New Labour Codes to reshape Employee benefits, Hiring models and Compliance framework: EY Report
New Delhi [India]November 24 (ANI): A report prepared by Ernst & Young (EY) has highlighted that India’s newly introduced labor laws will bring major changes in areas such as employee benefits, working conditions, hiring models and enforcement mechanisms.
One significant change, according to the report, was the new system for categorizing employees and workers. The category “employee” now includes all employees regardless of role, level or salary, while the term “worker” applies to those engaged in manual, skilled, technical, operational, clerical or supervisory functions.
But supervisory staff earn more ₹18,000 people a month are excluded from the worker category.
The report stated that this new classification has implications for overtime, leave encashment, contract work, dismissal and dispute resolution.
“Employee Includes all regardless of role/level/duties/nature of salary….. Laborer includes manual, unskilled, skilled, technical, operational, clerical or supervisory work Excludes managerial or administrative role Excludes supervisory role exceeding wages ₹18,000 per month”.
The reforms, which took effect on November 21, 2025, consolidated 29 existing labor laws into four comprehensive laws to simplify labor regulations and improve workplace management.
These four laws include the Wages Act, 2019; Social Security Law, 2020; Occupational Safety, Health and Working Conditions Law, 2020; and Industrial Relations Act, 2020.
These replace earlier workplace laws such as the Minimum Wages Act, Payment of Wages Act, Factories Act and Industrial Disputes Act.
Another important change highlighted is the revision of the definition of “wage”, which directly affects workers’ compensation structures. While the definition includes all salary components expressed in money, elements such as vesting, HRA, bonus and overtime are part of the exclusion set.
However, exceptions cannot exceed 50 percent of the total fee; This means that basic pay must constitute at least half of the total salary.
As a result, statutory payments such as PF (Provision Fund) and gratuity are expected to increase, leading to higher cost for employers and reduced take-home pay for employees, the report said.
The regulations introduce changes to bonus eligibility, which will now apply to fixed-term employees who complete one year of service. Overtime pay will be valid for more than 8 hours per day or 48 hours per week, and leave will be redeemed at the end of each calendar year.
The new framework formally recognizes flexible hires, including fixed-term employment, who must have the same pay and benefits as permanent staff. There are no restrictions on the number or duration of such recruitment.
Regulations on contract labor have been tightened, with restrictions on employing these people in essential activities (with exceptions) and legal liability imposed on the principal employer.
The rules introduce online auditing programs, stricter compliance liability for employers and prosecution for repeat violations. Employees will now be able to submit their complaints directly to the court.
The report recommends organizations redesign payroll structures, review employee classifications, update internal controls and review HR policies in line with the new provisions. (MOMENT)
