Centre-state collaboration: A must for effective labour reforms

From national floor wages to fixed-term employment, the reforms introduce long-awaited changes, but uniform state-level adoption is key to avoiding fresh complexity

India’s labour law reform is among the most consequential structural changes in decades. By consolidating 29 central legislations into four comprehensive Labour Codes—the Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code—the government has laid the groundwork for a modern, inclusive, and competitive industry ecosystem.

 

The promise is clear: simpler compliance, better worker protection, and greater flexibility for employers. Yet, as with any major reform, the true impact will depend on how quickly ambiguities are resolved and how effectively the Centre and states work in lockstep to ensure uniform implementation.

 

In line with key reform recommendations from the Confederation of Indian Industry, the new codes aim to tackle long-standing and material issues faced by industry. First, they tackle fragmentation and inconsistency by replacing overlapping statutes with a unified architecture, supported by single registration and consolidated returns—changes that cut administrative friction and  inspection delays.

 

Second, they aim to raise and stabilise incomes at the bottom through a national floor wage that guides states in setting minimum wages, reducing disparities and offering a more predictable earnings baseline for workers. Third, they enable formalisation and transparency by mandating appointment letters, strengthening the definitional logic around wages and benefits, and making pay timelines explicit—measures that reduce disputes and enhance trust. Fourth, the Codes elevate workplace safety and inclusion through periodic health checks at age thresholds, safety committees in larger establishments, and consent-based night work provisions for women, coupled with required safeguards (secure transport and safe conditions).

 

Fifth, they recognise new work models, laying enabling provisions for social security schemes for gig and platform workers—a necessary step toward bringing the informal and tech-enabled economy into the safety net. Sixth, they modernise workforce planning tools by formally recognising fixed-term employment with full statutory benefits, including gratuity after one year, balancing agility for employers with parity and predictability for employees.

 

For India Inc, the upside is compelling. Simplification reduces transaction costs and improves ease of doing business, making expansion decisions more attractive. However, businesses may face additional cost impact especially due to gratuity and leave encashment and in instituting new HR systems and processes, etc. Flexibility in daily scheduling by retaining the weekly cap and overtime safeguards allows plants and service centres to align staffing with demand curves and improve utilisation without eroding breaks or safety norms. Fixed-term roles give businesses the ability to staff seasonally and (execute) projects at speed, while benefit parity makes such roles socially credible and attractive to candidates. For workers, the net effect is greater income security, clearer entitlements, and safer, more inclusive workplaces. These are the foundations on which productivity and retention rise over time. 

As we now look at on-ground implementation, harmonisation of state rules is paramount. Divergences in working hour provisions, overtime rules, statutory bonus thresholds, and compliance artefacts (registers to maintain, returns to file) can recreate the very complexity the codes seek to eliminate. A formal Centre–state harmonisation mechanism—publishing model rules and timelines would help ensure employers do not face conflicting obligations across locations. Equally important is clarity for the non-manufacturing sector on whether state Shops and Establishments Acts or the Codes (read with state rules) prevail for working hours, overtime, leave, and benefits for women in night shifts. Dual applicability without guidance risks inadvertent non-compliance. 

CII further recommends additional measures to ensure the new codes deliver their intended impact. 

One, a truly single-window compliance experience—bringing all states onto Shram Suvidha (or an upgraded unified labour portal) for registrations and filings under both the Codes and Shops and Establishments Acts—will reduce duplication, enable risk-based inspections, and create clean audit trails. Industry also needs transition guidance given that the central and states' rules are not yet notified. 

Second, the labour codes give India Inc. welcome flexibility to structure daily shifts as long as the weekly cap of 48 hours is respected. To ensure compliant shift design, the rules should state unambiguously that overtime liability accrues only after the weekly threshold of 48 hours—not after eight hours on any given day. 

Third, employers and employees alike need clarity on whether incentives or variable pay fall within “wages” for benefit calculations; which roles meet the “worker” test in practice; and whether manufacturing units can continue to engage contract labour for manufacturing which constitutes core activity as per definition in the Codes. 

Most importantly, for reforms to be effective, prospective implementation is critical as demonstrated in recent reforms, including GST and the Companies Act. 

Coordinated calendars for rule notification, shared digital infrastructure, joint training for inspector-cum-facilitators, and common templates for registers/returns will make compliance genuinely simpler. Regular tripartite check-ins—government, industry, and worker representatives—can identify bottlenecks early and keep the reform on track in letter and spirit. 

With the above steps, the labour codes can achieve what they set out to do: make India’s labour market simpler for business, safer and fairer for people, and stronger for growth. That will be the real measure of success—and the shared task ahead.

 

The writer is President, CII and Chairperson and CEO, EY India