The labour codes redefine wages, empower the worker

The implementation of India’s labour codes marks a decisive shift towards greater financial inclusion of the workforce by embedding social security, income protection, and long-term financial safeguards into the employment relationship. By consolidating multiple fragmented labour laws, the codes aim not only to modernise labour governance but also to ensure that the gains of economic growth are shared more equitably with workers.

While some trade unions have responded with nationwide strike calls, a closer examination of the labour codes reveals that these reforms are fundamentally designed to correct long-standing exclusions and integrate millions of workers into formal systems of financial and social security.

The reform of a definition

One of the most significant financial inclusion outcomes is the reform of the ‘wage’ definition. Establishments which used to pay lower wages (basic pay, dearness allowance and retaining allowance) of just 30%-35% of the total remuneration to reduce social security contributions, will now be required to ensure that wages constitute at least 50% of the remuneration. This will increase social security contribution and benefits, which will lead to higher provident fund (PF) accumulation, pension, and gratuity, thus enhancing long-term social security.

Moreover, fixed-term employees are now entitled to gratuity after completing one year of service. This change recognises the realities of modern labour markets and ensures gratuity payments for fixed-term employment.

For decades, workers engaged on fixed-term contracts contributed productively to enterprises but exited employment without any terminal financial benefit. By extending gratuity coverage, the labour codes convert short-term employment into a mechanism for asset creation and income security. PF, pension and gratuity thus function not merely as a retirement benefit, but as a tool for financial inclusion, enabling workers to build savings, manage life-cycle risks and reduce vulnerability during job transitions.

This change has naturally increased the financial liability of large corporations, including well-known companies such as TCS, Infosys, HCLTech, and L&T, where workforce size and reliance on fixed-term employment are significantly high.

Reports suggesting that companies have been “hit by crores” due to gratuity provisions must be viewed in proper perspective. The financial outgo arising from the new labour codes translates directly into enhanced income security for workers, strengthening their financial capacity and purchasing power. This, in turn, has positive multiplier effects on the economy through increased consumption, savings and social security coverage. The increased social security benefits also signify a more equitable redistribution of value towards labour rather than any erosion of employer interests. This also underscores the success of the labour codes in advancing fairness, dignity, and long-term stability in employment relations.

The macroeconomic impact

Financial inclusion under the labour codes extends well beyond social security benefits for organised sector workers. The expansion of social security coverage to gig, platform and unorganised workers is a landmark reform. For the first time, these workers have been formally recognised within India’s labour law framework, enabling access to insurance, PF mechanisms, and welfare schemes. Portability of benefits across States and employment is particularly significant for migrant and informal workers, who have historically remained excluded from stable financial systems. The Code on Wages further strengthens income security by introducing a universal wage definition, ensuring statutory minimum wages across sectors, limiting arbitrary deductions, and mandating timely payment.

Collectively, these measures stabilise incomes and enhance workers’ ability to participate meaningfully in the formal economy.

The redistribution of income towards workers has important macroeconomic implications. Enhanced income security increases workers’ purchasing power, leading to higher consumption, improved savings behaviour and greater engagement with formal financial institutions. Unlike shareholder income, which may be invested in financial markets or external assets, worker income largely circulates within the domestic economy, generating demand-led growth. From this perspective, the labour codes function as instruments of inclusive growth. By strengthening the financial base of the workforce, they reduce vulnerability to economic shocks and contribute to social stability.

Earlier labour laws were outdated

Despite these advances, sections of trade unions continue to oppose the labour codes, often portraying them as anti-worker reforms. While apprehensions about proper implementation and enforcement are legitimate, blanket opposition overlooks the tangible gains embedded in the legislation. In several instances, strike calls appear to be driven by sheer opposition to reforms than by the substantive provisions of the codes themselves. This risks diluting public understanding of reforms that are, in many respects, pro-worker and welfare oriented. It is also important to acknowledge that labour law reform in a country as large and diverse as India cannot be static. The earlier labour laws had become fragmented, outdated and ill-suited to a rapidly changing labour market. Consolidation into four labour codes simplifies compliance, improves transparency and creates a more predictable regulatory environment which benefits workers and employers.

India’s labour codes should be understood not merely as regulatory restructuring but as a structural intervention aimed at greater financial inclusion. By extending gratuity, expanding social security coverage and closing long-standing legal exclusions, the codes facilitate a gradual but meaningful redistribution of economic value from capital to labour. This shift strengthens income security, enhances financial dignity, and aligns economic growth with social justice. The true success of the labour codes will lie not in resistance or rhetoric, but in ensuring their effective implementation so that every worker becomes an active participant in India’s growth story.

R. Mukundan is President Designate, the Confederation of Indian Industry (CII), and the Managing Director and CEO of Tata Chemicals Limited

Published – February 14, 2026 12:08 am IST