India Employment Legislation Changes 2025

Employers in India need to be ready to implement these latest regulations for their employees in 2025

In this article, we will delve into the 2025 Employment Legislation Changes for Employers in India. Let’s understand the key updates and amendments in the new labour laws that are expected to impact employers across various sectors.

These amendments include areas such as data privacy regulations, employment incentive schemes, protection for gig workers, and a consolidated labour code.

Here’s what employers need to know to stay compliant and adapt to the new regulations across India.

India’s New Labour Code 2025

India is preparing to roll out four major labour codes that will replace 29 existing central laws related to wages, social security, occupational safety, and industrial relations.

Although these codes were passed between 2019 and 2020, implementation has been delayed pending the finalisation of state-level rules. Most states have released draft rules, and the central government had also asked all states and Union Territories to complete alignment with central guidelines by 31 March 2025.

Once fully notified, the rollout is expected to occur in phases:

Phase 1: Large enterprises with over 500 employees
Phase 2: Mid-sized companies with 100–500 employees
Phase 3: Small businesses with fewer than 100 employees, which will have up to two years to comply

These reforms aim to create a more unified and simplified regulatory environment for employers and workers alike across the country.

These codes are detailed as follows:

Code on Wages, 2019

The Code on Wages 2019 act standardises minimum wages and ensures timely salary payments. The Code merges four previous laws, the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. It applies to all establishments and employees.

Key Features of the Code on Wages 2019:

Introduces a uniform definition of “wages”.
Minimum wage must not fall below the national floor wage, which will be reviewed every five years.
Salaries must be paid by the 7th of each month; in cases of termination, dues must be cleared within 2 working days.
Basic pay must constitute at least 50% of the total monthly salary.
A minimum bonus of 8.33% of wages is mandatory for eligible workers, even if disputes over higher bonuses exist.
Employees found guilty of sexual harassment may be disqualified from receiving bonuses.
Inspectors can now guide establishments on compliance, in addition to conducting inspections.
Penalties for non-compliance have increased, and certain offences can now be compounded.
Workers now have up to 3 years to file claims.

Code on Social Security, 2020

The Code on Social Security 2020 Act expands access to social welfare schemes such as Provident Fund, gratuity, and maternity benefits. The code merges nine major labour laws, including the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, the Employees’ State Insurance Act, 1948, the Employees Compensation Act, 1923, the Payment of Gratuity Act, 1972, and the Maternity Benefit Act, 1961.

Key Features of the Code on Social Security 2020:

Establishments already registered under existing laws need not re-register.
ESIC benefits now apply to all hazardous industries, regardless of size.
Defines and includes gig workers, platform workers, and others in the social security net.
Aggregators must contribute 1%–2% of their annual turnover towards social security for gig/platform workers.
Fixed-term employees are eligible for gratuity without minimum service requirements.

Industrial Relations Code, 2020

The Industrial Relations Code 2020 Act streamlines mechanisms for dispute resolution and collective bargaining. The code merges the Industrial Disputes Act, 1947, Industrial Employment (Standing Orders) Act, 1946, and Trade Unions Act, 1926.

Key Features of the Industrial Relations Code 2020:

Standing orders are mandatory for establishments with 300+ workers.
Replaces “workman” with “worker” and includes sales promotion staff.
Employers must recognise a sole negotiating union if multiple unions exist.
Threshold for requiring approval on layoffs, retrenchment, and closure raised to 300 workers.
Strikes and mass casual leave (by over 50% workers) require prior notice and conditions.
A reskilling fund will support retrenched workers, funded by 15 days’ wages from employers.
Disputes must be resolved by Industrial Tribunals within one year.

Occupational Safety, Health, and Working Conditions Code, 2020

The Code on Occupational Safety, Health, and Working Conditions 2020 Act enhances workplace safety standards and working conditions across sectors. The code consolidates 13 labour laws, including the Factories Act, 1948, the Contract Labour (Regulation and Abolition) Act, 1970, the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979, the Sales Promotion Employees (Conditions of Service) Act 1976, and others.

