national government finalized four codes that will serve as the basis of a unified, modern labor framework.

The four codes that completed the “notification” process replace 29 separate central labor laws, many of which dated back to pre- and early post-independence decades (1930s to 1950s).

The code consolidation aims to reduce compliance complexity, as organizations previously dealt with dozens of “returns, licenses and registers.” Now, the system is envisioned as one registration, one license and one return.

This simplification matters as it lowers the “bureaucratic friction” for employers. For HR functions and their total rewards (TR) teams, it likely means fewer legacy compliance headaches and a more consistent regulatory baseline across states and sectors.

Implications and Risks

The ramifications for HR/TR leaders are significant, but here are several specific things they should watch out for:

• Cost impact. Expanded benefit eligibility, social security contributions, gratuity for fixed-term staff, and possibly higher basic pay or minimum wages can significantly increase employer costs. TR and finance need to run cost scenarios, budget forecasts and potential margin impacts.
• Payroll restructuring. With a broader definition of “wage,” many allowance-based compensation structures may become noncompliant. Employers may need to rework “cost-to-company (CTC) to take-home pay” designs, affecting tax structure, employee expectations and rewards communications.
• Complex employment types simplified, but HR complexity grows. The inclusion of gig, contract, fixed-term and platform workers means HR/TR must manage far more varied workforce populations, ensuring fairness, compliance, documentation, benefits continuity and clarity.
• Compliance risk if state rules lag. While the central codes have gone through notification, many detailed state-level rules and implementing regulations have yet to do so. Until state-specific rules are live, some ambiguity remains and employers must track state-wise notifications closely.
• Cultural and change management challenges. Employees used to older pay structures/benefits may see changes (or perceive loss). Transparent communication, holistic benefit design (beyond pay) and trust-building will be critical for HR/TR.

Why This Matters Beyond Legal Compliance

For many Indian organizations — especially those with large, diverse or contingent workforces — the new labor codes offer a unique opportunity:

• To see TR not as a set of allowances but as a cohesive, equitable and transparent package that includes basic pay, social security, health, safety, contract clarity and portability.
• To build trust and fairness by leveling the playing field for permanent, contract, gig and platform workers. This can become a differentiator in talent attraction and retention, especially in sectors with high contract or gig work penetration (e.g., retail, logistics, tech services, manufacturing).
• To enable better workforce planning by simplifying compliance and uniformity across sectors/states, helping organizations scale their workforce across geographies with predictable regulatory overhead.
• To align with global practices by modernizing labor regulations that balance worker welfare and business flexibility; this likely will resonate with global expectations for environmental, social and governance (ESG) programs.

If handled thoughtfully, these codes can help HR and TR leaders design a workforce architecture for the rest of this decade and beyond.

The To-Do List

To account for the changes, HR and TR leaders should consider taking the following actions over the next 90 days:

1. Map workforce composition. Identify permanent, contract, fixed-term and gig/platform workers across the organization.
2. Review compensation structures. Check if current salaries, allowances and bonus structures comply with the new definitions (e.g., wages, minimum pay, gratuity eligibility, equal pay).
3. Revise employment contracts and appointment letters. Ensure every worker — permanent or otherwise — has a compliant, transparent contract.
4. Engage finance and payroll. Run cost-impact scenarios, update payroll systems, and ensure correct computation of wages, benefits, gratuity and social security contributions.
5. Design an inclusive TR strategy. Extend benefits, safety nets, welfare, health and social security to all workforce categories — not just core employees.
6. Prepare a communication plan. Clearly explain to employees what the changes mean and why salary/benefits or pay structure might change, what new protections they get and how portability/contract benefits work.
7. Monitor rules and notifications by states. Keep track of state-level notifications that will flesh out detailed implementation rules for occupational safety and health, social security, working conditions, etc.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Benefits
• Employee Experience
• Total Rewards