How India’s Labour Codes are Lowering Hiring Barriers

India’s labour landscape is undergoing its most significant transformation in decades following the official implementation of four consolidated Labour Codes on November 21, 2025.

Industry experts suggest that these reforms—the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code—will act as a major catalyst for hiring throughout 2026.

By simplifying 29 fragmented central laws into a unified framework, the codes grant businesses the agility to restructure that was previously hampered by colonial-era regulations.

This structural shift is expected to be particularly visible in labour-intensive sectors such as manufacturing, logistics, and textiles, where companies can now scale operations with greater confidence and significantly reduced legal friction.

Workforce Restructuring and the 300-Worker Threshold

The cornerstone of the new Industrial Relations Code is the significant increase in the threshold for government approval regarding layoffs, retrenchment, and closures.

Previously, any industrial establishment with more than 100 workers required prior government permission to downsize—a requirement that often discouraged small businesses from growing beyond that limit to avoid “regulatory capture.”

The new regime, effective from 2026, has raised this threshold to 300 workers.

This change allows mid-sized firms and MSMEs to “right-size” their workforce in response to market volatility or seasonal demand without navigating lengthy bureaucratic hurdles.

This reform makes inspections facilitative rather than intrusive, helping establishments comply with the law while supporting greater ease of doing business and investment readiness.

Labour Codes: Fixed-Term Employment and Hiring Flexibility

The formalization of Fixed-Term Employment (FTE) has also introduced a new paradigm for workforce planning.

Companies can now hire skilled professionals for specific, time-bound projects without the complexity of traditional contract labour.

To protect worker interests, the codes mandate that these employees receive the same wages and social security benefits as permanent staff, including a landmark change where they become eligible for gratuity after just one year of service.

This parity ensures that while firms gain hiring flexibility, workers do not lose out on essential protections.

Additionally, the reforms introduce a “digitization-first” compliance model, reimagining the traditional inspector role as an “Inspector-cum-Facilitator” to guide businesses toward compliance rather than imposing immediate punitive actions.

Impact on Emerging Workforce Categories

For the first time in Indian legal history, the new codes provide statutory recognition to gig workers, platform workers, and aggregators.

The Code on Social Security mandates that aggregators contribute between 1% and 2% of their annual turnover toward a social security fund, ensuring a safety net for millions in the digital economy.

Furthermore, the reforms introduce a uniform definition of “wages,” capping allowances at 50% of the total remuneration.

This shift ensures that workers receive higher contributions toward their Provident Fund (PF) and gratuity, as the basic pay component must now constitute at least half of the total salary package.

The government expects these measures, alongside the provision allowing women to work night shifts with mandatory safety protocols, to significantly diversify and expand India’s active talent pool in 2026.

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