Key Features of the Occupational Safety, Health, and Working Conditions Code 2020:

Applies to most workers, excluding those in managerial roles earning above ₹18,000/month.
Health and safety rules extend to all employees.
Overtime requires employee consent and must be paid at double the regular wage.
Annual health check-ups and formal appointment letters are mandatory.
Contract labour rules apply to establishments with 50+ contract workers; restrictions apply to core activity outsourcing.
Women can work night shifts (7 p.m.–6 a.m.) with consent, provided safety measures are ensured.
Employers must cover one annual round-trip travel cost for inter-state migrant workers.
Facilities such as restrooms and changing areas must be inclusive of transgender employees.

New Data Privacy Obligations for Employers

On 3 January 2025, the Indian government released draft rules under the Digital Personal Data Protection Act, 2023 (DPDP Act) for public consultation, marking a significant step towards implementing a formal data privacy framework across all sectors.

Although the Act has often been viewed as primarily affecting IT and ITeS industries, its reach is far broader. The DPDP Act applies to any organisation that processes personal data, regardless of the sector, making it a legal obligation for all industries.

Under this law, consent becomes the core requirement for collecting and processing personal data. In the workplace, employees are considered ‘data principals,’ while employers are classified as ‘data fiduciaries,’ placing a legal responsibility on companies to handle employee data transparently and securely.

The Act also outlines limited scenarios—referred to as “legitimate uses”—where data can be processed without explicit consent. In employment settings, these may include protecting the employer from financial loss, preserving the confidentiality of sensitive business information, or delivering services or benefits requested by employees. However, the boundaries of these exemptions remain somewhat ambiguous and will likely require further clarification once the final rules are released.

Given this, employers should proactively assess their data collection and handling procedures to ensure they are prepared to comply with the DPDP Act. Reviewing internal data policies and updating employment contracts and HR processes will be crucial once the final rules come into effect.

Introduction of a 4-Day Workweek Framework

Under India’s proposed labour code reforms, companies will have the flexibility to adopt a four-day workweek model. This setup would allow employees to take three weekly days off, provided the total working hours still meet the 48-hour weekly limit. To make up for the shorter week, daily shifts could be extended to as much as 12 hours.

While this structure is positioned as a move towards improving work-life balance, it has triggered debate about its possible side effects. Concerns have been raised about longer work days leading to fatigue, reduced productivity, and potential health implications.

In parallel, various states have introduced or considered sector-specific relaxations around working hours. For instance:

The State of Gujarat has exempted IT and ITes firms from the standard working hour rules for two years starting 5 February 2024, under certain conditions.

The State of Karnataka proposed increasing daily work hours to 12 in the IT/ITes/BPO sectors, with a cap of 125 hours over any three-month period. This suggestion faced pushback from trade unions due to concerns about monitoring and the psychological impact on workers.

These developments have led to heightened discussions around working hour compliance, overtime compensation, and internal oversight within organisations.

While the option of a four-day workweek brings flexibility, its success will depend on how well companies manage operational demands, employee wellbeing, and adherence to legal limits.

Employment-Linked Incentives and Strengthened Social Protection

As part of the Union Budget 2024–25, the Central Government introduced three new schemes aimed at encouraging job creation through employment-linked incentives. These schemes provide benefits to employers and first-time employees who have enrolled in the EPFO (Employees Provident Fund Organisation). The 3 Employment Linked Incentive (ELI) Schemes are as follows:

First-Time Worker Support:

This scheme offers direct financial support to first-time formal sector employees who earn up to ₹1 lakh per month and are enrolled under EPFO. Eligible employees will receive a subsidy of up to ₹15,000, disbursed in three installments.

