New Labour Codes Pros and Cons: Good or Bad for Employees?

Since the four new Labour Codes took effect on 21 November 2025, the debate has been sharp. The government says they simplify the law and extend protection to more workers. Ten central trade unions have opposed them and held a nationwide strike on 12 February 2026. This article sets out the advantages and disadvantages for employees and employers, with the numbers behind each, so you can judge for yourself.

Pros and cons at a glance

Advantages for employees

• Minimum wage for every worker. Earlier, minimum wages applied only to scheduled employments. The Code on Wages covers all workers, and the Centre can set a national floor wage below which no state can go (PIB). No floor wage amount has been notified yet.
• Appointment letters are mandatory, issued on or before joining, in a prescribed format.
• Gratuity after 1 year for fixed-term employees, instead of 5 years. See our guide to gratuity for contract and fixed-term employees.
• Higher gratuity and PF base where allowances exceed half of pay, because the excess is added back to wages (worked example below).
• Social security for gig and platform workers, funded by aggregators at 1% to 2% of annual turnover, capped at 5% of payments to these workers.
• ESIC across India, with no "notified area" condition.
• Women can choose night shifts (before 6 am or after 7 pm) with their consent, with transport and safety measures.
• Re-skilling fund: a retrenched worker gets 15 days' wages from the employer through the fund, credited within 45 days, on top of retrenchment compensation.
• Inter-state migrant workers get an annual lump-sum travel allowance to their native place.

Disadvantages for employees

• Take-home pay can fall. When allowances exceed 50% of pay, wages for PF rise, so the employee's PF deduction rises too (worked example below). The money is not lost; it goes into PF, but monthly cash in hand is lower.
• Easier layoffs in mid-sized units. Prior government permission for layoff, retrenchment and closure is now needed only at 300 or more workers, up from 100. States can raise the threshold further.
• Strike notice everywhere. Every industrial establishment now needs notice within 60 days before a strike, and no strike within 14 days of notice. Earlier this applied only to public utility services.
• Fixed-term hiring in all sectors. Unions argue this can replace permanent jobs; the Code requires fixed-term staff to get the same hours, wages, allowances and benefits as permanent staff doing the same or similar work (LKS).
• Gig benefits are not yet real. Registration has started, but the schemes that will deliver benefits are still to be framed.

Worked example: what the 50% rule does to take-home and gratuity

Take a monthly salary of ₹50,000 with basic + DA of ₹20,000 (40%) and allowances of ₹30,000. Under the Code on Wages, allowances above 50% of total pay are added back to wages:

• 50% of ₹50,000 = ₹25,000. Allowances of ₹30,000 exceed that by ₹5,000.
• Wages for PF and gratuity = ₹20,000 + ₹5,000 = ₹25,000.
• Employee PF at 12%: ₹2,400 on ₹20,000 becomes ₹3,000 on ₹25,000. Take-home falls by ₹600 a month, and the employer's PF contribution rises by the same amount.
• Gratuity for 5 years (wages × 15 ÷ 26 × 5): ₹57,692 on ₹20,000 becomes ₹72,115 on ₹25,000, an increase of ₹14,423.

Check your own structure with the new labour code salary calculator.

Advantages for employers

• Fewer laws: 29 central Acts replaced by 4 Codes, with common definitions.
• Single registration and returns: one registration on the Shram Suvidha portal and one annual return in place of several (Central Rules 2026).
• One contract labour licence can cover several states, valid for five years.
• More flexibility: layoff permission only at 300+ workers, and fixed-term hiring in all sectors.

Disadvantages for employers

• Higher costs where allowances exceed 50% of pay: employer PF and gratuity provisions both rise, as the example shows.
• Payroll restructuring to test every salary against the 50% rule.
• Different rules in each state. Each state notifies its own rules, and on 24 September 2026 the Labour Secretary said 10 states had done so (Business Standard).
• New forms and deadlines, such as updating Shram Suvidha registration by 8 November 2026 and the new gratuity Forms III to V.

Why trade unions oppose the Codes

Ten central trade unions condemned the rollout in November 2025 and called nationwide protests (Al Jazeera). On 12 February 2026 they held a nationwide strike, calling the Codes "pro-employer and an attack on labour rights" (Business Standard). The provisions most debated are the 300-worker layoff threshold, easier hiring and firing, longer factory shifts and night work for women.

Why the government supports them

The government says the Codes simplify compliance, modernise outdated laws and extend minimum wages and social security to more workers, including gig and platform workers. It points to rising employment, from 47.5 crore in 2017-18 to 64.33 crore in 2023-24 (PIB, 21 November 2025).

So, good or bad?

It depends on where you stand:

• Salaried employees gain long-term savings (PF, gratuity) but may see lower monthly take-home.
• Fixed-term, gig and unorganised workers gain the most new protection on paper; for gig workers, the benefits depend on schemes still to come.
• Workers in units of 100 to 299 lose the layoff permission requirement that used to protect them.
• Employers get simpler compliance and more flexibility, at a higher cost per employee where salaries were allowance-heavy.

Related: Labour Codes for IT employees, Labour Codes notes for UPSC and state-wise Labour Code rules tracker.

Frequently asked questions

Are the new Labour Codes good or bad for employees?

Both. They extend minimum wages, appointment letters, gratuity and social security to more workers, but monthly take-home can fall as PF rises, and layoffs need government permission only at 300 or more workers.

Will my take-home salary reduce under the new Labour Codes?

Only if your allowances are more than half of your pay. The excess is added to wages, which raises your PF deduction. For example, on ₹50,000 with ₹20,000 basic + DA, take-home falls by ₹600 a month.

Why are trade unions protesting against the Labour Codes?

Ten central trade unions call the Codes pro-employer. The provisions most debated are the higher 300-worker threshold for layoff permission, easier hiring and firing, longer factory shifts and night work for women.

What is the biggest advantage of the new Labour Codes?

Wider coverage: a statutory minimum wage for all workers, and social security for gig and platform workers for the first time.

Do the Labour Codes increase costs for employers?

Yes, where salaries are allowance-heavy. Employer PF and gratuity both rise when the 50% rule increases wages, though compliance becomes simpler with fewer laws and single registration.

Position as of 30 October 2026. The worked example is an illustration; your figures depend on your salary structure and your state's rules. General information, not legal or tax advice.