Key features:

Open to new employees across all sectors earning below ₹1 lakh/month.
Enrolment in EPFO is mandatory to qualify.
A direct benefit of up to ₹15,000 is paid in three phases.
Completion of a Financial Literacy course is required before receiving the second instalment.
If employment ends within 12 months, the employer must repay the benefit.
The benefit is available for two years post-EPFO enrolment.

The initiative aims to support around 2.1 crore (21 million) youth and incentivise employers to hire first-time workers.

Manufacturing Sector Incentives:

This scheme supports large-scale hiring in the manufacturing sector by offering additional EPFO-linked incentives to both employees and employers over four years, in addition to the First-Time Employment Scheme benefits.

Incentive Breakdown (shared equally between employer and employee):

Year 1: 24% of wages
Year 2: 24% of wages
Year 3: 16% of wages
Year 4: 8% of wages

Key features:

Applies to first-time workers in the manufacturing sector earning up to ₹1 lakh/month.
Employers must have a 3-year EPFO contribution record.
Minimum hiring requirement: 50 new non-EPFO workers or 25% of the previous year’s EPFO workforce (whichever is lower).
Incentives apply only to directly employed (in-sourced) staff.
Wage cap for incentive calculation: ₹25,000/month.
Employers must sustain the increased workforce level; failure to do so will halt the incentive.
If employment ends within 12 months, the employer must refund the subsidy.
Valid for two years post EPFO enrolment.

This scheme is projected to benefit around 30 lakh (3 million) new hires and their employers in the manufacturing sector.

Employer Reimbursement Scheme:

Employers hiring individuals with monthly wages of up to INR 1 lakh may receive reimbursement of their share of social security contributions, capped at INR 3,000 per employee per month, for a duration of two years.

Key Features:

Applies to employers who increase headcount above the previous year’s EPFO baseline:
- Minimum 2 new hires for companies with fewer than 50 employees.
- Minimum 5 new hires for companies with 50 or more employees.
Covers employees with salaries up to ₹1 lakh/month (not limited to new EPFO enrolees).
Government reimburses up to ₹3,000/month in EPFO contributions per new hire for 2 years.
For employers generating over 1,000 jobs:
Reimbursements will be made quarterly.
Benefits extend to years 3 and 4, following the same scale as the manufacturing scheme.
Not applicable for employees already covered under the manufacturing job scheme.
Offered in addition to the First-Time Employment Scheme.

This scheme is expected to benefit around 50 lakh (5 million) new hires.

Since these schemes were introduced under the interim budget, further clarification on eligibility and implementation details is expected to be included in the full Union Budget for 2025–26.

Employers should also be prepared for expanded responsibilities under the Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) Acts. These changes are designed to improve social security coverage across the workforce and will likely require companies to update payroll systems and contribution processes to remain compliant.

Expanded Social Security Measures for Gig and Platform Workers

The Ministry of Labour and Employment has been actively working on a structured policy to extend social security coverage to gig and platform workers. In 2024, the Ministry initiated detailed consultations with key stakeholders including platform companies, worker associations, industry bodies, and representatives from social security agencies to shape this framework.

As a result of these ongoing efforts, new schemes offering social protection for gig and platform workers are expected to be introduced in 2025. However, several state governments have already launched their own social security initiatives, raising questions about how these will align with the upcoming national-level schemes under the Code on Social Security, 2020.

There are also growing concerns about inconsistencies in how terms like “platform” and “gig worker” are defined across state versus central regulations. This has brought renewed attention to the risk of worker misclassification and the need for clearer legal definitions to ensure uniform application of benefits.

How Beyond Borders HR Can Help You

These 2025 employment legislation changes for India can be challenging for employers to process independently. Beyond Borders HR, a global HR consulting firm, stands ready to assist businesses in understanding and implementing these changes effectively.

With our extensive expertise in global HR practices, we ensure that your organization stays compliant with the evolving regulatory landscape. Reach out to Beyond Borders HR for tailored solutions, expert guidance, and seamless integration of these legislative updates into your HR policies and practices.

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India Employment Legislation Changes 2025